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Background The trajectory of Russia's democratic development has long been of concern to Congress and successive Administrations as they have considered the course of U.S.-Russia cooperation on matters of mutual strategic interest and as they have monitored problematic human rights cases. A major question of U.S.-Russia relations is whether Russia can be an enduring and reliable partner in international relations if it fails to uphold human rights and the rule of law. Most analysts agree that Russia's democratic progress was uneven at best during the 1990s, and that the three cycles of legislative and presidential elections held under the leadership of President Vladimir Putin (in 1999-2000, 2003-2004, and 2007-2008) demonstrated serious weaknesses in Russian democratization. After the pro-Putin United Russia Party gained enough seats and allies to dominate the State Duma (the 450-member lower legislative house of the Federal Assembly; the upper house is not directly elected) after the 2003 election, the Kremlin moved to make it more difficult for smaller parties to win seats in the future, including by raising the hurdle of minimum votes needed to win seats from 5% to 7%. Also the election of 50% of Duma deputies in single-member district races, where independent candidates and those from small opposition parties usually won some seats, was abolished, with all Duma members to be elected via party lists. Changes in campaign and media laws also made it more difficult for small parties and opposition groups to gain publicity in the run-up to the December 2007 Duma election. Putin assumed leadership of the ruling United Russia Party and when it gained a two-thirds majority in the Duma election that year, United Russia no longer needed to seek accommodation with the three other parties that won seats in order to pass favored laws, including those amending the constitution. Electoral changes since 2007 included a provision that parties gaining between 5% and 6.99% of the vote would be granted one or two seats, and an increase in the Duma's term from four to five years. At a meeting of United Russia on May 6, 2011, Prime Minister Putin called for the creation of a "broad popular front [of ] like-minded political forces," to participate in the 2011 Duma election, including United Russia and other political parties, business associations, trade unions, and youth, women's and veterans' organizations. Putin also proposed that non-party candidates nominated by these various organizations would be included on United Russia's party list. Critics objected that the idea of the "popular front" was reminiscent of the one in place in the former German Democratic Republic when Putin served there in the Soviet-era KGB. On September 24, 2011, at the annual convention of the United Russia Party, Prime Minister Putin announced that he would run in the March 2012 presidential election. President Medvedev in turn announced that he would not run for re-election, and endorsed Putin's candidacy. Putin stated that he intended to nominate Medvedev as his prime minister, if elected. Until these announcements, the United Russia Party had left the leading slot open on its proposed party list of candidates for the planned December 2011 State Duma election. Putin suggested that Medvedev head the party list, and hence be in charge of assuring that the party win a majority of seats in the December election. In mid-October 2011, Medvedev unveiled his idea of "big government," involving the establishment of a group of his supporters to back the United Russia Party in the Duma election. He stated that during his presidency, he had "tried to develop our party and political system. This was not entirely successful and there were some failures, but nevertheless this is what I tried to do." He also argued that his government had worked to combat corruption and encourage the development of civil society and economic modernization, and should be endorsed by the electorate to continue such work. Some observers suggested that by forming such a political support group, Medvedev aimed to attract more liberal voters who might not normally support the United Russia Party but had favorable views toward Medvedev. A "popular front" program was released on October 24, 2011. Although there were some plans for the program to be the main document used in the elections, the United Russia Party decided after the September 2011 convention to use a compilation of Putin's and Medvedev's speeches, with the program serving a supporting function. The program calls for setting up a retirement system that pays larger pensions to those who voluntarily delay their retirements, lowering taxes on businesses and increasing alcohol and tobacco taxes, raising the drinking and smoking ages, and drawing up an ostensibly more humane criminal code. Despite these proposals, the program appears to emphasize the "stability" of the existing political and economic system over "modernization" initiatives as urged by Medvedev. The election environment in the months leading up to the December 2011 Duma vote seemed to indicate increased public discontent with the current political system dominated by Putin. According to a July 2011 opinion survey by the Russian Levada Center polling organization, 53% of respondents believed that the upcoming Duma election would be "an imitation of an election and seats in the State Duma will be distributed as the authorities wish," and 59% of respondents agreed with a statement that the election was "a struggle of bureaucratic clans for access to the state budget," rather than a free and fair election. In December 2011, Russian analyst Andrey Kolesnikov argued that Medvedev was the symbol of modernization, and that when Putin announced in September 2011 that he would re-assume the presidency, the public became more aware of and discontented with the basic authoritarianism of the political system. The discontent was evidenced by two incidents involving Prime Minister Putin, one when he was booed when he appeared at a boxing match on November 20, 2011, and another when some Communist Party and Just Russia Party deputies refused to stand up on November 23, 2011, when he entered the State Duma to address the body. The Campaign By the end of October 2011, all seven legal political parties had been approved by the Central Electoral Commission (CEC) to run in the December 4, 2011, Duma election. Four of these—the ruling United Russia Party, the Communist Party, the Liberal Democratic Party of Russia (LDPR), and Just Russia—already held seats in the State Duma, so they enjoyed an easy process of registering for the election. The other three—Patriots of Russia, Yabloko, and Right Cause—had to each obtain 150,000 signatures in order to run. Of these parties, Just Russia is a social-democratic party, the LDPR and Patriots are nationalist parties, and Right Cause and Yabloko are centrist-liberal parties. To make the United Russia Party more appealing, the list of candidates fielded by the party included nearly 200 non-party members who were added to the ticket during "primaries" held with the "popular front." Some oppositionists belonging to parties that had been refused registration called for a boycott of the election or the spoiling of ballots, while others urged the public to vote for any party but United Russia. A short campaign season officially lasted from November 5 to December 2. Russia permitted the Organization for Security and Cooperation in Europe's Office for Democratic Institutions and Human Rights (ODIHR), the OSCE's Parliamentary Assembly, and the Parliamentary Assembly of the Council of Europe (PACE) to deploy 325 monitors, about two-thirds less than those permitted in 2003. These monitors were able to visit 1,300 polling stations, as opposed to 2,500 in 2003, arguably an attempt by Russian authorities to limit their observations, according to some critics. Additional election monitors from the members of the Commonwealth of Independent States (CIS) were also invited to participate. As in the previous 2007 campaigning for the Duma, United Russia backers emphasized anti-Americanism and warned against the return of supposed Yeltsin-era populists and demogogues. For instance, in late November 2011, President Medvedev warned that if talks with NATO on cooperative missile defense failed, Russia would deploy tactical nuclear missiles to Russia's Kaliningrad enclave and would break off implementation of START II. The Communist Party and the LDPR also endorsed Medvedev's statement. Opposition leader Boris Nemtsov denounced the statement as a campaign effort to create a "war scare" to rally the public around the United Russia Party, an accusation President Medvedev strongly rejected. During campaign debates on television and in the media, parties running against United Russia referred to it frequently as the "party of crooks and thieves," an expression reportedly invented months previously by anti-corruption fighter and nationalist Alexey Navalny. The phrase reportedly incensed the Kremlin and may well have contributed to an accelerating loss of popular support for the United Russia Party. In one much-discussed debate, LDPR leader Vladimir Zhirinovskiy used the expression, whereupon the United Russia representative retorted that "it is better to be in a party of crooks and thieves than in a party of murderers, rapists and robbers." The private Russian election observation group Golos issued two pre-election assessments that alleged that officials at all levels, including the President and the members of the electoral commissions, were openly campaigning or otherwise supporting the United Russia ticket in violation of electoral laws. These officials had been ordered to maximize the party's vote, Golos alleged, and had pressured public institutions (including colleges and hospitals) and even local businesses to get their employees to vote for United Russia. Golos criticized campaigning by the "popular front" that was not included in the spending limits of the United Russia Party and alleged that Russian security officials increasingly were harassing the NGO during the run-up to the election. During the week before the election, the United Russia Party held a congress where it formally endorsed Putin as its candidate for president. The extravagant congress—held after a September 2011 congress had already proclaimed Putin as the party's prospective candidate—appeared to be an attempt to link Putin's greater popularity more closely to the fate of the party. At the congress, Putin warned that unnamed foreign interests (presumably including the United States) were funding Russian groups to try to influence the election. Three Duma deputies immediately wrote a letter to the Moscow Prosecutor's Office calling for an investigation of whether Golos had violated electoral and NGO laws. CEC chairman Churov also wrote a letter to the prosecutor, stating that he thought that Golos was illegally campaigning against the United Russia Party rather than acting as an NGO. The prosecutor quickly ordered Golos to halt the posting of reported electoral violations on its website and referred the case to a court, which in turn ruled that articles on the Golos website constituted polling in violation of a ban on such activities five days before the election. One regional electoral commission also called for the local prosecutor to block Golos as an election monitor on the grounds that Golos aimed to "oppose the work of the electoral commission." Russian Presidential Human Rights Council Chairman Mikhail Fedotov decried the prosecution of Golos in the final stages of the election. In a final appeal to voters on December 2, Medvedev warned them against electing a fractious Duma, and instead appeared to urge them to support United Russia Party candidates, who would form "a capable legislative body, where the majority is made up of accountable politicians who are able to, in deed, facilitate improvements to the quality of life for our people, whose actions will be guided by the interests of voters, by national interests." Results and Assessments According to the final results reported by the CEC, four parties won enough votes to pass the 7% hurdle and win seats in the Duma (see Table 1 ). United Russia lost 77 of the 315 seats it held since 2007, but it still retained over one half of the seats (238), and more than it had after the 2003 election (224 seats). The losing parties garnered about 5% of the vote (another 1.57% of the votes were deemed invalid). Russian authorities praised the CEC for the turnout of 60.1% of 109.24 million registered voters, a slightly smaller turnout than in 2007 (about 64%), but more than in 2003 (56%). The North Caucasus republics continued their "tradition" of reporting improbably high turnouts and vote counts for the ruling United Russia Party. Despite harsh weather, 99.51% of Chechnya's voters turned out and 99.48% voted for the United Russia Party. According to one observer, these republics deliver reliable support for the government in return for substantial self-rule and federal budgetary assistance. Golos reported that it had long-term monitors in 48 regions and short-term monitors in 40 regions that visited 4,000 polling stations. Because of last minute pressure, however, electoral commissions blocked it from fully monitoring some of the regional elections. In its preliminary report, Golos concluded that the election was characterized by "significant and massive violations of many key voting procedures." It argued that several political parties had been prevented from forming and participating in the election, that electoral commissions had been packed with government officials lacking knowledge of electoral procedures, and that many officials campaigned for United Russia as part of their duties. Golos observers reported instances in which absentee ballots appeared to be abused, groups appearing to be transported from polling place to polling place to vote repeatedly, folded or even tied batches of votes were seen in the ballot boxes, and the counting of votes appeared to violate procedures. The OSCE's preliminary report on the outcome of the election echoed many of the findings of Golos and other observers. The report judged that close ties between the Russian government and the ruling party, refusal to register political parties, pro-government bias of the electoral commissions and most media, and ballot-box stuffing and other government manipulation of the vote marked the election as not free and fair. The report stated that monitors had received numerous credible allegations of attempts by local officials to pressure civil servants, factory workers, and social organization employees into voting for United Russia. The voting process appeared orderly, but the vote count was assessed as bad or very bad in about one-third of 115 polling stations observed. Frequent procedural violations and instances of apparent manipulation were observed, including serious indications of ballot-stuffing in 17% of these polling stations. Vote tabulation was observed to be poor in 16% of 73 territorial electoral commissions. Observers were deliberately obstructed from carrying out their activities in a number of cases. In contrast to the OSCE assessment, observers from the Commonwealth of Independent States reported that the election was "held legally and without serious violations." Although Yabloko did not win any seats, it received enough votes (over 3%) to be able to receive public financing and free airtime in the next election. In addition to the electoral issues mentioned above, several websites belonging to opposition or independent news organizations or civil society NGOs were disabled on election day, allegedly by denial of service attacks, including the Golos website. These cyberattacks have raised concerns by Russian and U.S. observers (including Secretary of State Hillary Clinton; see below) about new efforts to curb freedom of expression on the part of the Russian government. Implications for Russia and Putin Meeting with his supporters the day after the election, Medvedev hailed the "completely free, fair, and democratic election," and argued that the United Russia Party "got more or less what the various sociological agencies predicted…. Discussion and debate between people usually end up producing more balanced decisions.... I therefore think that a 'livelier' and more energetic parliament will be good for our country, and I hope we will have just such a parliament." Putin reported to United Russia officials on December 6 that "United Russia has won a majority, a stable majority. True, there are losses, but they ... would be inevitable for any political force ... that has borne the burden of responsibility for the situation in the country for years." The First Deputy Chief of the Presidential Staff, Vladimir Surkov, asserted that "in a society which is colorful, irritated and far from being united, I repeat that United Russia's 50% is an excellent result…. Attempts to rock the boat and interpret the situation in a negative and provocative light are doomed to failure. Everything is under control. The system is working. Democratic institutions are working." Russian officials denounced the OSCE's preliminary report as biased and hypocritical, but seemed to focus their ire on a statement by Secretary Clinton (see below). United Russia's control of over 50% of the seats and the leadership positions assure the passage of legislation it supports. Some analysts suggest that United Russia will need to seek allies in the Duma in order to pass legislation changing the constitution, which requires a 60% vote. Others discount this as a serious impediment, since the LDPR in particular has usually supported United Russia on major issues. Debate and the tenor of legislation may be affected, however. The minority parties that gained seats in the Duma are socialist-nationalist parties, reflecting increasing "leftist" and nationalist views among the public, according to some polls. The Post-Election Protests On December 4-5, rallies were held in Moscow and St. Petersburg to protest against what was viewed as a flawed election, leading to hundreds of detentions by police. On December 5, about 5,000 protesters held an authorized rally in central Moscow. When many of them began an unsanctioned march toward the CEC, police forcibly dispersed them, reportedly detaining hundreds, including some prominent dissidents. Protest attempts the next two nights were suppressed. The Kremlin quickly mobilized pro-government Nashi and Young Guard youth groups to hold large demonstrations termed "clean victory" to press home their claim that minority groups would not be permitted to impose their will on the "majority" of the electorate. On December 10, 2011, demonstrations under the slogan "For Honest Elections!" were held in Moscow, St. Petersburg, and dozens of other cities. In Moscow, the crowd was estimated by the police at about 25,000 (other estimates were up to 70,000), one of the largest such demonstrations in years. Police presence was massive, but there were few if any detentions. At the rally, Boris Nemtsov, the co-head of the unregistered opposition Party of People's Freedom, issued a list of demands that included the ouster of the CEC head, the release of those detained for protesting and other "political prisoners," the registration of previously banned parties, and new Duma elections. In some other cities, the protests were broken up by police. Additional protests against the election are planned for December 17 and 24, 2011. Some observers suggest that public dissatisfaction over the election may contribute to further unrest, but that security forces appear determined to prevent a "color revolution" such as occurred in Ukraine, Georgia, and Kyrgyzstan after tainted elections. Until the post-election protests, most analysts and observers appeared to discount any effect of the Duma election on the prospects for Putin's (re-)election as president in March 2012. However, the widespread public dissatisfaction with the electoral results appears to have emboldened those who object to Putin (re)assuming the presidency. Since the Duma election, several individuals quickly announced that they intend to run against Putin, including Just Cause's Sergey Mironov, LDPR's Vladimir Zhirinovskiy, Other Russia head Eduard Limonov, retired General Leonid Ivashov, and businessman and former Right Cause head Mikhail Prokhorov. Putin's popularity also may have been further harmed by the perceived problems of the Duma election, in which case he will need to bolster his image in the run-up to the presidential election. Implications for U.S. Interests and Congressional Concerns The Obama Administration selectively has praised Russia for respecting human rights and the rule of law in some areas, but also has stressed that serious problems remain. In the run-up to the election, the Administration mostly avoided open calls for free and fair polling, but reportedly about $9 million in U.S. assistance was provided over several months for voter education and other non-partisan efforts to enhance the electoral environment. The day after the Duma election, on December 5, 2011, Secretary of State Clinton stated that the United States has "serious concerns about the conduct of the elections," as detailed in the OSCE observers' preliminary report, including ballot-box stuffing. She stated that "we are also concerned by reports that independent Russian election observers, including the nationwide Golos network, were harassed, had cyber attacks on their websites, totally contrary to what should be the protected rights of people to observe elections and participate in them and disseminate information." She averred that she was "proud" of Golos and other Russians who attempted to bring about a fair and free and credible election, and that "Russian voters deserve a full investigation of all credible reports of electoral fraud and manipulation." Prime Minister Putin retorted that he considered Secretary Clinton's comments to be a "signal" to the Russian opposition to "begin active work," with State Department help, to foment unrest. He stated that it was "unacceptable" that "foreign money is pumped into electoral processes," and called for new laws to limit such alleged funding. Secretary Clinton responded to Putin on December 8 by stating that while the United States values its relationship with Russia, "the United States and many others around the world have a strong commitment to democracy and human rights.... We expressed concerns that we thought were well-founded ... and we are supportive of the rights and aspirations of the Russian people...." The White House also responded that the United States would continue to speak out about human rights violations in Russia and elsewhere and would continue to seek engagement both with the Russian government and with civil society groups. Seeming to heighten tensions, on December 9, Russian media reported alleged emails between Golos and the U.S. Agency for International Development (USAID) that ipso facto were claimed to show U.S. interference in electoral processes. Also, on December 9, Russian Federation Council Deputy Speaker and United Russia Party official Svetlana Orlova asserted that the CIA was fomenting the opposition demonstrations in Russia. Russian opposition leaders Garry Kasparov and Vladimir Ryzhkov have called for the United States and the European Union not to ignore what they term the flawed election. Kasparov has called for sanctions against Russia's leaders, including by targeting investments and visas, and he has endorsed the sanctions called for by the U.S. Congress as a result of the 2009 death of Sergey Magnitsky while in Russian detention. Ryzhkov calls for PACE to refuse to recognize the credentials of the Russian Duma delegates, for the new EU-Russia Partnership and Cooperation Agreement to include strong provisions on democratization and respect for human rights, and for the EU to impose a visa ban and economic sanctions against Russian officials who commit human rights abuses. Some observers have raised concerns that campaigning by the United Russia Party and Russian political leaders speaking on its behalf during the election could represent a shift in official views of the United States that might damage U.S.-Russia relations. A major element of United Russia's campaign, as mentioned above, included anti-Americanism, in an effort to foster and appeal to ultranationalists and jingoists. It remains unclear whether these anti-American themes will be continued, but if they do, there could be harm to U.S.-Russia relations and cooperation. Such anti-Americanism may play a greater role in Putin's presidential campaign as well as in the campaigns of other prospective candidates. To date, the Administration has not indicated that it would impose travel bans or other sanctions against officials responsible for the Duma election and repression against protesters after the election, as it did in the wake of the 2010 Belarusian presidential election. Some U.S. analysts recently have called for boosting U.S. assistance to Russian civil society and human rights groups. However, Putin's increased criticism of such U.S. aid in recent days may place it in added jeopardy, particularly in the wake of past Russian tightening of reporting requirements and other restrictions on the use of such aid. In mid-December 2011, the Ministerial meeting of the World Trade Organization (WTO) in Geneva is expected to invite Russia to join the WTO. In the period leading up to and after the Russian legislature's ratification of membership in the WTO, perhaps in the Spring of 2012, Congress may consider whether to extend permanent normal trade relations to Russia, or to invoke the non-application provision of WTO rules. Some observers argue that Russia's membership in WTO would enhance the rule of law in Russia, through the necessity of bringing Russian trade legislation and regulations into compliance with WTO rules. Others dispute that the rule of law will be substantially strengthened, unless Western countries continue to press for further reforms. They argue that Congress should either retain the so-called Jackson-Vanik provisions of the Trade Act of 1974 as one means of monitoring human rights and democratization progress in Russia (albeit indirectly, since Jackson-Vanik specifically applies to freedom of emigration), or enact other measures to sanction Russia or restrict U.S. assistance if Moscow violates human rights standards. Many in Congress have had continuing concerns about democratization and human rights progress in Russia, as reflected in calls in recent foreign operations appropriations bills as well as other legislation and hearings for added Obama Administration attention to Russian democratization. Among recent Member attention, Speaker of the House John Boehner in a speech in October 2011, called for conditioning U.S.-Russia relations on Russian progress on democratization and respect for human rights, and offered the support of the House of Representatives for such a policy. On December 2, 2011, members of the U.S. Commission on Security and Cooperation in Europe criticized a court action against Golos just days before the election, and on December 7 criticized the balloting as the "most controversial election in decades." The Commission also raised concerns about the detention of those protesting against what the Commission termed the flawed election. Senator John McCain raised concerns on December 7, 2011, that democratization and human rights have been declining in Russia, as evidenced by the problematic Duma election—as well as by the death of Sergey Magnitsky, the new conviction of Mikhail Khodorkovskiy, and worsening corruption—and called for protesters detained after the election to be released. He also warned that "as Russia's Government grows less tolerant of its own people's rights at home, we should not be surprised if it treats us the same way." Also on December 7, Senators McCain, Joseph Lieberman, and Jeanne Shaheen issued a statement condemning Russian police crackdowns on those demonstrating against the "blatant fraud" of the Duma election and calling for their release. These challenges to Russia's democratic development likely will continue to be of concern to Congress and the Administration as they consider the course of U.S.-Russia cooperation on matters of mutual strategic interest and as they monitor problematic human rights cases. A major question of U.S.-Russia relations is whether Russia can be an enduring and reliable partner in international relations if it fails to uphold human rights and the rule of law.

Challenges to Russia's democratic development have long been of concern to Congress as it has considered the course of U.S.-Russia cooperation on matters of mutual strategic interest and as it has monitored problematic human rights cases. Most recently, elections for the 450-member Russian State Duma (lower legislative chamber) on December 4, 2011, have heightened concerns among some Members of Congress about whether Russia can be an enduring and reliable partner in international relations if it does not uphold human rights and the rule of law. In the run-up to the December 2011 State Duma election, seven political parties were approved to run, although during the period since the last election in late 2007, several other parties had attempted to register for the election but were blocked from doing so. These actions had elicited criticism from the U.S. State Department that diverse political interests were not being fully represented. As election day neared, Russian officials became increasingly concerned that the ruling United Russia Party, which had held most of the seats in the outgoing Duma, was swiftly losing popular support. According to some observers, Russian authorities, in an attempt to prevent losses at the polls, not only used their positions to campaign for the party but also planned ballot-box stuffing and other illicit means to retain a majority of seats for the ruling party. In addition, Russian President Dmitriy Medvedev and Prime Minister Vladimir Putin had increasingly criticized election monitoring carried out by the Organization for Security and Cooperation in Europe (OSCE), and insisted on limiting the number of OSCE observers. Russian authorities also moved against one prominent Russian non-governmental monitoring group, Golos, to discourage its coverage of the election. According to the OSCE's preliminary report on the outcome of the election, the close ties between the Russian government and the ruling party, the refusal to register political parties, the pro-government bias of the electoral commissions and most media, and ballot-box stuffing and other government manipulation of the vote marked the election as not free and fair. The day after the election, about 5,000 protesters rallied in central Moscow against what they viewed as a flawed election. When many of them began an unsanctioned march toward the Central Electoral Commission, police forcibly dispersed them, reportedly detaining hundreds. The Kremlin quickly mobilized pro-government youth groups to hold large demonstrations termed "clean victory" to press home their claim that minority groups would not be permitted to impose their will on the "majority" of the electorate. On December 7, 2011, several U.S. Senators issued a statement condemning Russian police crackdowns on those demonstrating against the "blatant fraud" of the Duma election. On December 10, large demonstrations under the slogan "For Honest Elections!" were held in Moscow and dozens of other cities. At the rally, Boris Nemtsov, the co-head of the unregistered opposition Party of People's Freedom, reflected popular sentiment with a list of demands that included the ouster of the head of the Central Electoral Commission, the release of those detained for protesting and other "political prisoners," the registration of previously banned parties, and new Duma elections. Many observers have raised concerns that public unrest may continue, although security forces appear firmly in control and unlikely to permit the unrest to threaten the government. The Obama Administration has been critical of the apparently flawed Duma election, but has called for continued engagement with Russia on issues of mutual strategic concern. Some in Congress also have criticized the Duma election and the subsequent crackdown on protesters, and Congress may consider the implications of lagging democratization and human rights abuses as it considers possible future foreign assistance and trade legislation and other aspects of U.S.-Russia relations.

Introduction There has been controversy for more than 25 years concerning whether to list sage-grouse for protection under the Endangered Species Act (ESA). As with many controversies over rare species, a theme in the sage-grouse controversy is the use of dwindling resources by both humans and sage-grouse—in this case, broad, unfragmented expanses of sagebrush lands. Loss of habitat is the most common factor leading to species' decline. Sagebrush habitat in the western United States is diminishing and becoming fragmented due to energy development, infrastructure, agricultural conversion, wildfire, invasive plants, and other factors. Although the total remaining sagebrush habitat is vast, its fragmentation is problematic for sage-grouse, which need large treeless areas to discourage the roosting of avian predators and to permit travel between breeding and nesting sites. Thus, fences, roads, drilling rigs, and utility poles can produce a substantial change in available sagebrush habitat, even when the actual surface disturbance is minimal. The sage-grouse ( Centrocercus urophasianus ) is found in 11 western states. The species first appeared as a candidate for listing under ESA in 1991, and its subsequent history with regard to the act has included various petitions, missed deadlines, and lawsuits. Multiple petitions were filed under ESA to ask the Fish and Wildlife Service (FWS, Department of the Interior) to protect the sage-grouse. (See " Chronology of Petitions and FWS Sage-Grouse Action ," below.) Most recently, on September 22, 2015, FWS announced its decision not to list the sage-grouse under ESA, based on the adequacy of existing regulatory mechanisms to protect the species. Some have praised the decision as affording the proper protection through state, local, and private conservation efforts. Others have opposed the decision for varying reasons, including assertions that the existing regulatory mechanisms are not sufficiently protective or that the regulatory mechanisms result in excessive restrictions on land uses. (See " Implementation and Other Issues ," below .) Sage-Grouse Breeding and Biology The sage-grouse is a squat, feathered, chicken-like bird, grayish with a black belly and spiked tail feathers; it is highly prized by hunters. (See Figure 1 .) Sage-grouse have one of the lowest reproductive rates of any North American game bird. Because of this, "its populations are not able to recover from low numbers as quickly as many other upland game bird species." A particular issue has been conservation of the locations where male sage-grouse gather in the spring year after year—areas called leks . The leks are found in open sagebrush areas, usually on broad ridges or valley floors where visibility is excellent and noise will travel well. There, the males strut, raise and lower their wings, fan their tail feathers, and make loud booming noises with the aid of bright yellow inflatable air sacs in their necks. Under optimal conditions, these sounds carry for hundreds of yards. Dozens or even hundreds of males attract the attention of resident females, who survey the offerings of the displaying males, make their choices, and mate. Once mating has occurred, females leave the lek to nest, sometimes at a distance of several miles. Females raise their offspring alone, without help from males. Due to the importance of leks in the breeding cycle, maintenance and protection of traditional lek areas are key concerns for species conservation. Threats to Sage-Grouse Habitat The sage-grouse is vulnerable to multiple interrelated changes in its habitat. The construction of a road in sagebrush habitat, for example, may have diverse effects. Sage-grouse hens may hesitate to cross a road with their chicks. A road can also provide ingress for invasive species such as cheatgrass, which is the primary invasive species threat to sagebrush habitat. The plant tends to appear after an area has been grazed or when roads are developed. The nonnative grass spreads quickly, is disliked as forage by grazing mammals and sage-grouse, and burns more readily than native plants. Moreover, the fire threat posed by cheatgrass could be exacerbated by pervasive drought and climate change. Both the number of fires and the total area burned in sage-grouse habitat have increased in the last 100 years. This example illustrates the links among a range of threats to sage-grouse. Additionally, certain types of development, such as coal-bed methane production and oil wells, introduce standing pools of water into an environment where none existed previously. These pools provide habitat for mosquitoes, and mosquitoes can carry the West Nile Virus. According to the U.S. Geological Survey, the federal agency responsible for tracking wildlife disease, the West Nile Virus is always fatal for the sage-grouse. By 2006, West Nile Virus had been reported among sage-grouse in every state of the sage-grouse's range except for Washington. The various threats cited above also sum to form a larger threat: fragmentation of the sagebrush landscape. Although much of the West is still dominated by sagebrush, much of this habitat is no longer intact. As a result, such areas have become unsuitable for successful breeding. Moreover, because habitats are becoming fragmented, sage-grouse populations are becoming genetically isolated, leaving them more vulnerable. Habitat fragmentation, along with lek protection, is a key concern in species conservation. According to a team assembled by FWS to study the sage-grouse, habitat fragmentation is severely affecting the viability of the species: The primary threat to greater sage grouse is fragmentation. Large expanses of intact sagebrush habitat are necessary to maintain viable sage grouse populations. Only two areas in the 11-state range currently provide such expanses and both are already heavily fragmented and are projected to experience additional significant fragmentation in the foreseeable future. Dramatic population declines and local extirpations have already occurred and future fragmentation and habitat degradation is expected to result in remnant, isolated, and dysfunctional populations of greater sage grouse that are in danger of extinction in the foreseeable future. The sage-grouse was once abundant in 16 western states. Its current range includes portions of 11 states: California, Colorado, Idaho, Montana, Nevada, North Dakota, Oregon, South Dakota, Utah, Wyoming, and Washington. Multiple sources point to a severe decline in the number of sage-grouse; FWS estimates that sage-grouse population numbers may have declined between 69% and 99% from historic to more recent times. FWS also cites data from the Western States Sage and Columbia Sharp-Tailed Grouse Technical Committee, which estimated the decline between historic times and 1999 to have been about 86%. The increasing threats and declining sage-grouse populations eventually led to eight proposals to list the species or portions of the species under ESA. (See " Chronology of Petitions and FWS Sage-Grouse Action ," below.) In making its decision, FWS was required to consider the general requirements for listing a species (see " How Does ESA Work? " below) and the minimum requirements for conservation agreements to be considered adequate to avoid listing. The specific decision not to list the sage-grouse is discussed below in " Why Did FWS Decide Not to List Sage-Grouse? " How Does ESA Work? ESA is intended to protect plants and animals from becoming extinct. It authorizes creating a list of protected species, either endangered (defined as being in danger of extinction) or threatened (defined as likely to become endangered in the foreseeable future). ESA prohibits taking these species, with limited exceptions. In addition, it prohibits federal agencies from jeopardizing the continued existence of listed species and from destroying or adversely modifying listed species' designated critical habitats. FWS is the federal agency that manages most species under ESA. The Secretary of the Interior, acting through FWS, is charged with deciding whether to list a species. ESA specifies that a listing decision is to be based on five criteria: 1. The present or threatened destruction, modification, or curtailment of a species' habitat or range. 2. Overutilization for commercial, recreational, scientific, or educational purposes. 3. Disease or predation. 4. Inadequacy of existing regulatory mechanisms. 5. Other natural or man-made factors affecting a species' continued existence. In making a listing determination, FWS is charged with relying "solely on the basis of the best scientific and commercial data available." FWS may list a species independently, or citizens may petition the agency to make a listing. When a petition is filed, certain deadlines are imposed by statute. FWS must determine and publish a decision in the Federal Register within 90 days of the filing of the petition on whether the petition presents substantial evidence in support of a listing. Within 12 months of filing the petition, FWS must publish a notice on whether listing is warranted. A final decision must be made one year after the 12-month notice. FWS has the option of publishing a determination at the time of a 12-month finding that a listing is "warranted but precluded" due to limited FWS resources. If the adequacy of existing regulatory mechanisms provides the rationale not to list a species, those mechanisms must meet certain criteria, described below. How Do Different Types of Conservation Agreements Qualify to Avoid Listing? Under a candidate conservation agreement with assurances (CCAA), FWS provides incentives to nonfederal property owners to carry out voluntary conservation measures that may help to make listing unnecessary. In return, the property owner receives a permit "containing assurances that if they engage in certain conservation actions for the species included in the CCAA, the owner will not be required to implement additional measures beyond those in the CCAA." Moreover, there will be no additional obligations imposed if the species is listed later, unless the owner agrees. Courts have looked at three criteria in determining the adequacy of existing regulatory mechanisms: 1. Courts have found that voluntary actions are not regulatory ; the protections must be enforceable. 2. Courts define adequate as sufficient to keep populations at a level such that listing will not prove necessary. 3. Existing means the plans for protection must be in place and are not future or speculative. Regarding the first criterion, no court has deemed a voluntary state action as a regulatory action sufficient to avoid federal listing. Even the Ninth Circuit, which found there were adequate regulatory measures to remove the grizzly bear from the threatened species list, expressly ignored the state voluntary actions: "For the purposes of the [existing adequate regulatory mechanisms] determination, however, we need not, and do not consider those [state] measures, some or all of which may not be binding." The second criterion is whether the measures are adequate —that is, sufficient to keep populations at a level such that listing will not prove necessary. Courts have typically looked at the types of measures being taken, in addition to the size of areas being protected, as a way of finding adequacy. For example, in the case of listing steelhead trout, the Northern District of California found that the state protection plans of Oregon and California for this species were voluntary and thus did not count as a regulatory measure. The court also found that a federal plan for protecting the species would cover only 64% of habitat, which was not enough to prevent species' further decline. Therefore, the regulatory measure affecting federal habitat was not adequate to prevent the need for listing. By contrast, in the previously cited case on grizzly bears, the Ninth Circuit held that a plan that would have the force of law on federal lands but would be voluntary on other lands was adequate to protect the grizzly bear because federal lands constituted 98% of the grizzly's primary conservation area. The third criterion is that the regulatory mechanisms be in place— existing —and not future or speculative. One court said it would not consider a new agreement to be an adequate regulatory mechanism and would require a conservation agreement to have a record of two years to be sufficient. Chronology of Petitions and FWS Sage-Grouse Action26 This section provides a brief chronology of major sage-grouse protection actions, beginning with petitions filed in 1999 to list the sage-grouse for protection under ESA and ending with the FWS decision in 2015 not to list the species. Major events are listed below and followed by discussion. Between 1999 and 2005, eight petitions were filed to protect sage-grouse in all or portions of the species' range. Some petitions were rejected because they were not considered substantive enough to be eligible. In 2004, FWS found that three of the petitions (received from 2002 to 2003) were substantive—that is, the petitions presented substantial evidence in support of the listing. In 2005, FWS determined that listing was not warranted. This determination was challenged, questioning the scientific basis for the decision not to list the species. In a 2007 court decision, the District Court for the District of Idaho held that the Deputy Assistant Secretary of the Department of the Interior wrongfully interfered with the listing decision and that FWS did not use the best science as required by ESA. The case was remanded to the agency, and in 2008 FWS issued a notice of status review for the species. In 2010, FWS found that "that the inadequacy of existing regulatory mechanisms is a significant threat to the greater sage-grouse now and in the foreseeable future" and announced that "listing the greater sage-grouse (rangewide) is warranted, but precluded by higher priority listing actions. We will develop a proposed rule to list the greater sage-grouse as our priorities allow." FWS assigned the species a listing priority number of 8 (out of 12, with 1 being the highest priority). In a separate court settlement in 2011, FWS agreed to make a decision on whether to list the sage-grouse by the end of FY2015. A plaintiff not involved in that settlement sued, arguing that FWS was not making expeditious progress in listing the species, as required under ESA, but the court held otherwise. That plaintiff, Western Watersheds Project, had sued to force listing of the sage-grouse prior to the compromise deadline, but the court held that "despite troubling aspects of the FWS decision process," the warranted but precluded finding was not arbitrary or capricious. As part of a court-ordered settlement agreement concerning prior decisions on sage-grouse, FWS filed a work plan in 2011 that committed either to publish proposed rules to list the species or to find that listing was not warranted for sage-grouse by September 30, 2015. On December 16, 2014, the President signed the Consolidated and Further Appropriations Act, 2015, which included a provision to prohibit funding to issue a proposed rule for sage-grouse before September 30, 2015. On September 22, 2015, FWS announced its decision not to list the sage-grouse under ESA, based on the adequacy of existing regulatory mechanisms to protect the species. This decision was published in the Federal Register on October 2, 2015. Why Did FWS Decide Not to List Sage-Grouse? In response to the 2010 FWS finding that sage-grouse warranted ESA listing, federal, state, and private landowners undertook many and varied actions to conserve the species and prevent listing. Secretary of the Interior Sally Jewell later referred to the federal, state, and private collaborative actions to preserve sage-grouse as the most comprehensive conservation effort in the nation's history. As a result, in September 2015, FWS concluded that sage-grouse met the ESA standard of having adequate existing regulatory mechanisms, at several levels. These collaborative, governmental, and nongovernmental efforts are discussed below. Collaborative Mechanisms to Protect Sage-Grouse Many efforts involved multiple agencies and landowners. In 2011, several federal agencies signed a memorandum of understanding to coordinate and cooperate in management of sage-grouse habitat. Also in 2011, Wyoming Governor Matt Mead and then-secretary of the Interior Ken Salazar cohosted a meeting to coordinate a multistate effort to protect sage-grouse across land ownerships. As a result of the meeting, two entities were established: a Sage-Grouse Task Force, chaired by the governor of Wyoming, governor of Colorado, and director of the Bureau of Land Management (BLM), and a Conservation Objectives Team (COT), consisting of FWS and state representatives. The COT team issued a report setting out objectives for the conservation and survival of the sage-grouse. FWS Director Dan Ashe indicated that the report was not only for his use in making decisions regarding the sage-grouse but also for guiding other federal land management agencies, state sage-grouse teams, and others in conserving the species. State and Private Actions Many western states were concerned about the prospect of listing the sage-grouse on the grounds that listing might affect land use through potential restrictions on energy development, grazing, urban development, and other activities. In particular, states were concerned that listing would affect management of BLM and FS lands, where economic uses such as mining, fossil and alternative fuel development, grazing, hunting, fishing, and outdoor recreation may all be important to local and regional economies. To avoid potential adverse impacts on these sectors, states took diverse steps to conserve the species and to avoid a listing. For example, the Western Association of Fish and Wildlife Agencies (WAFWA) developed guidelines for best practices to assist states in managing sage-grouse habitat; WAFWA also signed memoranda of understanding with federal agencies. Some states acted to protect sage-grouse and its habitat to avoid further reductions in numbers. California, Colorado, Idaho, Montana, Nevada, and Wyoming all issued conservation plans whose measures varied but included bag limits; where, when, and whether hunting was allowed; control of nonnative predators; limits on placement of utility lines; vegetative treatments to reduce invading juniper trees; habitat restoration after energy development; and other actions. For private lands, the Natural Resources Conservation Service (NRCS, U.S. Department of Agriculture) has led voluntary conservation efforts through its Sage-Grouse Initiative (SGI), which began in 2010. The SGI uses existing federal conservation programs, namely the Environmental Quality Incentives Program (EQIP) and the Agricultural Conservation Easement Program (ACEP), to provide technical and financial assistance to help farmers and ranchers accelerate installation of conservation practices beneficial to sage-grouse. Examples of approved conservation practices include implementing grazing systems to improve cover for birds, removing invasive conifers from grasslands to improve habitat and increase forage for livestock, and marking or moving fences near breeding sites to reduce bird collisions. The initiative is offered in the 11 western states with areas of high sage-grouse populations. Between FY2010 and FY2015, NRCS through the SGI obligated more than $296 million through 1,289 contracts on more than 5 million acres. In August 2015, NRCS expanded the initiative (referred to as SGI 2.0 ), committing approximately $211 million through FY2018 to bring the total to more than 8 million acres conserved. SGI is part of a larger Working Lands for Wildlife (WLFW) initiative at NRCS. In addition to financial and technical assistance, the WLFW initiative ensures that participating producers who continue to maintain NRCS conservation practices to benefit the targeted species will be considered compliant with ESA for periods as long as 30 years, even if the species is subsequently listed under ESA. BLM and FS Sage-Grouse Strategy and Conservation Plans52 An estimated 271,604 square miles of sage-grouse habitat remain; of this total, two federal agencies manage more than half: BLM manages 45%, and FS manages 6%. In response to the FWS 2010 finding that sage-grouse warranted ESA listing, BLM and FS began a coordinated and cooperative effort to develop and implement a joint conservation strategy to "protect, enhance, and restore sage-grouse and its habitat and to provide sufficient regulatory certainty" to warrant FWS not listing the species. In 2011, both agencies published a notice of intent to prepare environmental impact statements (EISs) to incorporate sage-grouse conservation measures into the agencies' land and resource management plans across the range of the species. The final COT report, mentioned above, other research efforts, WAFWA, state conservation plans, and conservation activities on private lands all contributed to the development of the federal conservation strategy. In 2013, BLM and FS released for public comment and review draft EISs to amend 98 land and resource management plans covering the range of the sage-grouse in 10 states. The final EISs were published in May 2015, and the records of decision were signed in September 2015. These plans establish management goals, objectives, and direction for sage-grouse habitat and conservation on FS and BLM lands but do not require specific on-the-ground activities. However, any FS or BLM project or on-the-ground activity planned within these areas must comply with the management direction established by the plans. The plans build on the multitiered approach identified by WAFWA and state conservation plans and establish different land allocations, with different land management prescriptions, based on habitat conditions. Lands identified as the most valuable habitat will be afforded the highest levels of protection, whereas other lands may permit more flexible management and resource development. The land allocations are identified as follows: Priority Habitat Management Areas (PHMAs): Lands identified as having the highest habitat value for maintaining sustainable sage-grouse populations. Sagebrush Focal Areas (SFAs): Subsets of PHMAs, these lands were identified as having the highest densities of sage-grouse and other criteria important for the persistence of the species. These areas include the highest protections from new surface disturbances, such as mining activities, to protect sensitive habitats. General Habitat Management Areas (GHMAs): Lands that are seasonal or year-round habitat outside of PHMA where some special management would apply to sustain sage-grouse populations. The FS and BLM plans are based on three objectives for conserving and protecting sage-grouse habitat as identified by the final COT report: improve habitat condition, minimize new or additional surface disturbance, and reduce the threat of rangeland fire to sage-grouse and sagebrush habitat. Each of these objectives is briefly summarized below. Improve Sage-Grouse Habitat Condition The plans seek to enhance sage-grouse habitat through varied means. One such means pertains to mitigation by avoiding, minimizing, and compensating for impacts of development. Another relates to consideration for sage-grouse habitat management during the permitting and monitoring processes for livestock grazing, for example. A third involves monitoring and evaluation of population changes, habitat condition, and mitigation efforts. A fourth provides for adjustment of plans to correct for declines in population or habitat. Minimize Surface Disturbances The plans describe several strategies to minimize surface disturbances in sage-grouse habitat, including capping surface disturbances at different levels for different habitat areas. One strategy involves reducing surface disturbances from mineral and energy resource uses, such as locating renewable energy and other projects outside of priority habitat areas. As part of that strategy, the Secretary of the Interior has proposed to withdraw from location and entry under the U.S. mining laws approximately 10 million acres of BLM and National Forest System land in specified sage-grouse habitat in six states, subject to valid existing rights. During the ongoing segregation period, which can last up to two years while the Secretary decides whether to make the withdrawal, the location and entry of new mining claims in these areas are prohibited. During the segregation, BLM is coordinating the National Environmental Policy Act (NEPA) process, including conducting environmental surveys and analyses and inviting public input on the proposed withdrawal. Reduce Wildfire Threat The COT report identified fire, and the post-fire spread of invasive grasses, as one of the most immediate threats to sage-grouse habitat. The FS and BLM plans provide guidance and strategies to address this threat, including positioning wildland fire management resources to maximize response capacity, managing vegetation to reduce fire risk, and promoting the post-fire restoration of native grassland species. Conflicting Views on BLM and FS Plans The BLM and FS plans have received both support and opposition. Supporters have commended the collaborative process that generated the protections on federal and other lands. Some conservationists and others have praised the plans as containing the necessary safeguards for sage-grouse to recover. However, other environmental organizations have objected to the plans as not protective enough of sensitive sage-grouse habitat and called for an ESA listing or more stringent conservation provisions in the plans. Some states, industries, and others have argued that the plans could unnecessarily restrict uses of federal land, including energy and mineral development, livestock grazing, hunting, and recreation. Other questions have centered on whether the federal government or states should take the lead in conserving the sage-grouse. Some states that had adopted conservation plans disputed the need for federal plans or opposed provisions of those plans as in conflict with their own. Some critics questioned whether the plans were based on adequate science. More broadly, other concerns have been raised about the overall protection afforded through federal, state, and local efforts. These efforts eliminated only the ESA listing per se, because they formed the basis for the FWS decision not to list the species. However, some conflated an FWS decision not to list with the opportunity to avoid strong conservation measures. For such individuals, the FWS decision seemed like a "bait and switch" because the effects of the federal, state, and local efforts seemed similar to effects that would have been expected from an ESA listing. Implementation and Other Issues Although controversy over sage-grouse conservation began decades ago with the question of whether the species was depleted enough to need protection, the current debate has turned to the validity of the FWS decision not to list the species and the impacts of the protections that avoided ESA listing, especially the revised BLM and FS land management plans. Among the issues that have been raised by various parties are the following: the efficacy of state management and whether management of federal lands for sage-grouse conservation should be made subordinate to state management; the variation among states in protecting the species from recurring threats, and in some cases the failure to limit activities that pose the greatest risk in a given state, such as energy development in Wyoming or geothermal development in Nevada; whether restrictions on grazing will be implemented soon enough to reduce nest trampling from cattle; whether the decision not to list the species was predicated on the best available science; whether federal land management plans to protect sage-grouse habitat disregard the mandates of BLM and FS for multiple use and sustained yield; and whether any relaxation of land management plans in a manner to favor economic development might increase the possibility that FWS would revisit its decision not to list the species. For these and other reasons, states and interest groups have filed lawsuits. In addition, a number of bills have been introduced in the 114 th Congress to address aspects of sage-grouse conservation on specific lands. Provisions in various bills overlap considerably but include preventing delay of a future listing of the species (e.g., H.R. 4739 ; H.R. 4909 (§2864)/ S. 2943 (§2864)); exempting certain vegetative management practices designed to benefit sage-grouse from the NEPA (e.g., H.R. 1793 / S. 468 ); allowing states to develop their own sage-grouse management plans (e.g., H.R. 1997 / S. 1036 ); allowing state preemption of federal land management plans regarding sage-grouse (e.g., H.R. 1997 / S. 1036 ); reversing prior land withdrawals made to protect sage-grouse (e.g., H.R. 4739 ; H.R. 4909 (§2864)/ S. 2943 (§2864)); and exempting sage-grouse provisions from judicial review (e.g., H.R. 4739 ).

The greater sage-grouse (Centrocercus urophasianus) is a squat, feathered, chicken-like bird that is currently found in 11 western states. For more than 25 years, there has been considerable controversy concerning whether to list sage-grouse for protection under the Endangered Species Act (ESA; P.L. 93-205). On October 2, 2015, the Fish and Wildlife Service (FWS, Department of the Interior) published its decision not to list the greater sage-grouse as threatened or endangered under ESA. Under the act, one of the factors that can lead to a listing is the inadequacy of existing regulatory mechanisms. However, FWS concluded that existing regulatory mechanisms for lands under federal, tribal, state, or local control were adequate to avoid the need to list the species. Before the listing decision, federal, state, and local governments, as well as other stakeholders in the states where sage-grouse are still found had undertaken extensive efforts to develop conservation plans, monitoring, and other actions to obviate the need for listing sage-grouse. These efforts included collaboration across levels of government, action plans by state governments, voluntary federal programs to assist private landowners in conserving sage-grouse habitat, and revisions in the land management plans of federal agencies. To be considered adequate regulatory mechanisms, various courts held that these efforts had to meet certain tests. Prior court cases meant that FWS had to determine, in order to reach its conclusion not to list the species, that the regulatory mechanisms of these various levels of government were (1) in effect at the time, (2) not discretionary, and (3) adequate to avoid the need to list the species. After FWS decided not to list sage-grouse, it fell to other federal agencies and other levels of government to carry out the commitments that had served to avoid listing. All 11 states have plans and programs to address the varying threats to the species in each state. For private lands, the Natural Resources Conservation Service (NRCS, Department of Agriculture) has led voluntary conservation efforts. NRCS uses existing federal conservation programs to help farmers and ranchers benefit sage-grouse. On federal lands, the Bureau of Land Management (BLM, Department of the Interior) and the Forest Service (FS, Department of Agriculture) have had the greatest role in conserving sage-grouse because more than half of the bird's remaining habitat is found on BLM and FS lands. In September 2015, after a review process including public notice and comment, the two agencies signed records of decision amending 98 land and resource management plans covering the range of the sage-grouse. Lands identified as the most valuable habitat will be given the highest level of protection. The plans have three goals: (1) to improve sage-grouse habitat condition; (2) to minimize new or additional surface disturbance; and (3) to reduce the threat of rangeland fire to sage-grouse and sage-grouse habitat. Controversy after the FWS decision has focused particularly on the revised land management and conservation strictures adopted on federal lands. The amended plans are proving controversial with various industries, including energy developers, which argue that the development restrictions on high-value habitat under the plans are placing a burden on their activities that is as restrictive as a decision to list the species. A number of bills and amendments have been introduced in the 114th Congress to address aspects of sage-grouse conservation on specific lands. A common theme in the bills and amendments is a greater role for states in species conservation, with varying amounts of state preemption of federal land management plans. Some measures would provide exemptions from judicial review.

Introduction Insider trading in securities may occur when a person in possession of material nonpublic information about a company trades in the company's securities and makes a profit or avoids a loss. Federal statutes have provisions that either specifically forbid insider trading or have been interpreted by courts to prohibit insider trading. This report discusses some of the key statutes as well as regulations issued by the Securities and Exchange Commission (SEC or Commission) to implement the statutes. The report also discusses some of the most pertinent court decisions on insider trading. Overview of Federal Statutes Related to Insider Trading Securities Act of 1933 The Securities Act of 1933 (1933 Act) makes it illegal to offer or sell securities to the public unless the securities have been registered with the SEC. A registration statement becomes effective 20 days after it is filed with the Commission, unless it is delayed or suspended. Registration under the 1933 Act covers only the securities actually being offered and only for the purposes of the offering in the registration statement. The registration statement consists of two parts: the prospectus, provided to every purchaser of the securities, and Part II, containing information and exhibits that do not have to be provided to purchasers but are available for inspection. Section 7 of the 1933 Act, referring to Schedule A, sets forth the information that must be contained in the registration statement. This schedule requires a great deal of information, such as the underwriters, the specific type of business, significant shareholders, debt and assets of the company, and opinions as to the legality of the stock issue. Section 10(a) of the 1933 Act specifies the information which the prospectus must contain. There are also numerous regulations issued by the Commission which provide additional details about the registration process under the 1933 Act. Certain transactions and securities are exempted from the registration process. The exempted transactions include private placements, intrastate offerings, and small offerings. Among the exempted securities are government securities, bank securities, and short-term commercial paper; all securities for which it is believed that other, adequate means of government regulation exist. Securities Exchange Act of 1934 The Securities Exchange Act of 1934 (1934 Act) is concerned with several different topics, one of which is the ongoing process of required disclosure by covered publicly traded companies to the investing public through the filing of periodic and updated reports with the Commission. Any issuer that has a class of securities traded on a national securities exchange or, in certain circumstances, has total assets exceeding $10 million and a class of equity securities held of record by 2,000 shareholders or 500 shareholders who are not accredited investors must register with the SEC under the 1934 Act. Every issuer required to register under the 1934 Act must also file periodic and other reports with the SEC. Section 12 of the 1934 Act requires the filing of a detailed statement about the company when the company first registers. Section 13, in turn, requires a registered company to file annual and quarterly reports with the SEC. These reports must contain essentially all material information, financial and otherwise, about the company—information that the investing public would need in making an informed decision about whether to invest in the company. Section 14 contains requirements about proxy solicitation. Some exemptions from these reporting requirements are provided. The Commission has issued extensive regulations to specify information that these reports must provide. Failure to disclose material information is actionable. For example, Section 18(a) of the Securities Exchange Act grants an express private right of action to investors who have been injured by reliance upon material misstatements or omissions of facts in reports that have been filed with the SEC. Section 10(b) of the 1934 Act, the general antifraud provision, and Rule 10b-5, issued by the SEC to carry out the statutory fraud prohibition, provide for a cause of action for injuries caused by omissions, misrepresentations, or manipulations of material facts in statements filed with the SEC, as well as in statements other than those filed with the SEC. One provision in the 1934 Act is specifically designed to discourage insiders in the corporation from taking advantage of their inside information in the trading of the corporation's securities. Section 16 of the 1934 Act places sanctions on insiders who use inside information in making short-swing profits. For purposes of this provision, an insider is defined as any "person who is directly or indirectly the beneficial owner of more than 10 percent of any class of any equity security . . . which is registered . . . or who is a director or an officer of the issuer . . . ." Every person who qualifies as an insider under this definition must file a report with the SEC at the time of the security's registration on a national securities exchange or by the effective date of a filed registration statement or within 10 days after he becomes a beneficial owner, director, or officer. If there has been a change in the ownership of the security or if there has been a purchase or sale of a security-based swap agreement involving the equity security, the insider must file the report before the end of the second business day following the day on which the transaction has been executed. To prevent the unfair use of inside information, Section 16(b) permits the company or any security holder to sue on behalf of the company to recover any profit that the person realizes from any purchase and sale or sale and purchase of any equity security of the company within a period of less than six months. Section 10(b) and Rule 10b-5 are used in most cases of insider trading violations, as well as in other kinds of alleged securities fraud. (Some of the major cases are discussed below.) Although Section 10(b) does not refer to specific types of fraud or specific types of insiders, one of its most frequent applications over the years has been to insider trading. The statute states, in relevant part: It shall be unlawful for any person, directly or indirectly by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange . . . (b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, or any securities-based swap agreement any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors. . . . Rule 10b-5, mentioned later along with other SEC regulations that focus more specifically on insider trading, is the general SEC rule used in many securities fraud cases. The rule states: It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange, (a) To employ any device, scheme, or artifice to defraud, (b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or (c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security. Insider Trading Sanctions Act of 1984 According to the House report on the bill, the Insider Trading Sanctions Act of 1984 was enacted because: Insider trading threatens . . . markets by undermining the public's expectations of honest and fair securities markets where all participants play by the same rules. This legislation provides increased sanctions against insider trading in order to increase deterrence of violations. "Insider trading" is the term used to refer to trading in the securities markets while in possession of "material" information (generally, information that would be important to an investor in making a decision to buy or sell a security) that is not available to the general public. The 1984 Act provides that, if the Commission believes that any person has bought or sold a security while in possession of material, nonpublic information, the Commission may bring an action in federal district court seeking a civil penalty. The penalty may be up to three times the profit gained or loss avoided. Insider Trading and Securities Fraud Enforcement Act of 1988 After a number of hearings and considerable debate in the 100 th Congress, President Reagan signed the Insider Trading and Securities Fraud Enforcement Act of 1988. This act expanded the scope of civil penalties that may be imposed against officers and directors who fail to take adequate steps to prevent insider trading. Among other things, the 1988 Act also established a private right of action against the inside trader for buyers or sellers of securities who traded contemporaneously with the insider. Stop Trading on Congressional Knowledge (STOCK) Act of 2012 The STOCK Act, signed into law on April 4, 2012, affirms that insider trading prohibitions apply to Members of Congress, congressional staff, and other federal officials. The STOCK Act also has provisions concerning financial disclosure reporting requirements for legislative and executive branch officials. Examples of Penalties for Insider Trading There are both civil and criminal penalties for insider trading, and the penalties can vary depending on what statutes a trader is found guilty of violating. The 1934 Act sets out the civil penalties for engaging in securities transactions while in possession of material nonpublic information. As mentioned above, the penalty can be up to three times the profit gained or loss avoided. However, willful violations of other provisions, such as Section 10(b), the general antifraud securities provision, may result in other significant penalties, including fines up to $5 million and/or imprisonment for up to 20 years for individuals and fines up to $25 million for businesses. Selected Regulations As stated above, SEC Rule 10b-5, which implements Section 10(b) of the Securities Exchange Act, is apparently the most frequently used SEC rule in lawsuits that charge violations of insider trading prohibitions. However, other SEC rules, some of which specifically target insider trading, are also important. Rule 10b5-1 prohibits trading "on the basis of" material nonpublic information. This rule states that one of the proscribed activities under Section 10(b) and Rule 10b-5 is securities trading "on the basis of material nonpublic information about that security or issuer, in breach of a duty of trust or confidence that is owed" to the issuer of the security, shareholders of the issuer, or another who is the source of the inside information. The regulation defines "on the basis of" to have a kind of knowledge requirement: [A] purchase or sale of a security of an issuer is "on the basis of" material nonpublic information about that security or issuer if the person making the purchase or sale was aware of the material nonpublic information when the person made the purchase or sale. Various affirmative defenses are allowed under the rule, such as the alleged violator's demonstrating that he had entered into a binding contract to buy or sell the security, had instructed another person to buy or sell the security for his account, or had adopted a written plan for trading securities before becoming aware of the material nonpublic information. Rule 10b5-2 sets out duties of trust or confidence in insider trading cases based on the misappropriation of inside information. The misappropriation theory of insider trading is a fairly recent development in securities law. Under the classical theory of insider trading, a corporate insider is prohibited from trading that corporation's securities if the trade is based on inside information and the trader has a fiduciary duty to the corporation's shareholders. In contrast to classical insider trading, the misappropriation theory may hold liable a person who is not actually a corporate insider but has instead been provided inside information in confidence and who breaches a fiduciary duty to the source of the information in order to gain profit or avoid loss in the securities market. Rule 10b5-2 sets out examples of what is meant by "duties of trust or confidence." Such duties include a person's agreement to maintain the disclosed information in confidence; a person's history with the discloser of the inside information indicating an expectation that the recipient of the information will keep the information in confidence; and a person's receiving information from a spouse or close relative, unless the recipient can show that he neither knew nor should have reasonably known or agreed that he would keep the information confidential. Regulation FD is another SEC rule that could prohibit insider trading. Regulation FD addresses selective disclosure. It provides that, when an issuer or any person acting on behalf of an issuer discloses material nonpublic information to certain enumerated persons (typically, securities market professionals and holders of the securities), that issuer or person acting on behalf of the issuer must disclose the information to the public. This disclosure must be made simultaneously with the intentional disclosure to the enumerated persons or as promptly as possible after the disclosure, in the case of a non-intentional disclosure to the enumerated persons. Selected Decisions Illustrating the Use of Section 10(b) and Rule 10b-5 to Prosecute Insider Trading Violations There are numerous cases and administrative proceedings in which Section 10(b) and Rule 10b-5 have been used to prosecute insider trading violations. The following is a brief discussion of some of the most notable of these cases and proceedings. Strong v. Repide Although it was decided 25 years before the enactment of the Securities Exchange Act, Strong v. Repide illustrates that the common law rule of fiduciary duty, which is arguably the idea driving the case law imposing penalties for insider trading, prohibits a company insider from profiting from knowledge that he alone has about the company. According to the Court, a corporate director may not generally have an obligation of a fiduciary nature to disclose to a shareholder the director's knowledge affecting the value of the shares. However, the Court believed that such a duty can exist in special cases and did, in fact, exist in this case because the fraudulent concealment of the identity of a stock purchaser would have affected the value of the stock in question. To wit, the Court stated: "Concealing his identity when procuring the purchase of the stock, by his agent, was in itself strong evidence of fraud on the part of the defendant." The Court went on to state: "The case before us seems a plain one for holding that, under the circumstances detailed, there was a legal obligation on the part of the defendant to make these disclosures." In the Matter of Cady Roberts & Co. In an administrative disciplinary proceeding, In the Matter of Cady Roberts & Co. , the SEC held that Section 10(b) and Rule 10b-5 prohibited insider trading by a person, in this case a broker-dealer, who may not be within the corporation whose stock has been traded, but who has received privileged information about the corporation from someone within the corporation. The case concerned a partner in a brokerage firm who, after receiving a message from a director of the Curtiss-Wright corporation stating that the board of directors had voted to cut the dividend, placed orders to sell some Curtiss-Wright stock before news of the dividend cut was disseminated to the public. The broker was not a corporate insider (i.e., he was not an officer, director, or significant shareholder). However, the SEC held that the broker's conduct violated at least clause (3) of the above-quoted SEC Rule 10b-5 in that the conduct operated as a fraud or deceit on the purchasers and, thus, there was no need to decide the scope of clauses (1) and (2). In determining that there was a violation of clause (3), the SEC appears to have found fraud committed on both the company and on persons on the other side of the market, noting: Analytically, the obligation [not to trade on inside information] rests on two principal elements: first, the existence of a relationship giving access, directly or indirectly, to information intended to be available only for a corporate purpose and not for the personal benefit of anyone, and second, the inherent unfairness involved where a party takes advantage of such information knowing it is unavailable to those with whom he is dealing. In considering these elements under the broad language of the anti-fraud provisions we are not to be circumscribed by fine distinctions and rigid classifications. Thus, it is our task here to identify those persons who are in a special relationship with a company and privy to its internal affairs, and thereby suffer correlative duties in trading in its securities. Intimacy demands restraint lest the uninformed be exploited. The SEC rejected the broker's argument that the obligation to disclose material information exists only in situations involving face-to-face dealings on the grounds that: [i]t would be anomalous indeed if the protection afforded by the anti-fraud provisions were withdrawn from transactions effected on exchanges, primary markets for securities transactions. If purchasers on an exchange had available material information known by a selling insider, we may assume that their investment judgment would be affected and their decision whether to buy might accordingly be modified. Consequently, any sales by the insider must await disclosure of the information. Thus, it appears that this case established that Section 10(b) and Rule 10b-5 extend beyond officers, directors, and major stockholders to others (in this case, a broker-dealer) who receive information from a corporate source. Later cases, discussed below, appear to support this view. Securities and Exchange Commission v. Texas Gulf Sulphur Securities and Exchange Commission v. Texas Gulf Sulphur , a 1968 decision by the U.S. Court of Appeals for the Second Circuit (Second Circuit), effectively supported the SEC's ruling in Cady Roberts by suggesting that anyone in possession of inside information must either publicly disclose the information or not trade the particular stock until the information becomes public. According to the Second Circuit: [A]nyone in possession of material inside information must either disclose it to the investing public, or, if he is disabled from disclosing it in order to protect a corporate confidence, or if he chooses not to do so, must abstain from trading in or recommending the securities concerned while such inside information remains undisclosed. Chiarella v. United States The U.S. Supreme Court appears, however, in 1980 to have somewhat modified the rule of Texas Gulf Sulphur by indicating that, for a fraud to be actionable under Rule 10b-5, there must be a duty to disclose arising from a relationship of trust and confidence between parties to the transaction. Chiarella v. United States involved an alleged violation of Rule 10b-5 by an employee of a financial printer. The employee, who was involved in printing materials related to corporate takeover bids, deduced the names of the target companies from information contained in documents delivered to the printer by the acquiring companies. Without disclosing his knowledge, the employee purchased stock in the target companies and sold the shares immediately after the information was made public, realizing a profit of $30,000. The Second Circuit held that a violation of Rule 10b-5 had occurred and convicted the employee for willfully failing to inform the sellers of the target company securities that he knew of an imminent takeover bid that would increase the value of their stock. The Supreme Court reversed. According to the Court, an employee in this situation did not have a duty to disclose the information. He was not a corporate insider, and he received no confidential information. In addition, no duty arose from the relationship between the printing company employee and the sellers of the target companies' securities. The Court held that a duty to disclose under Section 10(b) and Rule 10b-5 does not arise from the mere possession of nonpublic market information. Dirks v. Securities and Exchange Commission Dirks v. Securities and Exchange Commission could be seen to have gone a little further than Chiarella by indicating that persons not within a corporation who possess inside information are not always liable when trading on this information. The case involved an officer of a broker-dealer who specialized in providing investment analysis of insurance company securities to institutional investors. He received information that the assets of an insurance company were greatly overstated because of fraudulent corporate practices and that regulatory agencies had not acted on charges made by company employees. Although the officer of the broker-dealer did not himself trade the stock, some of his customers did, based on information they received from him. The price of the stock fell, and the SEC began investigations, eventually finding that the officer had violated Rule 10b-5 by repeating the allegations of fraud to investors who later sold their stock in the insurance company. However, because of his role in uncovering the fraud, he received only a censure from the SEC. On appeal, the Supreme Court held that no violation of Section 10(b) had occurred in this case. In order to find a violation of Section 10(b) by a corporate insider, two elements are necessary, according to the Court: (1) the existence of a relationship affording access to inside information intended to be available only for a corporate purpose, and (2) the unfairness of allowing a corporate insider to take advantage of that information by trading without disclosure. However, the duty arises from a fiduciary relationship, in the Court's view. In addition, there must be manipulation or deception to bring about a breach of the fiduciary duty. Here, according to the Court, the insider did not trade on the inside information, nor did he make secret profits. For the officer of the broker-dealer to have a duty to disclose inside information or abstain from trading, the officer must have a fiduciary duty and must have breached that fiduciary duty. The officer in this case had no duty to abstain from using inside information because he had no pre-existing fiduciary duty to the insurance company's shareholders. Therefore, he did not violate Section 10(b) or Rule 10b-5. Carpenter v. United States Seven years after Dirks , the Supreme Court decided another landmark securities case, Carpenter v. United States . In this case, although the Court did not find the defendants guilty under the misappropriation theory of securities fraud, it did discuss the issue. The case arose when R. Foster Winans, a former writer for the Wall Street Journal's "Heard on the Street" column, and others were charged with violations of Section 10(b) and Rule 10b-5. They were also charged with violating the federal mail and wire fraud statutes and conspiracy. In researching information to be used in his column, Winans interviewed corporate executives, but none of the information he obtained was said to have involved corporate inside information. Because of its perceived quality and integrity, the column had the potential for affecting the prices of the stocks that it discussed. The Wall Street Journal's official policy was that, before publication, the contents of the column were its confidential information. However, despite being familiar with this rule, Winans agreed to give Peter Brant and Kenneth Felis, both employees of Kidder Peabody, advance information about the columns. Brant, Felis, and another person, David Clark, bought and sold stocks based on the probable effects of the information that would later appear in Winans's columns. The profits from these trades over a four-month period amounted to $690,000. Kidder Peabody's compliance department eventually noticed correlations between the Winans columns and the Clark and Felis accounts. The SEC began an investigation; Winans and his roommate, David Carpenter, revealed the scheme, and indictments followed. The Second Circuit held that Winans had knowingly breached a duty of confidentiality by misappropriating prepublication information. It found that this misappropriation had violated Section 10(b) and Rule 10b-5 because Winans's deliberate breach of his duty of confidentiality was a fraud and deceit on the newspaper. The Second Circuit also held that Winans had fraudulently misappropriated property within the meaning of the mail and wire fraud statutes. In reviewing the Second Circuit's decision, the Supreme Court was evenly divided concerning these convictions under the securities laws and therefore affirmed, by a vote of four to four, the Second Circuit's opinion. The Court did not elaborate on whether Winans's activities violated the securities laws. It also affirmed the Second Circuit's judgment with respect to the mail and wire fraud convictions without elaboration. United States v. O'Hagan Ten years later, in United States v. O'Hagan , the Supreme Court legitimated the misappropriation theory of securities fraud by finding James O'Hagan guilty of violating Section 10(b) and Rule 10b-5. O'Hagan was a partner in a Minneapolis law firm that represented Grand Metropolitan PLC (Grand Met), a company based in London. Grand Met was interested in acquiring Pillsbury Company (Pillsbury). O'Hagan purchased call options for and stock in Pillsbury after he learned of Grand Met's interest. After the tender offer was publicly announced, Pillsbury stock immediately rose. O'Hagan exercised his options and liquidated his stock, realizing a profit of over $4 million. The SEC indicted O'Hagan on 57 counts, including securities fraud under Section 10(b) and Rule 10b-5. A jury convicted him on all of the counts, but the U.S. Court of Appeals for the Eighth Circuit (Eighth Circuit) reversed, holding, among other things, that the misappropriation theory is inconsistent with Section 10(b). The Supreme Court subsequently reversed the Eighth Circuit. In its decision with respect to the misappropriation theory, the Court found that O'Hagan's fiduciary status and his willful intent to violate that status were sufficient to find him guilty of misappropriating confidential information: [T]he fiduciary's fraud is consummated, not when the fiduciary gains the confidential information, but when, without disclosure to his principal, he uses the information to purchase or sell securities. The securities transaction and the breach of duty thus coincide. This is so even though the person or entity defrauded is not the other party to the trade, but is, instead, the source of the nonpublic information . . . . A misappropriator who trades on the basis of material, nonpublic information, in short, gains his advantageous market position through deception; he deceives the source of the information and simultaneously harms members of the investing public. United States v. Newman A decision late in 2014 by the Second Circuit recently brought increased attention to the issue of insider trading. In this decision, United States v. Newman , the Second Circuit overturned two high-profile convictions for insider trading. The Second Circuit held that the evidence against Todd Newman and Anthony Chiasson, who were analysts for hedge funds and investment funds, could not sustain a guilty verdict. According to the Second Circuit, the government had not adequately shown that the alleged insiders, who were employees of publicly traded technology companies, received personal benefits for providing information to Newman and Chiasson. In addition, according to the court, the government had not presented evidence that the defendants knew that they were trading on inside information obtained from insiders who were violating their fiduciary duties. According to some commenters, this decision "upended the government's campaign" against insider trading because it held that the government must show that the insiders, who in this case allegedly passed on inside information, received personal benefits, presumably of a tangible nature, in order to obtain conviction. Although the federal government sought review of the Second Circuit's decision in Newman from the Supreme Court, the High Court declined to hear the case. Salman v. United States As mentioned above, the Second Circuit's Newman decision required proof of a tangible benefit. However, in its 2015 decision in United States v. Salman , the Ninth Circuit found that it is enough to show that the insider and the tippee (the one who receives inside information) share a close family relationship. The Ninth Circuit took specific note of the Supreme Court's statement in Dirks v. Securities and Exchange Commission , discussed above, that "[t]he elements of fiduciary duty and exploitation of nonpublic information also exist when an insider makes a gift of confidential information to a trading relative or friend ." Salman appealed the Ninth Circuit's decision to the Supreme Court, which granted review. On December 6, 2016, the U.S. Supreme Court in Salman v. United States sided with the Ninth Circuit, unanimously upholding the conviction of Bassam Yacoub Salman for insider trading on tips that he had received from his brother-in-law. The Court agreed with federal prosecutors that a trader can be guilty of violating insider trading prohibitions even if the insider did not receive a tangible benefit, such as money or property, for passing the tip so long as the trader and insider are friends or relatives. In so doing, the Court resolved a difference of opinion between the U.S. Courts of Appeals for the Second and Ninth Circuits concerning what the government must prove in prosecuting insider trading cases. In its Salman decision, the Supreme Court held that the Ninth Circuit had properly applied Dirks in affirming Salman's conviction. The Court first looked to the trial court evidence that had established there were close family and friendship relationships among Salman and others involved in the case. With these close relationships in mind, the Court found that Dirks easily resolved the issue at hand, reiterating the Dirks Court's statement that "a jury can infer a personal benefit—and thus a breach of the tipper's duty—where the tipper receives something of value in exchange for the tip or 'makes a gift of confidential information to a trading relative or friend.'" According to the Court in Salman , when an individual disclosed confidential information to his brother with the expectation that his brother would trade on it, that individual breached his fiduciary duty to his employer, Citigroup, and its clients. Then, when Salman, as a tippee, traded on this information, knowing that it had been improperly disclosed, he too breached a duty of trust and confidence to Citigroup and its clients. According to the Court, it is not necessary that the tipper receive something of a tangible nature; rather, the breach of the fiduciary duty to a trading relative or friend suffices to meet the standard laid out in Dirks. Congressional Interest in Insider Trading No bills concerning insider trading appear to have been introduced, to date, in the 115 th Congress. However, before the Supreme Court's Salman decision, at least three bills were introduced in the 114 th Congress in an attempt to prevent the type of securities trading that would appear to have been allowed under the Newman decision. Two of the bills would have amended Section 10, the general antifraud provision of the Securities Exchange Act, and one of the bills would have added a new provision, Section 16A, to the Securities Exchange Act. H.R. 1173 , 114 th Congress, referred to the House Committee on Financial Services, would have added a new subsection (d) to Section 10. This new subsection would have held a person liable for violating the insider trading prohibition laid out in Section 2(a) of the bill if the person intentionally disclosed "without a legitimate business purpose" information he knew or should have known is material information and inside information. The bill would have defined "should know" to include various factors, such as the person's financial sophistication, knowledge of and experience in financial matters, position in the company, and assets under management. H.R. 1625 , 114 th Congress, also referred to the House Committee on Financial Services, would have added a new Section 16A to the Securities Exchange Act. This section would have prohibited the trading of securities if a person had material nonpublic information about the securities or knew or recklessly disregarded that the information was wrongfully obtained or that the securities transaction would involve a wrongful use of the information. The section would also have prohibited a person from communicating material nonpublic information about securities to others if: (1) others engaged in securities transactions based on the communication and (2) the securities transactions were reasonably foreseeable. The standard for the wrongfulness of a communication is based on information that has been obtained by activities such as theft, breach of a fiduciary duty, or violation of a federal law protecting computer data. Specific knowledge of how the information was obtained is not necessary for a violation so long as the person trading was aware or recklessly disregarded that the information was wrongfully obtained or communicated. The bill would also have authorized the SEC to provide exemptions from these prohibitions by rule if the exemptions were not inconsistent with the purposes of the section. S. 702 , 114 th Congress, referred to the Senate Committee on Banking, Housing, and Urban Affairs, would have added a new subsection (d) to Section 10 of the Securities Exchange Act. This new subsection would have prohibited securities transactions on the basis of material information that a person knew or had reason to know was not publicly available. It also would have prohibited knowingly or recklessly communicating information that was not publicly available if it was reasonably foreseeable that the communication was likely to result in a securities transaction. "Not publicly available" would have been defined in such a way that it would not have included information that a person had independently developed from publicly available sources. The SEC would also have been authorized to provide for exemptions by regulations if it determined that such regulations were necessary or appropriate in the public interest and consistent with the protection of investors. The Supreme Court's decision in Salman may accomplish at least part of the goals of the legislation proposed in the 114 th Congress. However, the Salman decision does not appear to go as far as the bills in prohibiting the act of trading in securities with inside information and disclosing inside information. Salman addressed the issue of whether it is necessary for a tipper to receive something of a tangible nature when providing inside information to a trading relative or friend. However, the bills are not limited to relatives and friends; instead, they appear to prohibit in a broad way the trading of securities by any person who knows or should know that he possesses inside information.

Insider trading in securities may occur when a person in possession of material nonpublic information about a company trades in the company's securities and makes a profit or avoids a loss. Certain federal statutes have provisions that have been used to prosecute insider trading violations. For example, Section 16 of the Securities Exchange Act of 1934 requires the disgorgement of short-swing profits by named insiders—directors, officers, and 10% shareholders. The 1934 Act's general antifraud provision, Section 10(b), is frequently used in the prosecution of insider traders. Although the statute does not specifically mention insider trading but, instead, forbids the use of "manipulative or deceptive" means in buying or selling securities, case law has clarified that insider trading is the type of fraud that is prohibited by Section 10(b). Securities and Exchange Commission (SEC) rules issued to implement Section 10(b), particularly Rule 10b-5, have also been frequently invoked in insider trading prosecutions. With the Insider Trading Sanctions Act of 1984 and the Insider Trading and Securities Fraud Enforcement Act of 1988, Congress enacted legislation that imposed up to treble damages (and in some cases the greater of $1 million or up to treble damages) on persons found guilty of insider trading. More recently, the Stop Trading on Congressional Knowledge (STOCK) Act of 2012 (P.L. 112-105) explicitly stated that there is no exemption from the insider trading prohibitions for Members of Congress, congressional employees, or any federal officials. As noted above, SEC Rule 10b-5 is the most frequently used SEC rule in lawsuits that charge violations of insider trading prohibitions. However, other SEC rules, some of which specifically target insider trading, are also important. There are numerous cases in which Section 10(b) and Rule 10b-5 have been used to prosecute insider trading violations. The most recent case of note is the Supreme Court's decision in Salman v. United States. On December 6, 2016, the Court unanimously upheld the conviction of Bassam Yacoub Salman for insider trading on tips that he had received from his brother-in-law. The Court agreed with federal prosecutors that a trader can be guilty of violating insider trading prohibitions even if the insider did not receive a tangible benefit, such as money or property, for passing the tip so long as the trader and insider are friends or relatives. No bill concerning insider trading appears to have been introduced in the 115th Congress to date. However, several bills, including H.R. 1173, H.R. 1625, and S. 702, were introduced in the 114th Congress before the Supreme Court's Salman decision. The Salman decision appears not to go as far as these bills would have in prohibiting the acts of trading in securities with inside information and disclosing inside information.

Introduction On February 15, 2012, Senator Leahy introduced the Cyber Crime Protection Act Security Act ( S. 2111 ). The bill, which was then placed on the calendar, is identical to some of the provisions of the Personal Data Privacy and Security Act of 2011 ( S. 1151 ), approved by the Senate Judiciary Committee earlier. It would amend several provisions of the Computer Fraud and Abuse Act (CFAA), 18 U.S.C. 1030, among other things. Numbered among its provisions are proposals to expand the type of CFAA violations that qualify as racketeering (RICO) predicate offenses; increase the penalties for violations of CFAA; adjust CFAA's password trafficking offense to protect a wider range of computers and password equivalents; affirm that conspiring to commit a CFAA offense is punishable to the same extent as the underlying offense; amend CFAA's forfeiture provisions to permit confiscation of real property used to facilitate a CFAA violation and to authorize civil forfeiture proceedings; create a new offense for aggravated damage to a critical infrastructure computer, punishable by imprisonment for not less than three years nor more than 20 years; and clarify CFAA's "unauthorized access" element. Both houses held hearings in consideration of these and related proposals. The 112 th Congress adjourned without taking further action on S. 2111 or S. 1151 . Background Congress has been concerned with the threats posed by cybercrime since before enactment of CFAA. It has amended CFAA regularly in order to keep pace with fast moving technological developments. There are other laws that address the subject of crime and computers. Other laws deal with computers as arenas for crime or as repositories of the evidence of crime or from some other perspective. CFAA, Section 1030, deals with computers as victims. In its present form, Subsection 1030(a) outlaws seven distinct offenses: accessing a computer to commit espionage; computer trespassing resulting in exposure to certain governmental, credit, financial, or computer-housed information; computer trespassing in a government computer; committing fraud, an integral part of which involves unauthorized access to a government computer, a bank computer, or a computer used in, or affecting, interstate or foreign commerce; damaging a government computer, a bank computer, or a computer used in, or affecting, interstate or foreign commerce; trafficking in passwords for a government computer, or when the trafficking affects interstate or foreign commerce; and threatening to damage a government computer, a bank computer, or a computer used in, or affecting, interstate or foreign commerce. Subsection 1030(b) makes it a crime to attempt or conspire to commit any of these offenses. Subsection 1030(c) catalogs the penalties for committing the crimes described in Subsections 1030(a) and (b), penalties that range from imprisonment for not more than a year for simple cyberspace trespassing to imprisonment for life for damage to a computer system resulting in death. Subsection 1030(d) preserves the investigative authority of the Secret Service. Subsection 1030(e) supplies common definitions. Subsection 1030(f) disclaims any application to otherwise permissible law enforcement activities. Subsection 1030(g) creates a civil cause of action for victims of these crimes. Subsection 1030(h), which has since lapsed, required annual reports through 1999 from the Attorney General and Secretary of the Treasury on investigations under the damage paragraph (18 U.S.C. 1030(a)(5)). Aggravated Damage of Infrastructure Computers Section 7 of S. 2111 would outlaw aggravated damage of critical infrastructure computers: "It shall be unlawful to, during and in relation to a felony violation of section 1030, intentionally cause or attempt to cause damage to a critical infrastructure computer, and such damage results in (or, in the case of an attempt, would, if completed have resulted in) the substantial impairment—(1) of the operation of the critical infrastructure computer; or (2) of the critical infrastructure associated with the computer." Although the new section creates a separate crime, the offense can be committed only in conjunction with a violation of CFAA, section 1030 ("... during and in relation to a felony violation of section 1030 ..."). Offenders would be required to serve a minimum of three years in prison and might be imprisoned for up to 20 years. The new section would come with an array of provisions designed to block any effort to mitigate the impact of its mandatory minimum sentences. Thus, courts could not sentence offenders to probation, nor order the sentence to be served concurrent with any other sentence, nor reduce the sentence imposed for other offenses to account for the mandatory minimum. Comparable restrictions attend the mandatory minimum sentencing provisions for aggravated identify theft. The new section's definition of "critical infrastructure computer" would be far reaching and appears to have been modeled after the definition in the terrorist training section. It would cover public and private computer systems relating to matters "vital to national defense, national security, national economic security, [or] public health and safety." Although the description would seem to extend to systems relating to electronic power generating and regional components of the critical infrastructure, the new section drops them from the list of examples found in the model. The section has no individual conspiracy element. Therefore, the section's 3-year mandatory minimum and 20-year maximum would not apply to conspiracy to violate the section. Instead, conspiracy to violate its proscriptions would be punishable under the general conspiracy statute, that is, by imprisonment for not more than 5 years. Statutes that establish a mandatory minimum sentence of imprisonment for commission of a federal crime are neither common nor rare. They are associated most often with capital offenses, drug offenses, firearms offenses, and sex offenses committed against children. Critics claim that such statutes can lead to unduly harsh results and do little to contribute to sentencing certainty or the elimination of unwarranted sentencing disparity. Proponents argue that they provide assurance that certain serious crimes are at least minimally and even handedly punished. Section 7's proposal is somewhat reminiscent of the mandatory minimum provisions of the aggravated identity theft statute, 18 U.S.C. 1028A. Section 1028A sets a mandatory minimum sentence of two years imprisonment for anyone who engages in identity theft during and in relation to any of a series of predicate fraud offenses, or a minimum of five years if committed during or in relation to a federal crime of terrorism. In spite of the Sentencing Commission's traditional opposition to mandatory minimum sentencing statutes, the Commission's most recent report on the subject was mildly laudatory of the identity theft provision. Administration officials have endorsed the mandatory minimums of Section 7 as an appropriate sanction and deterrent. Some Members may remain to be convinced. Forfeiture Property associated with a violation of CFAA is now subject to confiscation under criminal forfeiture procedures. Criminal forfeiture procedures are conducted as part of a criminal prosecution and require conviction of the property owner. Civil procedures are separate civil procedures conducted against the forfeitable property itself and require no conviction of the property owner. In the case of property confiscated because it has facilitated the commission of an offense, criminal forfeiture may constitute punishment of an owner for using his property to commit the crime. Civil forfeiture may punish him for failing to prevent the use of his property to commit the crime. The existing provisions call for criminal forfeiture of real and personal property derived from the proceeds of a CFAA violation and of personal property used to facilitate the offense. Section 6 would amend the provisions to permit confiscation of any real property used to facilitate the offense as well. It would authorize the confiscation of real and personal property under civil forfeiture procedures, as well as under criminal procedures. There has been some objection that the proposal "would subject to forfeiture the house of the parents of a teenage hacker who has used a computer to attempt to break into someone's network if the parents were aware of this conduct." This seems something of an overstatement. The innocent owner defense is available to a property owner who can prove that he was unaware of the misconduct that would otherwise require confiscation. Yet, it is also available to a property owner who can establish that he "did all reasonably could be expected under the circumstances to terminate such use of the property." For example, a property owner can be said to have done all he reasonably could, when he discloses the misconduct to authorities and in consultation with authorities takes action to prevent further misuse of his property. In addition, Section 6 of the bill would adjust the forfeiture provisions to account for the Supreme Court's interpretation of the word "proceeds" in another forfeiture statute. In United States v. Santos , the Justices declared that the word "proceeds" in the money laundering statute referred to profits of a money laundering predicate offense rather than the gross receipts generated by the predicate. Presumably with Santos in mind, the section would amend the forfeiture provisions so that the "gross proceeds" of a CFAA violation would be subject to confiscation. Exceeds Authorized Access An element of several of the crimes found in Subsection 1030(a) is the requirement that the defendant access the computer "without authorization" or that he "exceeds authorized access." By definition, a defendant "exceeds authorized access" when he gains authorized access but uses or alters information he is not authorized to use or alter. The courts have experienced some difficulty applying the definition. There is some support for the proposition that the term allows an employee to use authorized access to his employer's computer for purposes other than those for which it was given, as long as the use was not contrary to explicit employer limitations. In United States v. Drew , the government brought a prosecution under Section 1030 based on the theory that the defendant exceeded authorized access to a social network, MySpace , when she violated the terms of the MySpace terms of service agreement by inaccurately identifying herself. The court granted the defendant's motion for acquittal, because it considered the government's theory was too sweeping to avoid a vagueness challenge. Section 8 may have been drafted in response to Drew . The section would amend the definition of the term "exceeds authorized access" to state: As used in this section ... (6) the term 'exceeds authorized access' means to access a computer with authorization and to use such access to obtain or alter information in the computer that the accesser is not entitled so to obtain or alter , but does not include access in violation of a contractual obligation or agreement, such as an acceptable use policy or terms of service agreement, with an Internet service provider, Internet website, or non-government employer, if such violation constitutes the sole basis for determining that access to a protected computer is unauthorized . The purpose of the amendment would be "[t]o address civil liberties concerns about the scope of the Computer Fraud and Abuse Act" by amending it "to exclude from criminal liability conduct that exclusively involves a violation of a contractual obligation or agreement, such as an acceptable use policy, or terms of service agreement." The Justice Department objected that the proposal would deter prosecution of inside cyberthreats. On the other hand, a second witness, a former Justice Department official, warned against the implications of the interpretation espoused in Drew . The same witness implied that employment and other contractual disputes are more appropriately resolved through civil litigation rather than criminal prosecution. Trafficking in Passwords Section 4 would modify the wording of the password trafficking prohibition in 18 U.S.C. 1030(a)(6). The current version reads: "Whoever ... (6) knowingly and with intent to defraud traffics (as defined in section 1029) in any password or similar information through which a computer may be accessed without authorization, if—(A) such trafficking affects interstate or foreign commerce; or (B) such computer is used by or for the Government of the United States." As amended, it would state: "Whoever ... (6) knowingly and with intent to defraud traffics (as defined in section 1029) in—(A) any password or similar information or means of access through which a protected computer as defined in subparagraphs (A) and (B) of subsection (e)(2) may be accessed without authorization; or (B) any means of access through which a protected computer as defined in subsection (e)(2)(A) may be accessed without authorization." The change would represent an expansion both in the coverage of password equivalents and in scope of federal jurisdiction. Paragraph (6) now simply refers to passwords and "similar information through which a computer may be accessed without authorization." The section would add to passwords and similar information, similar "means of access." The change was designed to clarify coverage of "other methods of confirming a user's identity, such as biometric data, single-use passcodes, or smart carts used to access an account." The section now applies when the victimized computer or computer system is that of the federal government or when the trafficking affects interstate or foreign commerce. As amended, the section would apply when the victimized computer or computer system is that of the federal government or of a financial institution or when the computer or computer system is used in or affects interstate or foreign commerce. The section would accomplish the change by using the existing definition of the term "protected computer." Racketeering Predicates Section 2 would add violations of the Computer Fraud and Abuse Act to the RICO (Racketeer Influenced and Corrupt Organization) predicate offense list. Among other things, RICO outlaws conducting the affairs of an enterprise, which affects interstate commerce, through the patterned commission of other criminal offenses (predicate offenses). Adding a crime to the RICO predicate offense list has a number of law enforcement advantages—some obvious; some not so obvious. First, RICO offenses are punishable by imprisonment for not more than 20 years. RICO predicate offenses are often less severely punished. Second, RICO authorizes the confiscation of property derived from a RICO violation. Forfeiture is sometimes not a consequence of a crime that is not RICO predicate. Third, it provides a private cause of action with treble damages and attorneys' fees for the victims of a RICO violation. Federal law only infrequently provides a federal cause of action for the benefit of victims of federal crimes that are not RICO predicates. Fourth, any RICO predicate offense is, by virtue of that fact alone, a money laundering predicate offense. Federal money laundering statutes ban the use of the proceeds of a RICO predicate offense to promote further money laundering predicate offenses. And, they outlaw their use in any financial transaction involving more than $10,000. In both instances, RICO predicate offenses qualify as money laundering predicate offenses, even in the absence of other elements necessary for RICO prosecution. Fifth, the proceeds involved in a money laundering offense are subject to confiscation, again without regard to whether a RICO violation can be shown. Not all of these law enforcement advantages would follow as consequence of Section 2, however. First, Section 1030(a)'s offenses are already money laundering predicates. Consequently, no additional benefits in terms of a money laundering prosecution flow from adding Section 1030 to the RICO predicate offense list. Second, the espionage and certain of the damage offenses in Subsection 1030(a) are already somewhat obliquely listed as RICO predicate offenses. Any offense that falls within the definition of a federal crime of terrorism is a RICO predicate offense, regardless of whether it actually involves a crime committed for terrorist purposes. The definition of a federal crime of terrorism includes violations of 18 U.S.C. 1030(a)(1) (espionage) and in some cases violations of 18 U.S.C. 1030(a)(5)(A) (intentional damage). Thus, for those violations, Section 2 holds new advantages. Third, Section 1030 already provides a private cause of action for some of the victims of a violation of the section, although a RICO cause of action offers treble damages and attorneys' fees, while Section 1030 offers only compensatory damages. In summary, RICO violations are punished more severely than many of the violations of Section 1030, and the addition would "make it easier for the Government to prosecute certain organized criminal groups that engage in computer network attacks." The change would also inure to the benefit of those victims of Section 1030 violations who could take advantage of the RICO private cause of action provisions. Nevertheless, some hearing witnesses questioned the wisdom of opening the civil RICO remedies to those who claim to be victims of CFAA offenses. They asserted that a business will often settle a meritless RICO suit (a) because of the taint associated with merely being accused of racketeering and (b) because of the risk of losing a suit involving treble damages and attorneys' fees under statute that is very broad and whose boundaries are sometimes unclear. Conspiracy Subsection 1030(b) now declares that conspiracy or attempt to violate any of the Subsection 1030(a) offenses "shall be punished as provided subsection (c)," the subsection which sets the penalties for each of the CFAA substantive offenses. Subsection (c), in turn, begins with an introductory statement that "[t]he punishment for an offense under subsection (a) or (b) of this section is," and proceeds to identify the penalties for each of the CFAA offenses and for attempting to commit each of those offenses in various subparagraphs. For example, with respect to the penalty for fraud by a first time offender, Subsection (c) declares, "[t]he punishment for an offense under subsection (a) or (b) of this section is ... (3)(A) a fine under this title or imprisonment for not more than five years, or both, in the case of an offense under subsection (a)(4) ... or attempt to commit an offense punishable under this subparagraph." Neither subparagraph (3)(A) nor any of the other subparagraphs specifically mention conspiracy. Thus, Subsection (b) says conspiracy will be punished under Subsection (c) but Subsection (c) makes no mention of conspiracy per se. Reading conspiracy out of CFAA seems inconsistent with the wording of Subsection (b), but the actual wording of Subsection (c) affords that construction some support. Changes elsewhere in the bill would magnify the impact of reading conspiracy out of CFAA. Under existing law, conspiracy to commit any federal felony is punishable by imprisonment for not more than five years. The maximum for conspiracy to commit a misdemeanor is the maximum for the underlying misdemeanor. Section 1030 in its present form punishes some violations as misdemeanors, some as five-year felonies, and some more severely. In the case of misdemeanors and five-year felonies, the maximum penalties are the same whether prosecution is under Section 1030 or under the general conspiracy statute. As noted in Table 1 below, however, Section 3 of the bill increases most of Subsection 1030(c)'s maximum penalties. Some of the subsection's misdemeanors (punishable by imprisonment for not more than one year) would become felonies (punishable by imprisonment for not more than three years). Some of its 5-year felonies would become 10- or 20-year felonies. In those instances, it would make a difference whether conspiracy could be prosecuted under Section 1030 with its corresponding penalties or would need to be prosecuted under the five-year general conspiracy statute. Section 5 of the bill would address the issue by amending Subsection (b) of CFAA to read: "Whoever conspires to commit or attempt to commit an offense under subsection (a) of this section shall be punished as provided for the completed offense in subsection (c) of this section." Sentencing Increases Section 3 would amend Subsection 1030(c) for a more streamlined statement of the penalties for the Subsection 1030(a) and 1030(b) offenses. In doing so, it would eliminate the penalty increases for repeat offenders. In many instances, it would set the penalties for all offenders at the levels now reserved for repeat offenders, and would punish novices and repeat offenders alike. One exception would be the maximum penalty available upon conviction under Subsection 1030(a)'s fraud provisions. There, the maximum penalty would be increased from 5 to 20 years. Administration witnesses approved the general increases as a simplification of Subsection 1030(c) and as a means of affording federal judges the opportunity to punish more serious cyberoffenses more severely. In the case of the fraud increase, they explained that some of the CFAA's sentencing provisions no longer parallel the sentencing provisions of their equivalent traditional crimes. For example, the current maximum punishment for a violation of section 1030(a)(4) (computer hacking in furtherance of a crime of fraud) is five years, but the most analogous 'traditional' statutes, 18 U.S.C. §§1341 and 1343 (mail and wire fraud), both impose maximum penalties of twenty years.

The Cyber Crime Protection Security Act (S. 2111) would enhance the criminal penalties for the cybercrimes outlawed in the Computer Fraud and Abuse Act (CFAA). Those offenses include espionage, hacking, fraud, destruction, password trafficking, and extortion committed against computers and computer networks. S. 2111 contains some of the enhancements approved by the Senate Judiciary Committee when it reported the Personal Data Privacy and Security Act (S. 1151), S.Rept. 112-91 (2011). The bill would (1) establish a three-year mandatory minimum term of imprisonment for aggravated damage to a critical infrastructure computer; (2) streamline and increase the maximum penalties for the cybercrimes proscribed in CFAA; (3) authorize the confiscation of real property used to facilitate the commission of such cyberoffenses and permit forfeiture of real and personal property generated by, or used to facilitate the commission of, such an offense, under either civil or criminal forfeiture procedures; (4) add such cybercrimes to the racketeering (RICO) predicate offense list, permitting some victims to sue for treble damages and attorneys' fees; (5) increase the types of password equivalents covered by the trafficking offense and the scope of federal jurisdiction over the crime; (6) confirm that conspiracies to commit one of the CFAA offenses carry the same penalties as the underlying crimes; and (7) provide that a cybercrime prosecution under CFAA could not be grounded exclusively on the failure to comply with a term of service agreement or similar breach of contract or agreement, apparently in response to prosecution theory espoused in Drew. With the exception of this last limitation on prosecutions, the Justice Department has endorsed the proposals found in S. 2111. The bill was placed on the Senate calendar, but the 112th Congress adjourned without taking further action on S. 2111 or S. 1151. Related CRS reports include CRS Report 97-1025, Cybercrime: An Overview of the Federal Computer Fraud and Abuse Statute and Related Federal Criminal Laws, available in abridged form as CRS Report RS20830, Cybercrime: A Sketch of 18 U.S.C. 1030 and Related Federal Criminal Laws.

Enron: What Went Wrong? Enron Corp., the first nationwide natural gas pipeline network, shifted its business focus during the 1990s from the regulated transportation of natural gas totrading in unregulated energy markets. Until late 2001, nearly all observers -- including Wall Street professionals-- regarded this transformation as anoutstanding success. Enron's reported annual revenues grew from under $10 billion in the early 1990s to $139billion in 2001, placing it fifth on the Fortune500. Enron continued to transform its business but, as it diversified out of its core energy operations, it ran intoserious trouble. Like many other firms, Enronsaw an unlimited future in the Internet. During the late 1990s, it invested heavily in online marketers and serviceproviders, constructed a fiber opticcommunications network, and attempted to create a market for trading broadband communications capacity. Enronentered these markets near the peak of theboom and paid high prices, taking on a heavy debt load to finance its purchases. When the dot com crash came in2000, revenue from these investments driedup, but the debt remained. Enron also recorded significant losses in certain foreign operations. The firm made major investments in public utilities in India, South America, and the U.K.,hoping to profit in newly-deregulated markets. In these three cases, local politicians acted to shield consumers fromthe sharp price increases that Enronanticipated. By contrast, Enron's energy trading businesses appear to have made money, although that trading was probably less extensive and profitable than the companyclaimed in its financial reports. Energy trading, however, did not generate sufficient cash to allow Enron towithstand major losses in its dot com and foreignportfolios. Once the Internet bubble burst, Enron's prospects were dire. It is not unusual for businesses to fail after making bad or ill-timed investments. What turned the Enron case into a major financial scandal was the company'sresponse to its problems. Rather than disclose its true condition to public investors, as the law requires, Enronfalsified its accounts. It assigned business lossesand near-worthless assets to unconsolidated partnerships and "special purpose entities." In other words, the firm'spublic accounting statements pretended thatlosses were occurring not to Enron, but to the so-called Raptor entities, which were ostensibly independent firmsthat had agreed to absorb Enron's losses, butwere in fact accounting contrivances created and entirely controlled by Enron's management. In addition, Enronappears to have disguised bank loans as energyderivatives trades to conceal the extent of its indebtedness. When these accounting fictions -- which were sustained for nearly 18 months -- came to light, and corrected accounting statements were issued, over 80% ofthe profits reported since 2000 vanished and Enron quickly collapsed. The sudden collapse of such a largecorporation, and the accompanying losses of jobs,investor wealth, and market confidence, suggested that there were serious flaws in the U.S. system of securitiesregulation, which is based on the full andaccurate disclosure of all financial information that market participants need to make informed investment decisions. The suggestion was amply confirmed bythe succession of major corporate accounting scandals that followed. Enron raised fundamental issues about corporate fraud, accounting transparency, and investor protection. Several aspects of these issues are briefly sketchedbelow, with reference to CRS products that provide more detail. Auditing and Accounting Issues Federal securities law requires that the accounting statements of publicly traded corporations be certified by an independent auditor. Enron's auditor, ArthurAndersen, not only turned a blind eye to improper accounting practices, but was actively involved in devisingcomplex financial structures and transactions thatfacilitated deception. An auditor's certification indicates that the financial statements under review have been prepared in accordance with generally-accepted accounting principles(GAAP). In Enron's case, the question is not only whether GAAP were violated, but whether current accountingstandards permit corporations to play"numbers games," and whether investors are exposed to excessive risk by financial statements that lack clarity andconsistency. Accounting standards forcorporations are set by the Financial Accounting Standards Board (FASB), a non-governmental entity, though thereare also Securities and ExchangeCommission (SEC) requirements. (The SEC has statutory authority to set accounting standards for firms that sellsecurities to the public.) Some describeFASB's standards setting process as cumbersome and too susceptible to business and/or political pressures. In response to the auditing and accounting problems at Enron and other major corporations scandals, Congress enacted the Sarbanes-Oxley Act of 2002 ( P.L.107-204 ), containing perhaps the most far-reaching amendments to the securities laws since the 1930s. Very briefly,the law does the following: creates a Public Company Accounting Oversight Board to regulate independent auditors of publicly traded companies -- a private sectorentity operating under the oversight of the SEC; raises standards of auditor independence by prohibiting auditors from providing certain consulting services to their audit clients andrequiring preapproval by the client's board of directors for other nonaudit services; requires top corporate management and audit committees to assume more direct responsibility for the accuracy of financialstatements; enhances disclosure requirements for certain transactions, such as stock sales by corporate insiders, transactions with unconsolidatedsubsidiaries, and other significant events that may require "real-time" disclosure; directs the SEC to adopt rules to prevent conflicts of interest that affect the objectivity of stock analysts; authorizes $776 million for the SEC in FY2003 (versus $469 million in the Administration's budget request) and requires the SEC toreview corporate financial reports more frequently; and establishes and/or increases criminal penalties for a variety of offenses related to securities fraud, including misleading an auditor, mailand wire fraud, and destruction of records. See also CRS Report RL31554 , Corporate Accountability: Sarbanes-Oxley Act of 2002: ( P.L. 107-204 ) , by Michael Seitzinger; and CRS Report RS21120 , Auditing and its Regulators: Proposals for Reform After Enron, by [author name scrubbed]. Pension Issues Like many companies, Enron sponsored a retirement plan -- a "401(k)" -- for its employees to which they can contribute a portion of their pay on atax-deferred basis. As of December 31, 2000, 62% of the assets held in the corporation's 401(k) retirement planconsisted of Enron stock. Many individualEnron employees held even larger percentages of Enron stock in their 401(k) accounts. Shares of Enron, which inJanuary 2001 traded for more than $80/share,were worth less than 70 cents in January 2002. The catastrophic losses suffered by participants in the EnronCorporation's 401(k) plan have promptedquestions about the laws and regulations that govern these plans. In the 107th Congress, the House passed legislation ( H.R. 3762 ) that would have required account information to be provided moreoften to plan participants, improved access to investment planning advice, allowed plan participants to diversifytheir portfolios by selling company stockcontributed by employers after three years, and barred executives from selling company stock while a plan is "lockeddown." (The latter provision was enactedby the Sarbanes-Oxley Act.) Similar legislation has not advanced in the 108th Congress. See also CRS Report RL31507 , Employer Stock in Retirement Plans: Investment Risk and Retirement Security , by [author name scrubbed] ([phone number scrubbed]); and CRS Report RL31551 , Employer Stock in Pension Plans: Economic and Tax Issues, by Jane Gravelle. Corporate Governance Issues In the wake of Enron and other scandals, corporate boards of directors were subject to critical scrutiny. Boards, whose chief duty is to represent shareholders'interests, utterly failed to prevent or detect management fraud. Several provisions of Sarbanes-Oxley were designedto boost the power of independent directorsand the audit committee of the board to exercise effective oversight of management and the accounting process.Under Sarbanes-Oxley, the board's auditcommittee must have a majority of independent directors (not affiliated with management or the corporation) andis responsible for hiring, firing, overseeing,and paying the firm's outside auditor. The audit committee must include at least one director who is a financialexpert, that is, able to evaluate significantaccounting issues and/or disagreements between management and auditors. In 2003, the New York Stock Exchange and the Nasdaq adopted rules requiring listed corporations to have a majority of independent directors (not affiliatedwith management or the corporation) on their boards. In 2004, the SEC is considering a rule that would facilitatethe nomination of directors by shareholders. Securities Analyst Issues Securities analysts employed by investment banks provide research and make "buy," "sell," or "hold" recommendations. These recommendations are widelycirculated and are relied upon by many public investors. Analyst support was crucial to Enron because it requiredconstant infusions of funds from the financialmarkets. On November 29, 2001, after Enron's stock had fallen 99% from its high, and after rating agencies haddowngraded its debt to "junk bond"status,only two of 11 major firm analysts rated its stock a "sell." Was analyst objectivity -- towards Enron and other firms-- compromised by pressure to avoidalienating investment banking clients? The Sarbanes-Oxley Act directs the SEC to establish rules addressing analysts' conflicts of interest; these were issued in 2003. In December 2002, 10 majorinvestment banks reached a settlement with state and federal securities regulators under which they agreed toreforms to make their analysts independent of theirbanking operations, and to pay fines totaling about $1 billion. See also CRS Report RL31348(pdf) , Enron and Stock Analyst Objectivity , by [author name scrubbed]. Banking Issues One part of the fallout from Enron's demise involves its relations with banks. Prominent banking companies, notably Citigroup and J.P. Morgan Chase, wereinvolved in both the investment banking (securities) and the commercial banking (lending and deposit) businesseswith Enron. In 2003, the SEC fined the twobanks $120 and $135 million, respectively, for their roles in Enron's accounting frauds. Several aspects of Enron's relations with its bankers have raised several questions. (1) Do financial holding companies (firms that encompass both investmentand commercial banking operations) face a conflict of interest, between their duty to avoid excessive risk on loansfrom their bank sides versus their opportunityto glean profits from deals on their investment banking side? (2) Were the bankers enticed or pressured to providefunding for Enron and recommend itssecurities and derivatives to other parties? (3) Did the Dynegy rescue plan, proposed just before Enron's collapse,and involving further investments by J.P.Morgan Chase and Citigroup, represent protective self-dealing? (4) What is the proper accounting for banks'off-balance-sheet items including derivativepositions and lines of credit, such as they provided to Enron? (5) Did the Enron situation represent a warning thatGLBA may need fine-tuning in the way itmixes the different business practices of Wall Street and commercial banking? See also CRS Report RS21188, Enron's Banking Relationships and Congressional Repeal of Statutes Separating Bank Lending from Investment Banking , by[author name scrubbed]. Energy Derivatives Issues Part of Enron's core energy business involved dealing in derivative contracts based on the prices of oil, gas, electricity and other variables. For example, Enronsold long-term contracts to buy or sell energy at fixed prices. These contracts allow the buyers to avoid, or hedge,the risks that increases (or drops) in energyprices posed to their businesses. Since the markets in which Enron traded are largely unregulated, with no reportingrequirements, little information is availableabout the extent or profitability of Enron's derivatives activities, beyond what is contained in the company's ownfinancial statements. While trading inderivatives is an extremely high-risk activity, no evidence has yet emerged that indicates that speculative losses werea factor in Enron's collapse. Since the Enron failure, several energy derivatives dealers have admitted to making "wash trades," which lack economic substance but give the appearance ofgreater market volume than actually exists, and facilitate deceptive accounting (if the fictitious trades are reportedas real revenue). In 2002, energy derivativestrading diminished to a fraction of pre-Enron levels, as major traders (and their customers and shareholders)re-evaluate the risks and utility of unregulatedenergy trading. Several major dealers have withdrawn from the market entirely. Internal Enron memoranda released in May 2002 suggest that Enron (and other market participants) engaged in a variety of manipulative trading practicesduring the California electricity crisis. For example, Enron was able to buy electricity at a fixed price in Californiaand sell it elsewhere at the higher marketprice, exacerbating electricity shortages within California. The evidence to date does not indicate that energyderivatives - as opposed to physical, spot-markettrades -- played a major role in these manipulative strategies. Numerous firms and individuals have been chargedwith civil and criminal violations related tothe manipulation of energy prices in California and elsewhere. Even if derivatives trading was not a major cause, Enron's failure raises the issue of supervision of unregulated derivatives markets. Would it be useful ifregulators had more information about the portfolios and risk exposures of major dealers in derivatives? AlthoughEnron's bankruptcy appears to have hadlittle impact on energy supplies and prices, a similar dealer failure in the future might damage the dealer's tradingpartners and its lenders, and couldconceivably set off widespread disruptions in financial and/or real commodity markets. Legislation proposed, but not enacted, in the 107th Congress ( H.R. 3914 , H.R. 4038 , S. 1951 , and S. 2724 )would have (among other things) given the CFTC more authority to pursue fraud (including wash transactions) inthe OTC market, and to require disclosure ofcertain trade data by dealers. In the 108th Congress, the Senate twice rejected legislation ( S.Amdt. 876 and S.Amdt. 2083 ) that wouldhave increased regulatory oversight of energy derivatives markets by the CFTC and FERC. See also CRS Report RS21401 , Regulation of Energy Derivatives , by [author name scrubbed]; and CRS Report RS20560 , The Commodity Futures Modernization Act( P.L. 106-554 ) , by [author name scrubbed].

The sudden and unexpected collapse of Enron Corp. was the first in a series of majorcorporate accounting scandalsthat has shaken confidence in corporate governance and the stock market. Only months before Enron's bankruptcyfiling in December 2001, the firm waswidely regarded as one of the most innovative, fastest growing, and best managed businesses in the United States. With the swift collapse, shareholders,including thousands of Enron workers who held company stock in their 401(k) retirement accounts, lost tens ofbillions of dollars. It now appears that Enronwas in terrible financial shape as early as 2000, burdened with debt and money-losing businesses, but manipulatedits accounting statements to hide theseproblems. Why didn't the watchdogs bark? This report briefly examines the accounting system that failed to providea clear picture of the firm's true condition,the independent auditors and board members who were unwilling to challenge Enron's management, the Wall Streetstock analysts who failed to warn investorsof trouble ahead, the rules governing employer stock in company pension plans, and the unregulated energyderivatives trading that was the core of Enron'sbusiness. This report also summarizes the Sarbanes-Oxley Act (P.L. 107-204), the major response by the107th Congress to Enron's fall, and related legislativeand regulatory actions during the 108th Congress. It will be updated as events warrant. Other contributors to this report include [author name scrubbed], [author name scrubbed], [author name scrubbed], and [author name scrubbed].

Background In order to "improve portability and continuity of health insurance coverage in the group and individual markets," Congress enacted the Health Insurance Portability and Accountability Act of 1996 (HIPAA) on August 21, 1996, P.L. 104-191 , 110 Stat. 1936, 42 U.S.C. §§ 1320d et seq. Subtitle F of Title II of HIPAA is entitled "Administrative Simplification," and states that the purpose of the subtitle is to improve health care by "encouraging the development of a health information system through the establishment of standards and requirements for the electronic transmission of certain health information." Sections 261 through 264 of HIPAA contain the administrative simplification provisions. HIPAA requires health care payers and providers who transmit transactions electronically to use standardized data elements to conduct financial and administrative transactions. Section 262 directs HHS to issue standards to facilitate the electronic exchange of information. Section 263 of HIPAA delineates the duties of the National Committee on Vital and Health Statistics. Section 264 of HIPAA requires HHS to submit to the Congress detailed recommendations on standards with respect to privacy rights for individually identifiable health information. In the absence of the enactment of federal legislation, HIPAA required HHS to issue privacy regulations. The final Privacy Rule was issued by HHS and published in the Federal Register on December 28, 2000 at 65 Fed. Reg. 82462, shortly before the Clinton Administration left office. The Privacy Rule went into effect on April 14, 2001. On August 14, 2002, HHS published in the Federal Register a modified Privacy Rule, 67 Fed. Reg. 53181. Enforcement of the Privacy Rule began on April 14, 2003, except for small health plans (those with annual receipts of $5 million or less) who have until April 2004 to comply. The HIPAA Privacy Rule covers health plans, health care clearinghouses, and those health care providers who conduct certain financial and administrative transactions electronically. Covered entities are bound by the new privacy standards even if they contract with others (called "business associates") to perform essential functions. HIPAA does not give HHS authority to regulate other private businesses or public agencies. Covered entities that fail to comply with the rule are subject to civil and criminal penalties, but individuals do not have the right to sue for violations of the rule. Instead, the law provides that individuals must direct their complaints to HHS' Office for Civil Rights (OCR). OCR maintains a Web site with information on the new regulation, including guidance at http://www.hhs.gov/ocr/hipaa/ . HHS also recently issued a 20 page "Summary of the HIPAA Privacy Rule." HHS will enforce the civil money penalties, and the Department of Justice will enforce the criminal penalties. Criminal penalties may be imposed if the offense is committed under false pretenses, with intent to sell the information or reap other personal gain. HIPAA authorizes the HHS Secretary to impose civil money penalties of up to $25,000 for each year for those entities failing to comply with the privacy rule. Several statutory limitations are imposed on the Secretary's authority to impose civil money penalties (CMP). A penalty may not be imposed: with respect to an act that constitutes an offense punishable under the criminal penalty provision; "if it is established to the satisfaction of the Secretary that the person liable for the penalty did not know, and by exercising reasonable diligence would not have known, that such person violated the provisions;" if "the failure to comply was due to reasonable cause and not to willful neglect" and is corrected within a certain time period. A CMP may be reduced or waived "to the extent that the payment of such penalty would be excessive relative to the compliance failure involved." In addition, a number of procedural requirements are incorporated by reference in HIPAA that are relevant to the imposition of CMP's. The Secretary may not initiate a CMP action "later than six months after the date" of the occurrence that forms the basis for the CMP action. The Secretary may initiate a CMP by serving notice in a manner authorized by Rule 4 of the Federal Rules of Civil Procedure. The Secretary must give written notice to the person to whom he wishes to impose a CMP and an opportunity for a determination to made "on the record after a hearing at which the person is entitled to be represented by counsel, to present witnesses, and to cross-examine witnesses against the person." Judicial review of the Secretary's determination and the issuance and enforcement of subpoenas is available in the United States Court of Appeals. With respect to ascertaining compliance with and enforcement of the Privacy Rule, the Secretary of HHS is to seek the voluntary cooperation of covered entities. The Secretary is authorized to provide technical assistance to covered entities in order to facilitate their voluntary compliance. Enforcement and other activities to facilitate compliance include the provision of technical assistance; responding to questions; providing interpretations and guidance; responding to state requests for preemption determinations; investigating complaints and conducting compliance reviews; and seeking civil monetary penalties and making referrals for criminal prosecution. An individual may file a compliant with the Secretary if the individual believes that the covered entity is not complying with the rule. Complaints must be filed in writing, either on paper or electronically; name the entity that is the subject of the complaint and describe the acts or omissions believed to be in violation of the applicable requirements of the Privacy Rule; and be filed within 180 days of when the complainant knew or should have known that the act or omission complained of occurred, unless the time limit is waived by the Secretary for good cause shown. Complaints to the Secretary may be filed only with respect to alleged violations occurring on or after April 14, 2003. The Secretary has delegated to the Office for Civil Rights (OCR) the authority to receive and investigate complaints as they may relate to the Privacy Rule. Individuals may file written complaints with OCR by mail, fax or e-mail. For information about the Privacy Rule or the process for filing a complaint with OCR, they may contact any OCR office or go to http://www.hhs.gov/ocr/howtofileprivacy.htm . After April 14, 2003, individuals have a right to file a complaint directly with the covered entity, and are directed to refer to the covered entity's notice of privacy practices for information about how to file a complaint. The Secretary's investigation may include a review of the policies, procedures, or practices of the covered entity, and of the circumstances regarding the alleged acts or omissions. The Secretary is also authorized to conduct compliance reviews. Covered entities are required to provide records and compliance reports to the Secretary to determine compliance; and to cooperate with complaint investigations and compliance reviews. In cases where an investigation or compliance review has indicated noncompliance, the Secretary is to inform the covered entity and the complainant in writing, and attempt to resolve the matter informally. If the Secretary determines that the matter cannot be resolved informally, the Secretary may issue written findings documenting the noncompliance. In cases where no violation is found, the Secretary is to inform the covered entity and the complainant in writing. On April 17, 2003 HHS published an interim final "Enforcement Rule" that applies to standards, including the Privacy Rule, adopted under the Administrative Simplification provisions of HIPAA, 68 Fed. Reg. 18895. The interim final rule establishes procedures for investigations, imposition of penalties, and hearings for civil money penalties; and is effective May 19, 2003 thru September 16, 2003. It is to be revised when HHS issues a complete Enforcement rule that will include procedural and substantive requirements for the imposition of civil money penalties, such as HHS' policies for determining violations and calculating CMP's. Although HHS recognized that the Administrative Procedure Act (APA) requires that most of the provisions of the complete Enforcement Rule be promulgated through notice-and-comment rulemaking, it concluded that the interim final rule's procedural provisions are exempted from the requirement for notice and comment rulemaking under the "rules of agency . . . procedure, or practice" exemption of the APA, 5 U.S.C. § 553(b)(3)(A). As a result, HHS published the procedural rules in final form without notice-and-comment to inform covered entities and the public of the procedural requirements for compliance. In addition, HHS requests public comment thru June 16, 2003 on the interim final rule. The National Committee on Vital and Health Statistics (NCVHS) serves as the statutory public advisory body to the Secretary of Health and Human Services in the area of health data and statistics. As part of its responsibilities under the Health Insurance Portability and Accountability Act of 1996 (HIPAA), the National Committee on Vital and Health Statistics (NCVHS) monitors the implementation of the Administrative Simplification provisions of HIPAA, including the Standards for Privacy of Individually Identifiable Health Information (Privacy Rule). Last fall, the NCVHS held three hearings to learn about the implementation activities of covered entities. In its November 2002 letter to Secretary Thompson summarizing its findings the Committee stated that "there is an extremely high level of confusion, misunderstanding, frustration, anxiety, fear, and anger as the April 14, 2003 compliance date nears." Reportedly the Privacy Rule has "touched off a quiet revolution in the health care industry." According to NCVHS, the OCR is widely viewed as not providing adequate guidance and technical assistance as evidenced by the lack of model notices of privacy practices, acknowledgments, authorizations, and other forms. The general guidance was judged to be of limited value because of special industry or professional circumstances, and NCVHS reported that witnesses conveyed a great sense of frustration that they could not obtain clarification from OCR or answers to the questions they submitted. Covered entities report the undertaking of substantial compliance measures ranging from the adoption of new policies, the training of employees, and the development of privacy notices. Another area of widespread concern at the NCVHS hearings was HIPAA preemption. According to NCVHS, witnesses said that issues of preemption made compliance much more difficult, costly, and complicated. The term "preemption" is a judicial doctrine that originated through interpretation of the Supremacy Clause of the United States Constitution. In effect, the Supremacy Clause stands for the proposition that the Constitution and the laws of the federal government rise above the laws of the states. As a result, federal law will always override state law in cases of conflict. Absent a direct conflict, however, preemption depends on the intent of Congress. Such intent may be express or implied. Express preemption exists when Congress explicitly commands that a state law be displaced. Where Congress has not expressly preempted state and local laws, two types of implied federal preemption may be found: field preemption, in which federal regulation is so pervasive that one can reasonably infer that states or localities have no role to play, and conflict preemption, in which "compliance with both federal and state regulations is a physical impossibility, or where the state law "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." HIPAA sets forth a general rule, based on the principles of conflict preemption. Basically, this rule establishes that any federal regulation resulting from implementation of the Act preempts any contrary state law. "Contrary" is defined as situations where: (1) a covered entity would find it impossible to comply with both the state and the federal requirements, or (2) when the state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress. Congress established three exceptions to this general rule. First, there is an exception for state laws that the Secretary determines are necessary to prevent fraud and abuse, to ensure appropriate state regulation of insurance and health plans, for state reporting on health care delivery, or for other purposes. The second exception provides that state laws will not be superseded if the Secretary determines that the law addresses controlled substances. Both of these exceptions require an affirmative "exception determination" from the Secretary of HHS for the state law not to be preempted. The third exception provides that state laws will not be preempted if they relate to the privacy of individually identifiable health information and are "more stringent" than the federal requirements. A state law is "more stringent" if it meets one or more of the following criteria: 1) the state law prohibits or further limits the use or disclosure of protected health information, except if the disclosure is required by HHS to determine a covered entity's compliance or is to the individual who is the subject of the individually identifiable information; 2) the state law permits individuals with greater rights of access to or amendment of their individually identifiable health information; provided, however, HIPAA will not preempt a state law to the extent that it authorizes or prohibits disclosure of protected health information about a minor to a parent, guardian or person acting in loco parentis of such minor; 3) the state law provides for more information to be disseminated to the individual regarding use and disclosure of their protected health information and rights and remedies; 4) the state law narrows the scope or duration of authorization or consent, increases the privacy protections surrounding authorization and consent, or reduces the coercive effect of the surrounding circumstances; 5) the state law imposes stricter standards for record keeping or accounting of disclosures; 6) the state law strengthens privacy protections for individuals with respect to any other matter. In addition to the general rule and exceptions, Congress "carved out" two provisions whereby certain areas of state authority will not be limited or invalidated by HIPAA rules. First, the public health "carve out" saves any law providing for the reporting of disease or injury, child abuse, birth, or death for the conduct of public surveillance, investigation or intervention. The second "carve out" allows states to regulate health plans by requiring the plans to report, or provide access to, information for the purpose of audits, program monitoring and evaluation, or the licensure or certification. Legislation S. 16 , The Equal Rights and Equal Dignity for Americans Act of 2003, would, in section 903, reverse the August 2002 modifications to the privacy rule.

As of April 14, 2003, most health care providers (including doctors and hospitals) and health plans are required to comply with the new Privacy Rule mandated by the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), and must comply with national standards to protect individually identifiable health information. The HIPAA Privacy Rule creates a federal floor of privacy protections for individually identifiable health information; establishes a set of basic consumer protections; institutes a series of regulatory permissions for uses and disclosures of protected health information; permits any person to file an administrative complaint for violations; and authorizes the imposition of civil or criminal penalties. In hearings prior to the effective date of the Rule, there was widespread concern over aspects of the rule, including the extent to which it preempted state laws. On April 17, 2003, HHS published an interim final rule establishing the rules of procedure for investigations and the imposition of civil money penalties concerning violations. This interim final rule will be effective May 19, 2003 through September 16, 2003. HHS plans to issue a complete Enforcement Rule with both procedural and substantive provisions after notice-and-comment rulemaking. This report will be updated.

Regulatory Flexibility Act Requirements The Regulatory Flexibility Act (RFA) of 1980 (5 U.S.C. §§601-612), requires federal agencies to assess the impact of their forthcoming rules on "small entities," which the act defines as including small businesses, small governmental jurisdictions, and certain small not-for-profit organizations. Under the RFA, virtually all federal agencies (i.e., Cabinet departments and independent agencies as well as independent regulatory agencies) must prepare a regulatory flexibility analysis at the time that proposed and certain final rules are published in the Federal Register . The analysis for a proposed rule is referred to as an "initial regulatory flexibility analysis" (IRFA), and the analysis for a final rule is referred to as a "final regulatory flexibility analysis" (FRFA). The act requires the analyses to describe, among other things, (1) why the regulatory action is being considered and its objectives; (2) the small entities to which the rule will apply and, where feasible, an estimate of their number; (3) the projected reporting, recordkeeping, and other compliance requirements of the rule; and, for final rules, (4) steps the agency has taken to minimize the impact of the rule on small entities, including the alternatives considered and why the selected alternative was chosen. However, these analytical requirements are not triggered if the head of the issuing agency certifies that the rule would not have a "significant economic impact on a substantial number of small entities" (hereafter referred to as a "SEISNSE"). The RFA does not define "significant economic impact" or "substantial number of small entities," thereby giving federal agencies substantial discretion regarding when the act's analytical requirements are initiated. Also, the RFA's analytical requirements do not apply to final rules for which the agency does not publish a proposed rule. The RFA also contains several other notable provisions. For example, Section 602 requires each federal agency to publish a "regulatory flexibility agenda" in the Federal Register each April and October listing regulations that the agency expects to propose or promulgate which are likely to have a SEISNSE. Section 612 of the act requires the Chief Counsel of the Small Business Administration's (SBA's) Office of Advocacy to monitor and report at least annually on agencies' compliance with the act. The statute also specifically authorizes the Chief Counsel to appear as amicus curiae (i.e., "friend of the court") in any court action to review a rule. The RFA initially did not permit judicial review of agencies' actions under the act. However, amendments to the act in 1996 as part of the Small Business Regulatory Enforcement Fairness Act (SBREFA) (110 Stat. 857, 5 U.S.C. §601 note) permitted judicial review regarding, among other things, agencies' regulatory flexibility analyses for final rules and any certifications that their rules will not have a SEISNSE. As a result, for example, a small entity that is adversely affected or aggrieved by an agency's determination that its final rule would not have a significant impact on small entities could seek judicial review of that determination within one year of the date of the final agency action. In granting relief, a court may remand the rule to the agency or defer enforcement against small entities. The addition of judicial review in 1996 is generally viewed as a significant strengthening of the RFA, and is believed to have improved agencies' compliance with the act. In August 2002, President George W. Bush issued Executive Order 13272, which was intended to promote compliance with the RFA. The executive order requires agencies to issue written procedures and policies to ensure that the potential impacts of their draft rules on small entities are properly considered, and requires them to notify the Office of Advocacy of any draft rules with a SEISNSE. Also, the order requires the SBA Chief Counsel for Advocacy to "notify agency heads from time to time" of the requirements of the RFA, and to provide training to agencies on RFA compliance. It also permits the Chief Counsel to provide comments on draft rules to the issuing agency and to the Office of Information and Regulatory Affairs (OIRA) at the Office of Management and Budget. The Office of Advocacy published guidance on the RFA in 2003 and reported training more than 20 agencies on compliance with the act in FY2005. Other Requirements Are Linked to RFA Determinations In addition to triggering an initial or final regulatory flexibility analysis, an agency's determination that a rule has a SEISNSE can initiate other actions. For example, when enacted in 1980, Section 610 of the RFA required agencies to publish a plan in the Federal Register within 180 days that would provide for the review of all of their then-existing rules within 10 years, and for the review of all subsequent rules within 10 years of their publication as a final rule. The Section 610 requirement applies to those rules that the agencies determined "have or will have" a SEISNSE, and the purpose of the review is to determine whether the rule should be continued without change or should be amended or rescinded to minimize its impact on small entities. One way some agencies have decided which rules should be reviewed is by focusing only on those rules for which a final regulatory flexibility analysis was conducted at the time the final rule was issued. However, other agencies view Section 610 as requiring them to review all of their rules to determine whether they have currently a SEISNSE, regardless of their previous determinations. Either way, agencies have considerable discretion in deciding what constitutes a "significant" impact and a "substantial" number of small entities, and therefore what rules (if any) are covered by this requirement. SBREFA established two new requirements that are also triggered by agencies' determinations under the RFA—e.g., compliance guides and advocacy review panels. Compliance Guides Section 212 of SBREFA requires agencies to develop one or more compliance guides for each final rule or group of related final rules for which the agency is required to prepare an FRFA. Specifically, Section 212 requires the guides to be posted in an easily identifiable location on the agency's website and distributed to "known industry contacts," be entitled "small entity compliance guides," and explain the actions a small entity is required to take to comply with an associated final rule. The statute also requires the guide to be published not later than the date that the associated rule's requirements become effective. However, an agency does not have to prepare the compliance guides at all if it determines that the rule or group of rules does not have a "significant" economic impact on a "substantial" number of small entities. Advocacy Review Panels Section 244 of SBREFA amended Section 609 of the RFA to require the Environmental Protection Agency (EPA) and the Occupational Safety and Health Administration (OSHA) to convene "advocacy review panels" before publishing an IRFA for a proposed rule. The Dodd-Frank Wall Street Reform and Consumer Protection Act ( P.L. 111-203 , July 21, 2010) required the new Consumer Financial Protection Bureau (CFPB) to also hold such panels. Specifically, the agency issuing the regulation (either EPA, OSHA, or CFPB) must notify the SBA Chief Counsel for Advocacy and provide information on the draft rule's potential impacts on small entities and the type of small entities that might be affected. The Chief Counsel then must identify representatives of affected small entities within 15 days of the notification. The review panel must consist of full-time federal employees from the rulemaking agency, the Office of Management and Budget, and SBA's Chief Counsel for Advocacy. During the panel process, the panel must collect the advice and recommendations of representatives of affected small entities about the potential impact of the draft rule. The panel must report on the comments received and on its recommendations no later than 60 days after the panel is convened, and the panel's report must be made public as part of the rulemaking record. However, EPA, OSHA, and CFPB do not have to hold an advocacy review panel at all if the issuing agency certifies that the subject rule will not have a "significant" economic impact on a "substantial" number of small entities. GAO Assessments of the RFA's Implementation The Government Accountability Office (GAO, formerly the General Accounting Office) has commented on the implementation of the RFA numerous times within the past 20 years, and a recurring theme in GAO's reports is a lack of clarity in the act regarding key terms and a resulting variability in the act's implementation. For example, in 1991, GAO reported that each of the four federal agencies that it reviewed had a different interpretation of key RFA provisions—most notably, what constitutes a "significant" economic impact or a "substantial" number of small entities. In 1994, GAO again reported that agencies' compliance with the RFA varied widely from one agency to another and that agencies were interpreting the statute differently. In a 1999 report on the implementation of Section 610 of the RFA and in a 2000 report on the implementation of the RFA at EPA, GAO concluded that agencies had broad discretion to determine what the statute required. In the 2000 report, GAO determined that EPA had certified virtually all of its rules after 1996 as not having a SEISNSE, and that the rate of certifications increased substantially after the passage of SBREFA. In all of these reports, GAO suggested that Congress consider clarifying the act's requirements, give SBA or some other entity the responsibility to develop criteria for whether and how agencies should conduct RFA analyses, or both. In 2001, GAO testified that the promise of the RFA may never be realized until Congress or some other entity defines what a "significant economic impact" and a "substantial number of small entities" mean in a rulemaking setting. In 2002, GAO again testified that the implementation of the RFA was still problematic, and raised more questions about how the statute should be interpreted. For example, GAO said, in determining whether a rule has a significant impact on small entities, should agencies take into account the cumulative impact of similar rules in the same area? Should agencies consider the RFA triggered when a rule has a significant positive impact on small entities? GAO went on to say the following: These questions are not simply matters of administrative conjecture within the agencies. They lie at the heart of the RFA and SBREFA, and the answers to the questions can have a substantive effect on the amount of regulatory relief provided through those statutes. Because Congress did not answer these questions when the statutes were enacted, agencies have had to develop their own answers—and those answers differ. If Congress does not like the answers that the agencies have developed, it needs to either amend the underlying statutes and provide what it believes are the correct answers or give some other entity the authority to issue guidance on these issues. In 2006, GAO again testified that "the full promise of RFA may never be realized until Congress clarifies key terms and definitions in the Act, such as 'a substantial number of small entities,' or provides an agency or office with the clear authority and responsibility to do so." In addition to the areas raised previously, GAO said that numerous other issues regarding the RFA remain unresolved, including how Congress believes that the economic impact of a rule should be measured (e.g., in terms of compliance costs as a percentage of businesses' annual revenues, the percentage of work hours available to the firms, or some other metric); whether agencies should count the impact of the underlying statutes when determining whether their rules have a significant impact; what should be considered a "rule" for purposes of the requirement that agencies review their rules within 10 years of their promulgation; and whether agencies should review all rules that had a SEISNSE at the time they were originally published as final rules, or only those rules that currently have that effect. Therefore, GAO said "Congress might wish to review the procedures, definitions, exemptions, and other provisions of RFA to determine whether changes are needed to better achieve the purposes Congress intended." Also, GAO said "attention should ... be paid to the domino effect that an agency's initial determination of whether RFA is applicable to a rulemaking has on other statutory requirements, such as preparing compliance guides for small entities and periodically reviewing existing regulations." Although GAO has consistently called for greater clarity in the RFA's requirements, other observers have indicated that the definitions of key terms like "significant economic impact" and "substantial number of small entities" should remain flexible because of significant differences in each agency's operating environment. Notably, the SBA Office of Advocacy said that "[n]o definition could, or arguably should, be devised to apply to all rules given the dynamics of the economy and changes that are constantly occurring in the structure of small-entity sectors." In its guidance on the RFA, SBA said the lack of clear definitions in the act "does not mean that Congress left the terms completely ambiguous or open to unreasonable interpretations." Quoting the legislative history of the act in 1980, SBA said the diversity of both the community of small entities and of rules themselves makes a precise definition of the term "significant economic impact" virtually impossible and possibly counterproductive. Illustrative examples of "significant" economic impacts cited in the guidance range widely—from $500 in compliance costs to a 2% reduction in revenues if an industry's profits are 3% of revenues. Similarly, the guidance suggests that determinations of whether a "substantial number" of small entities are affected should begin with what it called the "more than just a few" standard, but ultimately does not require agencies to find that more than half of small entities would be affected. Legislative Developments In the 112 th Congress, H.R. 527 , the Regulatory Flexibility Improvements Act of 2011, proposes to amend the RFA "to ensure complete analysis of potential impacts on small entities of rules, and for other purposes." Section 2(a) of the bill would (if enacted) change the definition of a "rule" from those for which a notice of proposed rulemaking is published under Section 553(b) of title 5 to the much broader definition of a rule under Section 551(4) of title 5. However, the definition excludes certain types of rules from coverage (e.g., rules of particular applicability relating to rates, wages, corporate or financial structures). Also, the bill would (1) define the term "economic impact" to include both direct economic effects and any indirect effect "which is reasonably foreseeable" and results from such rules; (2) require IRFAs and FRFAs to include alternatives that would maximize any beneficial economic effects on small entities; (3) require IRFAs and FRFAs for land management plans, as defined in the bill; and (4) require IRFAs and FRFAs to contain greater details, and to provide quantifiable or numerical descriptions of the rules effects or an explanation of why quantification is not practicable or reliable. Section 4 of H.R. 527 would require the SBA Chief Counsel for Advocacy to issue rules governing agency compliance with the RFA. The bill requires these rules to be issued within 270 days after the date of enactment, after an opportunity for notice and comment. Also, agencies are prohibited from issuing their own rules on RFA compliance without first consulting with the chief counsel for advocacy. The chief counsel is generally authorized to intervene in any agency adjudication, informing the agency of any impacts on small entities, and is authorized to file comments in any agency notice requesting comments. Section 5 of H.R. 527 would amend Section 609(b) of title 5, and would require agencies to notify the chief counsel for advocacy about any proposed rule expected to have a SEISNSE, or expected to have certain economic effects (even if the rule is not expected to have a SEISNSE). Those economic effects are defined as follows: (1) an annual effect on the economy of $100,000,000 or more; (2) a major increase in costs or prices for consumers, individual industries, Federal, State, or local governments, tribal organizations, or geographic regions; [or] (3) significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of United States-based enterprises to compete with foreign-based enterprises in domestic and export markets. This definition is the same as is used in the definition of a "major rule" in the Congressional Review Act (5 U.S.C. § 804(2)). For any proposed rule that the issuing agency or the OIRA Administrator expects to have a SEISNSE or be "major," the issuing agency is generally required to provide the chief counsel for advocacy with all materials used in the development of the proposed rule, and "information on the potential adverse and beneficial economic impacts of the proposed rule on small entities, and the type of small entities that might be affected." Within 15 days after receiving these materials, the chief counsel is required to (1) identify affected small entities or their representatives from whom information about the impacts of the rule can be obtained, and (2) convene a "review panel" to examine the materials provided to the chief counsel. The panel is required to be composed of an employee from the Office of Advocacy, an employee from the issuing agency, and (unless the rule is issued by an independent regulatory agency) an employee from OIRA. Within 60 days after the panel is convened, the chief counsel for advocacy is required to submit a report to the agency and to OIRA (unless the rule is issued by an independent regulatory agency) assessing the economic impact of the proposed rule on small entities and any alternatives that would minimize adverse impacts or maximize beneficial impacts. The report is required to become part of the rulemaking record, and the agency is required to explain what actions the agency took in response to the report. Section 6 of H.R. 527 would amend Section 610 of title 5 and require that each agency publish a plan for the periodic review of rules that the head of the agency determines have a SEISNSE, "without regard to whether the agency performed an analysis under section 604." The plans would generally require the review of all existing rules within 10 years of the date that the bill is enacted, and any subsequent rule within 10 years of its publication in the Federal Register . Agencies would be required to publish a list of rules to be reviewed, and to request comments from the public, the chief counsel for advocacy, and the regulatory enforcement ombudsman. Other sections of the bill would make certain changes to the judicial review provisions in Section 611 of title 5, and to the chief counsel's amicus authority under Section 612 of title 5. Analysis of H.R. 527 Some of the provisions in H.R. 527 appeared to address certain long-standing issues of concern regarding the implementation of the RFA (e.g., the inclusion of "indirect" effects in the definition of "economic impact," and clarifying that Section 610 reviews are required for any rule determined to have a SEISNSE, even if an FRFA was not prepared). Other provisions appear to add to the number or depth of the analytical and notification requirements placed on rulemaking agencies. Perhaps most notably, the SBA chief counsel for advocacy is required to issue rules governing agency compliance with the RFA. If those rules clarify what is meant by the term "significant economic impact on a substantial number of small entities," they have the potential to improve the implementation of the RFA as well as related statutory requirements. Other portions of H.R. 527 appear to widen the scope and impact of the RFA substantially. For example, by defining a covered "rule" using the definition in Section 551(4) of title 5, the RFA would appear to include not just legislative rules that appear in the Federal Register and the Code of Federal Regulations , but also agency guidance documents and policy statements. Also, the amendments to Section 609 of title 5 would, if enacted, substantially broaden the requirement for advocacy review panels. Currently, the requirements only apply to EPA and OSHA, and will extend to the CFPB when the agency is established in July 2010. H.R. 527 would, if enacted, expand the panel requirements to all agencies, and make them applicable to "major" rules, even if they did not have a SEISNSE. Also, some rules that are considered "major" impose no compliance costs, and instead are considered major because they involve more than $100 million in federal transfer payments (e.g., to Medicare and Medicaid providers, or as crop subsidies), fees for government services (e.g., passport application fees paid to the Department of State), or consumer spending (e.g., migratory bird hunting rules issued by the Department of the Interior). Some observers have indicated that these changes to the RFA could affect agencies' ability to issue needed regulations, while others have applauded the changes. Both groups would likely agree that the amendments, if enacted, would fundamentally alter the nature and RFA's reach and requirements. Other changes contemplated in H.R. 527 may have mixed effects. For example, for more than 20 years, courts have ruled that agencies need not prepare regulatory flexibility analyses if the effects of a rule on an industry are indirect. Therefore, for example, if a federal agency is issuing a final rule establishing a health standard that is implemented by states or other entities, the federal agency issuing the rule need not prepare a regulatory flexibility analysis even if it is clear that the implementation ultimately will have significant effect on a substantial number of small entities. Agencies have also indicated that they do not consider the secondary effects that a rule may have on the cost of compliance with other programs. By clarifying that the term "economic impact" includes indirect effects that are "reasonably foreseeable and result from the rule," H.R. 527 might result in more agency rules being viewed as requiring an IRFA, an FRFA, or both. Nevertheless, agencies appear to have substantial discretion in determining what indirect effects are "reasonably foreseeable," because the proposed legislation does not define that term. Also, even when the indirect effects of a rule are foreseeable, in some cases the agencies may not be able to provide much detail regarding those effects in their IRFAs and FRFAs (e.g., when the implementation details are left to states or local governments). H.R. 527 would, if enacted, also clarify how agencies' reviews under Section 610 of the RFA should be conducted. As a result, agencies would be required to review all of their rules to determine if they currently have a SEISNE, and could not simply rely on their previous determinations when the final rule was published in the Federal Register . Enactment of this change could result in substantially more Section 610 reviews, but with a concomitant increase in time and effort required by federal agencies. However, it is unclear how this requirement for renewed plans for regulatory review will interact with similar requirements for retrospective analysis under Executive Order 13563, which was issued by President Barack Obama on January 18, 2011. Section 6 of that order requires covered agencies (Cabinet departments and independent agencies, but not independent regulatory agencies) to submit a preliminary plan to OIRA for the review of all of their existing rules. More generally, a July 2007 report by GAO indicated that statutorily required regulatory reviews are less frequent, and may be less effective, than reviews undertaken at the agencies' discretion—thereby raising questions about the overall value of statutory review requirements such as Section 610 of the RFA. In that report, GAO said most "retrospective reviews" of agency rules between 2001 and 2006 were conducted at the agencies' discretion, not as a result of mandatory requirements such as Section 610. GAO also said that discretionary reviews were more likely to involve the public in the process than mandatory reviews, and were more likely to result in changes to the rules. On the other hand, statutorily required reviews were more likely to have review standards, and were more likely to be documented. GAO recommended that agencies incorporate various elements into their policies and procedures to improve the effectiveness and transparency of retrospective regulatory reviews, and that they identify opportunities for Congress to revise and consolidate existing review requirements.

The Regulatory Flexibility Act (RFA) of 1980 (5 U.S.C. §§601-612) requires federal agencies to assess the impact of their forthcoming regulations on "small entities" (i.e., small businesses, small governments, and small not-for-profit organizations). For example, the act requires the analysis to describe why a regulatory action is being considered; the small entities to which the rule will apply and, where feasible, an estimate of their number; the projected reporting, recordkeeping, and other compliance requirements of the rule; and any significant alternatives to the rule that would accomplish the statutory objectives while minimizing the impact on small entities. This analysis is not required, however, if the head of the agency certifies that the rule will not have a "significant economic impact on a substantial number of small entities." The RFA does not define "significant economic impact" or "substantial number of small entities," thereby giving federal agencies substantial discretion regarding when the act's requirements are triggered. Other requirements in the RFA and elsewhere (e.g., that agencies reexamine their existing rules, develop compliance guides, and convene advocacy review panels) also depend on the whether the agencies determine that their rules have a "significant" impact on a "substantial" number of small entities. GAO has examined the implementation of the RFA many times during the past 20 years, and has consistently concluded that the lack of clear definitions for key terms like "significant economic impact" and "substantial number of small entities" have hindered the act's effectiveness. Therefore, GAO has repeatedly recommended that Congress define those terms, or give the Small Business Administration or some other federal agency the authority and responsibility to do so. In the 112th Congress, H.R. 527, the Regulatory Flexibility Improvements Act of 2011, proposes to (among other things) define "economic impact" as including indirect effects that are "reasonably foreseeable," and require the chief counsel for advocacy of the Small Business Administration to issue rules governing agency compliance with the RFA. The bill would also broaden the definition of a covered rule, and would expand the use of advocacy review panels before proposed rules are published. This report will be updated as events warrant.

Overview of the America COMPETES Act The America COMPETES Act was a response to concerns about the potential erosion of U.S. industrial competitiveness and global technological leadership. Many believe that investments in science and engineering research, STEM education, and STEM workforce development can contribute to U.S. competitiveness. The act mainly addresses concerns about the adequacy of investment in these areas. The America COMPETES Act authorizes an increase in federal science and engineering research funding and support for STEM education from kindergarten through the postdoctoral level. The act authorizes funding increases through FY2010 for the National Science Foundation (NSF), the National Institute of Standards and Technology (NIST) laboratories, and the Department of Energy Office of Science (DOE SC). The act also authorizes within DOE the establishment of the Advanced Research Projects Agency – Energy (ARPA-E) and Discovery Science and Engineering Innovation Institutes. In addition, the act authorizes new STEM education programs at DOE, the Department of Education (ED), and NSF, and increases the authorization levels for several existing NSF STEM education programs. The America COMPETES Act is an authorization act. New programs authorized by the act will not be established unless funded through subsequent appropriations acts. Similarly, realization of the higher authorization levels of existing programs in the act depends on subsequent appropriations. Overview of FY2008 and FY2009 Appropriations The America COMPETES Act was passed after much of the FY2008 appropriations process had already taken place during the 110 th Congress. Although America COMPETES Act programs were not funded at their FY2008 authorized levels, the 110 th Congress did provide FY2008 appropriations to establish ED's Teachers for a Competitive Tomorrow program, and NIST's Technology Improvement Program (TIP), which replaced the agency's Advanced Technology Program. The 111 th Congress provided funding in FY2009 for R&D and STEM education through the Omnibus Appropriations Act, 2009 ( P.L. 111-8 ) and the American Recovery and Reinvestment Act ( P.L. 111-5 ). Some America COMPETES Act programs were funded at authorized levels; others were not. The following activities were funded at or above authorized levels: NIST's Scientific & Technical Research and Services (STRS) and Construction and Maintenance; DOE's Office of Science; and NSF's Research and Related Activities, Major Research Instrumentation, Major Research Equipment and Facilities Construction, Professional Science Master's program, Robert Noyce Teacher Scholarship program, and Graduate Research Fellowship program. Other programs were funded either below authorized levels or not funded. The acts funded the establishment of DOE's ARPA-E and NSF's PSM program. Also, portions of the P-16 Alignment of Secondary School Graduation Requirements with the Demands of 21 st Century Postsecondary Endeavors and Support for P-16 Education Data Systems were funded through the ARRA. The Obama Administration contends that the following America COMPETES Act programs correspond to existing DOE programs: Summer Institutes (§5003) to the pre-existing DOE Academies Creating Teacher Scientists program (DOE ACTS); Early Career Awards for Science, Engineering, and Mathematics Researchers (§5006) to the pre-existing High Energy Physics Outstanding Junior Investigator, Nuclear Physics Outstanding Junior Investigator, Fusion Energy Sciences Plasma Physics Junior Faculty Development; Advanced Scientific Computing Research Early Career Principle Investigator; and the Office of Science Early Career Scientist and Engineer Award programs; Discovery Science and Engineering Innovation Institutes (§5008) to the pre-existing Bioenergy Research Centers, SciDAC Institutes, and the Energy Frontier Research Centers; and Protecting America's Competitive Edge (PACE) Graduate Fellowship Program (§5009) to the pre-existing Computer Science Graduate Fellowships; Graduate Research Environmental Fellowships; American Meteorological Society/Industry/Government Graduate Fellowships; Spallation Neutron Source Instrumentation Fellowships, and the Fusion Energy Sciences Graduate Fellowships. The President's FY2010 Budget Request This section provides an overview of President Obama's FY2010 budget request for research and STEM education activities as they relate to the America COMPETES Act. Table 1 (located at the end of this report) provides a program-specific comparison of the President's FY2010 budget request, America COMPETES Act authorization levels, and congressional actions. Research The President's FY2010 budget request stated that the President planned to double funding for the NSF, NIST laboratories, and DOE SC between 2006 and 2016 (see Figure 1 ). President Obama's proposed plan is consistent with President Bush's American Competitiveness Initiative (ACI) which also sought to double these agencies' budgets over 10 years. President Obama's plan proposes a slower doubling path than that laid out in the America COMPETES Act which placed these same agencies on a track to double their budgets over seven years. President Obama's FY2010 request for NSF's Research and Related Activities (R&RA) was $5,733.2 million, $667.8 million below the authorized level of $6,401.0 million. Within the R&RA account, the President requested funding at the authorized level of $203.8 million for the NSF Faculty Early Career Development (CAREER) program. The President's FY2010 request also included $147.1 million for NSF's Experimental Program to Stimulate Competitive Research (EPSCoR), similar to its authorized level of $147.8 million. The request also included $19.4 million for R&RA's portion of NSF's Graduate Research Fellowship (GRF) program, above its authorized level of $11.1 million, though the Education and Human Resources (EHR) Directorate portion of GRF proposed funding of $102.6 million is below the authorized level of $119.0 million. No FY2010 funding was requested for NSF's Professional Science Master's (PSM) program, newly established in FY2009 through ARRA funding. President Obama's FY2010 request for DOE SC was $4,941.7 million, below the authorization level of $5,814.0 million. In addition, the President requested $10.0 million in FY2010 for DOE's ARPA-E. Congress appropriated $415.0 million for ARPA-E in FY2009 ($15.0 million as part of the regular FY2009 appropriation and $400.0 million under the ARRA). The America COMPETES Act authorizes "such sums as are necessary" for ARPA-E in FY2010. President Obama's FY2010 request for NIST STRS was $534.6 million, $50.2 million below the authorization level of $584.8 million. The President requested FY2010 funding of $69.9 million for the NIST TIP program, less than half the authorization level of $140.5 million. The FY2010 request for MEP was $124.7 million, $7.1 million below the authorization level of $131.8 million. The President's FY2010 request for the NIST construction and maintenance account was $116.9 million, more than double the authorization level of $49.7 million. Science, Technology, Engineering, and Mathematics (STEM) Education President Obama did not request funding in FY2010 to establish the new STEM education programs authorized in the America COMPETES Act. Although no new funding was requested for America COMPETES Act STEM education programs at ED, the President's request funded ED's Teachers for a Competitive Tomorrow program at its FY2009 enacted level of $2.2 million. The President requested funding for NSF's Advanced Technological Education (ATE) program at its authorized level of $64 million. The President's request for each of the other NSF STEM programs was below the America COMPETES Act FY2010 authorization levels. No funding was requested for the NSF Laboratory Science Pilot program which was authorized by the act "to improve laboratories and provide instrumentation as part of a comprehensive program to enhance the quality of science, technology, engineering, and mathematics instruction at the secondary school level." The President requested no funding for any of the DOE STEM education programs authorized under the America COMPETES Act. However, as shown in Figure 2 , the President requested funding for other STEM education programs not part of the America COMPETES Act. For example, the President proposed a new DOE-NSF initiative called "REgaining our ENERGY Science and Engineering Edge" (RE-ENERGYSE) to encourage American students to pursue STEM careers, particularly in clean energy, requesting DOE funding of $115.0 million. As a point of comparison, the total FY2010 authorization level for all the DOE STEM education programs authorized in the America COMPETES Act was $117.5 million. Also, although the appropriation levels requested by the President for these agencies were below that authorized in the America COMPETES Act for FY2010, some analysts noted that the total funds appropriated in FY2008 (regular and supplemental) and FY2009 (regular and ARRA) and requested for FY2010 by the President for NSF and the NIST laboratories and construction accounts exceed the aggregate funding authorized for these agencies/accounts during this period under the America COMPETES Act. For DOE SC, the appropriated/requested funding was slightly below the authorization level for this period. As shown in Figure 3 , the total authorization for NSF under the America COMPETES Act for FY2006-FY2008 was $22,058 million, while the total appropriated/requested was $22,665 million, $607 million above the aggregate authorized level. The total authorization for the NIST STRS and Construction accounts during this period was $1,916 million, while the funding appropriated/requested was $2,477 million, $561 million above the authorized level. For DOE SC, the total authorized for this period was $15,600 million, while the total appropriated/requested was $15,335 million, $265 million below the authorized level. However, examining the FY2010 figures separately shows the President's FY2010 budget request for NSF to have been $1,087 million below the America COMPETES Act authorization level, and $872 million below the authorization level for DOE SC. The President's NIST STRS/Construction request for FY2010 was $17 million more than the FY2010 America COMPETES Act authorization level. If Congress chooses to remain on the seven-year doubling path for research initiated by the America COMPETES Act, large dollar and percentage increases would be required in FY2011 for NSF and DOE SC. Congressional Actions Following release of the President's FY2010 budget request, Congress passed a budget resolution that sets the budgetary spending amounts for each functional category of the budget. The budget resolution does not allocate funds among specific programs or accounts. Major program assumptions underlying the functional amounts, however, are often discussed in the reports accompanying the resolution. These program assumptions and budget functions are not binding, although congressional action has been taken. Budget Resolution In April 2009, the House and Senate agreed to the concurrent budget resolution ( S.Con.Res. 13 ), which stated, in part: SEC. 603. SENSE OF THE CONGRESS ON PROMOTING AMERICAN INNOVATION AND ECONOMIC COMPETITIVENESS. It is the sense of the Congress that— (1) the Congress should provide sufficient investments to enable our Nation to continue to be the world leader in education ,innovation, and economic growth as envisioned in the goals of the America COMPETES Act; (2) this resolution builds on significant funding provided in the American Recovery and Reinvestment Act for scientific research and education in Function 250 (General Science, Space and Technology), Function 270 (Energy), Function 300 (Natural Resources and Environment), Function 500 (Education, Training, Employment, and Social Services), and Function 550(Health); (3) the Congress also should pursue policies designed to ensure that American students, teachers, businesses, and workers are prepared to continue leading the world in innovation, research, and technology well into the future; and (4) this resolution recognizes the importance of the extension of investments and tax policies that promote research and development and encourage innovation and future technologies that will ensure American economic competitiveness. Appropriations Status In both the House and Senate, jurisdiction for funding the programs addressed by the America COMPETES Act is divided among multiple appropriations subcommittees. As a result, funding for these programs was contained in multiple FY2010 regular appropriations bills, adding to the complexity Congress faces in addressing these programs as part of a single initiative, as well as in tracking program funding. Table 1 summarizes the FY2010 appropriations status of the America COMPETES Act programs. Appropriations for America COMPETES Act programs are included in three regular appropriations bills: Commerce, Justice, Science, and Related Agencies (CJS), for NSF and NIST programs; Energy and Water Development (Energy-Water), for DOE programs; Labor, Health and Human Services, Education, and Related Agencies (Labor-HHS-Education), for ED programs. Typically, the appropriations subcommittees in the House and Senate review the President's budget request and each provides recommendations to its respective Committee on Appropriations. The following sections summarize final FY2010 appropriations for America COMPETES Act programs. Commerce, Justice, Science, and Related Agencies The House approved the CJS Act ( H.R. 2847 ) on June 18, 2009. The Senate Committee on Appropriations CJS subcommittee made its report ( S.Rept. 111-34 ) providing funding recommendations to the full committee on June 24, 2009. The Senate Appropriations Committee reported the bill on June 25, 2009. Ultimately, regular appropriations for FY2010 for activities funded in the CJS Appropriations Act were included as Division B in the Consolidated Appropriations Act, 2010 ( P.L. 111-117 ), which was signed into law on December 16, 2009. National Institute of Standards and Technology, U.S. Department of Commerce Scientific and Technical Research Services. P.L. 111-117 includes $515.0 million for the NIST STRS account for FY2010, $43.0 million (9.1%) above the FY2009 regular appropriation ($472.0 million), below the President's request ($534.6 million), and below the America COMPETES Act FY2010 authorization level ($584.8 million). Construction and Maintenance. Funding for the NIST Construction and Maintenance account for FY2010 is $147.0 million, above the President's request ($116.9 million) and the America COMPETES Act FY2010 authorization level ($49.7 million), but $25.0 million (14.5%) below the FY2009 regular appropriation ($172.0 million). Technology Innovation Program. The NIST TIP program is funded at $69.9 million in FY2010, equal to the President's request, $4.9 million (7.5%) above the FY2009 regular appropriation ($65.0 million), but less than half the America COMPETES Act FY2010 authorization level ($140.5 million). Manufacturing Extension Partnership . The NIST MEP program is funded at $124.7 million for FY2010, equal to the President's request, $14.7 million (13.4%) above the FY2009 regular appropriation ($110.0 million), but below the America COMPETES Act FY2010 authorization level ($131.8 million). National Science Foundation Research and Related Activities. FY2010 funding for the NSF R&RA account is $5,617.9, $115.3 million (2.0%) below the President's request ($5,733.2 million), $434.8 million (8.4%) above the FY2009 regular appropriation ($5,183.1 million), but $783.1 million (12.2%) below the America COMPETES Act FY2010 authorization level of $6,401.0 million. Several America COMPETES Act programs included in the President's budget under the R&RA account were not included in P.L. 111-117 , including: Faculty Early Career Development, Research Experiences for Undergraduates, Integrative Graduate Education and Research Traineeship (R&RA portion), and Graduate Research Fellowship (R&RA portion) programs. The President requested $100 million for the Major Research Instrumentation program for FY2010. Funding is not included in P.L. 111-117 for this program. The report accompanying the House passed version of the Commerce, Justice, Science, and Related Agencies Appropriations Act, 2010 ( H.Rept. 111-149 ) stated that no funds were being provided for the Major Research Instrumentation program due to new solicitations in FY2009 totaling $400 million but expects to resume funding in FY2011; the Senate report stated that "The Committee expects the NSF to fully fund world-class scientific research facilities and instruments" commensurate with the increase in the number of research grants that it anticipates will result from increased FY2009 funding. With respect to the Experimental Program to Stimulate Competitive Research (EPSCOR), funding is provided at the requested level of $147.1 million, approximately equal to the authorized level. The President did not request funds for the Professional Science Master's Degree Program, authorized at $15.0 million, and no funds are included in P.L. 111-117 ; S.Rept. 111-34 stated that "the Committee strongly encourages NSF to continue support" for the PSM program and "strongly recommends that NSF incorporate requests for funding in fiscal year 2011 budget and beyond." Funding for the Graduate Research Fellowship program is not included in P.L. 111-117 . The House report stated that an additional $14.0 million was provided in the House bill above the President's request (for a total of $33.4 million) to enable NSF to select and support 2,000 new fellows in FY2010; neither the Senate bill nor its accompanying report referenced the program. Education and Human Resources. P.L. 111-117 provides $872.8 million for the NSF EHR account, $72.5 million (3.3%) above the FY2009 regular appropriation ($845.3 million), $15.0 million (1.7%) above the President's request ($857.8 million), and $231.2 million (20.9%) less than the America COMPETES Act FY2010 authorization level of $1,104.0 million. The America COMPETES Act provided appropriations authorizations for six EHR programs. While P.L. 111-117 only specifies the funding level for the Robert Noyce Teacher Scholarship Program, the conference report ( H.Rept. 111-366 ) indicates that the act fully funds the President's request (as well as providing $15 million for activities not covered by the America COMPETES Act) which was made at the following levels: Mathematics and Science Education Partnership, $58.2 million; Robert Noyce Teacher Scholarship Program, $55.0 million; Science, Mathematics, Engineering, and Technology Talent Expansion, $31.5 million; Advanced Technological Education, $64.0 million; Integrative Graduate Education and Research Traineeship, $29.9 million; and Graduate Research Fellowship, $102.6 million. Major Research Equipment and Facilities Construction. P.L. 111-117 provides $117.3 million for the NSF MREFC account, equal to the President's request, $34.7 million (22.8%) below the FY2009 regular appropriation ($152.0 million), and less than half the level authorized under the America COMPETES Act ($280.0 million). Agency Operation and Award Management. P.L. 111-117 provides $300 million for the NSF Agency Operation and Award Management account, $6.0 million (2.0%) above the FY2009 regular appropriation ($294.0 million), $18.4 million less than the President's request ($318.4 million), and $29.5 million less than authorized under the America COMPETES Act ($329.5 million). National Science Board. P.L. 111-117 provides $4.5 million for the National Science Board, $0.5 million (12.5%) above the FY2009 regular appropriation ($4.0 million), and $0.2 million more than the President's request ($4.3 million) and the amount authorized under the America COMPETES Act ($4.3 million). Inspector General . P.L. 111-117 provides $14.0 million for the NSF Inspector General, $2.0 million (16.7%) above the FY2009 regular appropriation ($12.0 million), equal to the President's request ($14.0 million), and $0.8 million (6.1%) above the level authorized in the America COMPETES Act ($13.2 million). Energy and Water Development P.L. 111-85 , the Energy and Water Development and Related Agencies Appropriations Act, 2010, was signed into law on October 28, 2009. Department of Energy Office of Science. P.L. 111-85 provides $4,903.7 million for the Office of Science, $146.1 million (3.1%) above the FY2009 regular appropriation ($4,757.6 million), $38.0 million (0.8%) less than the President's request ($4,941.7 million), and $910.3 million (15.7%) below the level authorized in the America COMPETES Act ($5,814.0 million). Advanced Research Projects Agency – Energy (ARPA-E). P.L. 111-85 provides no funds for the Advanced Research Projects Agency – Energy in FY2010. The report accompanying the House-passed version of the bill ( H.Rept. 111-203 ) states that funding provided in the FY2009 regular appropriation ($15.0 million) and in the ARRA ($400.0 million) will allow ARPA-E to fund its first round of awards in FY2010, and adds: "The decision not to provide any additional funding for ARPA–E in fiscal year 2010 beyond the funding already provided does not in any way suggest a lack of commitment to this new program by the Committee." The President had requested $10.0 million for ARPA-E in FY2010. Other Department of Energy Programs Authorized Under the America COMPETES Act. Twelve new DOE research and education programs authorized in the America COMPETES Act have not been funded in previous years, received no request for funding in the President's FY2010 budget, and are not included in P.L. 111-85 . They include: Pilot Program of Grants to Specialty Schools for Science and Mathematics; Experiential Based Learning Opportunities; Summer Institutes; National Energy Education Development; Nuclear Science Program Expansion Grants for Institutions of Higher Education; Nuclear Science Competitiveness Grants for Institutions of Higher Education; Hydrocarbon Systems Science Program Expansion Grants for Institutions of Higher Education; Hydrocarbon Systems Science Competitiveness Grants for Institutions of Higher Education; Early Career Awards for Science, Engineering, and Mathematics Researchers; Discovery Science and Engineering Innovation Institutes; Protecting America's Competitive Edge (PACE) Graduate Fellowship Program; and Distinguished Scientist Program. Total authorized FY2010 funding for these programs under the America COMPETES Act exceeds $200 million. White House officials have stated that several of these programs are similar to existing programs that receive support in the President's budget. Labor, Health and Human Services, Education, and Related Agencies The Labor-HHS Act ( H.R. 3293 ) was included as Division D of the Consolidated Appropriations Act, 2010 ( P.L. 111-117 ). P.L. 111-117 was signed into law on December 16, 2009. Department of Education Advanced Placement and International Baccalaureate Programs . P.L. 111-117 provides $45.8 million for the Advanced Placement and International Baccalaureate Programs, $2.3 million (5.3%) more than the President's FY2010 request. The America COMPETES Act authorizes "such sums as may be necessary." Teachers for a Competitive Tomorrow . P.L. 111-117 provides $1.1 million for the Teachers for a Competitive Tomorrow: Baccalaureate Degrees and $1.1 million for the Teachers for a Competitive Tomorrow: Master's Degrees programs, both equal to the President's request and to their FY2009 funding level. The America COMPETES Act FY2010 authorization level for these programs is $151.2 million for the baccalaureate level and $125.0 million for the master's level. Other Department of Education Programs Authorized Under the America COMPETES Act. P.L. 111-117 does not provide funding for five new Department of Education programs authorized in the America COMPETES Act: Math Now, Summer Term Education Programs, Math Skills for Secondary School Students, Advancing America Through Foreign Language Partnership Program, and Mathematics and Science Partnership Bonus Grants. These programs were not funded in previous years and received no request for funding in the President's FY2010 budget. Funding for a sixth program authorized under the America COMPETES Act, P-16 Alignment of Secondary School Graduation Requirements with the Demands of 21 st Century Postsecondary Endeavors and Support for P-16 Education Data Systems, is ambiguous. According to the Department of Education, this program is similar to a program established in 2005 focused on P-12 data systems, but which has since expanded to include P-16 education data systems per the intent of the America COMPETES Act. The America COMPETES Act authorizes $95 million in FY2010 for the Math Skills for Secondary School Students program and "such sums as may be necessary" for each of the other programs. Issues for Congress As Congress deliberates the FY2010 budget, an issue for Congress is what level, if any, will it appropriate funding for America COMPETES Act programs. Several new programs authorized in the act have never been funded. An issue for these programs is whether or not they will receive the funding necessary to establish them. The America COMPETES Act provides authorization levels only through FY2010.

The America COMPETES Act (P.L. 110-69) became law on August 9, 2007. The act is intended to increase the nation's investment in research and development (R&D), and in science, technology, engineering, and mathematics (STEM) education. It is intended to address two concerns believed to influence U.S. competitiveness: the adequacy of R&D funding to generate sufficient technological progress, and the adequacy of the number of American students proficient in STEM or interested in STEM careers relative to other countries. The act authorizes funding increases for the National Science Foundation (NSF), National Institute of Standards and Technology (NIST) laboratories, and the Department of Energy Office of Science (DOE SC) over FY2008-FY2010. If the rate of increase provided for in the act were maintained, funding for these agencies would double, in nominal terms, in seven years. The act establishes the Advanced Research Projects Agency – Energy (ARPA-E) within DOE to support transformational energy technology research projects to enhance U.S. economic and energy security. A new program, Discovery Science and Engineering Innovation Institutes, is intended to support the establishment of multidisciplinary institutes at DOE national laboratories to apply fundamental science and engineering discoveries to technological innovations. Among the act's education activities, many of which are focused on high-need school districts, are programs to recruit new K-12 STEM teachers, enhance existing STEM teacher skills, and provide more STEM education opportunities for students. The new Department of Education (ED) Teachers for a Competitive Tomorrow and the existing NSF Robert Noyce Teacher Scholarship programs provide opportunities, through institutional grants, for students pursuing STEM degrees and STEM professionals to gain teaching skills and teacher certification, and for current STEM teachers to enhance their teaching skills and STEM knowledge. The act also authorizes a new program at NSF that would provide grants to create or improve professional science master's degree (PSM) programs that emphasize practical training and preparation for the workforce in high-need fields. The America COMPETES Act provides authorization levels through FY2010. New programs established by the act will not be initiated, and authorized increases in appropriations for existing programs will not occur, unless funded through appropriation acts. The 110th Congress provided FY2008 appropriations to establish ED's Teachers for a Competitive Tomorrow program, and NIST's Technology Improvement Program (TIP), which replaced the agency's Advanced Technology Program. The 111th Congress provided FY2009 appropriations, supplemented by the American Recovery and Reinvestment Act (ARRA), to establish DOE's ARPA-E and NSF's PSM program. Congress has completed action on the regular FY2010 appropriations acts, providing funding for some programs authorized under the American COMPETES Act through two acts. Some America COMPETES Act research and STEM education programs received appropriations at authorized levels in FY2010, others did not. FY2010 funding for programs at the Department of Commerce, National Science Foundation, and Department of Education is provided by the Consolidated Appropriations Act, 2010 (P.L. 111-117). Funding for Department of Energy programs is provided by the Energy and Water Development and Related Agencies Appropriations Act, 2010 (P.L. 111-85). Several programs newly authorized in the act have never been appropriated funds, nor did President Obama seek funding for them in his FY2010 budget request. Congress is considering reauthorizing the America COMPETES Act.

FY2017 Consideration: Overview of Actions The first section of this report provides an overview of the consideration of FY2017 legislative branch appropriations, with subsections covering each action, including the initial submission of the request on February 9, 2016; hearings held by the House and Senate Legislative Branch Subcommittees in March; the House subcommittee markup on April 20, 2016; the House full committee markup on May 17, 2016; the Senate full committee markup on May 19, 2016; House consideration of a special rule on June 8, 2016; House floor consideration on June 9 and 10, 2016; the enactment of three continuing resolutions ( P.L. 114-223 , through December 9, 2016; P.L. 114-254 , through April 28, 2017; and P.L. 115-30 , through May 5, 2017); and the enactment of the Consolidated Appropriations Act, 2017 on May 5, 2017 ( P.L. 115-31 ), which provides $4.440 billion for legislative branch activities. It is followed by a section on prior year actions and funding, which contains historical tables. The report then addresses the FY2017 budget requests, requested administrative language, and selected funding issues for individual legislative branch agencies and entities. Finally, Table 5 through Table 9 list enacted funding levels for FY2016 and FY2017, while the Appendix lists House, Senate, and conference bills and reports; public law numbers; and enactment dates since FY1998. Status of FY2017 Appropriations: Dates and Documents Submission of FY2017 Budget Request on February 9, 2016 The Budget for Fiscal Year 2017 was submitted on February 9, 2016. It contains a request for $4.659 billion in new budget authority for legislative branch activities. By law, the legislative branch request is submitted to the President and included in the budget without change. Senate and House Hearings on the FY2017 Budget Requests Table 2 lists the dates of hearings of the legislative branch subcommittees in 2016. Prepared statements of witnesses were posted on the subcommittee websites. House Appropriations Committee Subcommittee on Legislative Branch Markup On April 20, 2016, the House Appropriations Committee Subcommittee on Legislative Branch held a markup of the FY2017 bill. The subcommittee recommended $3.482 billion (+2.1%), not including Senate items, which are historically considered by the Senate. No amendments were offered. During the markup, the subcommittee held a lengthy discussion regarding then-draft committee report language regarding the usage of the phrase "illegal alien" as a Library of Congress Subject Heading (LCSH). In March 2016, the Library announced its plan to cancel this heading and replace it with two headings, "noncitizens" and "unauthorized immigration." The decision by the Policy and Standards Division of the Library of Congress, which maintains the LCSH, followed a previous proposal considered but not adopted in 2014 and a resolution adopted by the American Library Association in January 2016. Separate legislation directing the Library of Congress to retain the headings "Aliens" and "Illegal aliens," H.R. 4926 , also was introduced and referred to the Committee on House Administration, and no further action was taken. House Appropriations Committee Legislative Branch Markup On May 17, 2016, the House Appropriations Committee met to mark up the FY2017 bill reported from its legislative branch subcommittee. A number of amendments were considered: A manager's amendment offered by subcommittee Chairman Graves was agreed to by voice vote. The amendment increased funding for the Architect of the Capitol House Historic Buildings Revitalization Trust Fund by $7.0 million, offset by reducing funding from the Architect of the Capitol, Capitol Police Buildings, Grounds, and Security account. The manager's amendment also added language to the committee report regarding the security of House garages, addressing the donation of computer equipment, and directing the Library to conduct a "survey of ethnic collections of populations displaced as a result of World War II conflict found throughout the United States ... " An amendment was offered by Representative Wasserman Schultz to delete the committee report language related to the LCSH. As discussed above, this language was the subject of extended debate during the subcommittee markup. The report language states that "To the extent practicable, the Committee instructs the Library to maintain certain subject headings that reflect terminology used in title 8, United States Code." The amendment was not agreed to by a roll call vote of 24-25. An amendment was offered by Representative Farr to increase the funding for the Members' Representational Allowance by $8.3 million, offset by a reduction to the Architect of the Capitol's Capital Construction and Operations account, and was agreed to by voice vote. An amendment was offered by Representative Quigley to require the publication of certain Congressional Research Service products on the website of the Government Publishing Office, and was not agreed to by a roll call vote of 18-31. An amendment was offered and withdrawn by Representative Kaptur to increase the funding of the Open World Leadership Center. An amendment was offered by Representative Quigley to require the publication of a list of the titles of certain Congressional Research Service products, and was not agreed to by voice vote. An amendment was offered by Representative McCollum providing that no funding provided by the act be used to fund the Select Investigative Panel of the Committee on Energy and Commerce, which was established by H.Res. 461 , and was not agreed to by a roll call vote of 20-28. The bill was reported out of committee by voice vote ( H.R. 5325 , H.Rept. 114-594 ). Senate Appropriations Committee Legislative Branch Markup On May 19, 2016, the Senate Appropriations Committee met to mark up its version of the FY2017 bill. The subcommittee recommended $3.021 billion, a $23.5 million increase from the FY2016 enacted level (+0.8%). This total does not include funding for House items, which are historically considered by the House. No amendments were offered, and the bill was ordered reported by a vote of 30-0 ( S. 2955 , S.Rept. 114-258 ). Congressional Caps on Legislative Branch Funding: 302(b) Reports The FY2017 legislative branch appropriations bill was considered in the context of statutory and procedural budget constraints. The statutory constraints are provided through the Budget Control Act of 2011 (BCA; P.L. 112-25 , as amended), which imposes separate limits on defense and nondefense discretionary spending each fiscal year. Separately, the congressional budget process also provides a means of procedural budget enforcement through the adoption of a budget resolution. The budget resolution provides an overall limit on spending allocated to the House and the Senate appropriations committees (referred to as a "302(a) allocation"). The appropriations committees subsequently divide the 302(a) allocation among each of their 12 subcommittees, effectively establishing limits on each of the annual appropriations bills (commonly referred to as "302(b) suballocations"). These subcommittee levels may be revised throughout the appropriations process to reflect changing priorities and other budgetary actions. The House and the Senate did not adopt a budget resolution for FY2017. In its absence, the Senate Budget Committee chair filed budgetary levels in the Congressional Record that are enforceable in the Senate as if they had been included in a budget resolution for FY2017. Based on these levels, the Senate Appropriations Committee reported their initial 302(b) suballocations on April 18, 2016. These include $4.399 billion for the legislative branch, or 0.4% of total discretionary budget authority. In the absence of a budget resolution in the House, the House Appropriations Committee chose to adopt "interim 302(b) suballocations" for the appropriations bills as they were marked up in full committee. 11 The interim allocation for the legislative branch was $4.436 billion. These interim suballocations are not procedurally enforceable. The House- and Senate-proposed suballocations for the legislative branch differ by $37.0 million. House Consideration of a Special Rule As in past years, the House Rules Committee met to consider a structured rule for consideration of the legislative branch bill. In a June 1, 2016, "Dear Colleague" letter, Rules Committee Chairman Pete Sessions announced a deadline of 3:00 p.m. on Monday, June 6, 2016, for Members wishing to offer amendments to the legislative branch bill. A total of 41 amendments were submitted, including 14 submitted after the deadline and two that were withdrawn. During its meeting to discuss this rule on June 8, 2016, the committee held two related roll call votes: 1. Rules Committee Record Vote No. 183; This motion would have provided appropriate waivers for an amendment to be offered by Representative Wasserman Schultz providing for the restatement of the Library of Congress's existing policy regarding certain Subject Headings; and an amendment to be offered by Representatives Maloney (NY), Peters (CA), and Hanna (NY), prohibiting funds from being used to contravene the President's executive order pertaining to equal employment in federal government contracting. The motion was defeated 2-8. 2. Rules Committee Record Vote No. 184; The motion to report the rule was adopted 9-2. The committee reported a rule, H.Res. 771 , which made in order 13 amendments. It was agreed to in the House on June 9 (237–182, Roll no. 286). House Floor Consideration During consideration of H.R. 5325 , which began on June 9, 2016, and continued the next day, 10 amendments were offered. Six were agreed to (all voice votes), and four were not (all recorded votes). Three of the adopted amendments expand current restrictions on the delivery of certain printed documents to include additional publications. The current restrictions were added and continued in previous legislative branch appropriations bills, including the FY2017 House-reported bill. The amendments considered include 1. H.Amdt. 1164 , to reprogram funds to create an Office of Good Jobs for the House of Representatives within the Office of the Chief Administrative Officer, which failed by recorded vote (157-241, Roll no. 289); 2. H.Amdt. 1165 , to require the Architect of the Capitol to conduct a feasibility study regarding the installation and operation of Capital Bikeshare stations on Capitol Grounds, which was agreed to by voice vote; 3. H.Amdt. 1166 , to transfer $500,000 from the Architect of the Capitol's Capital Construction and Operations account to the Architect of the Capitol's Capitol Building and House Office Buildings accounts, appropriating $250,000 to each, to bring the Capitol and the House office buildings into compliance with General Services Administration requirements for federal buildings regarding lactation stations for breastfeeding mothers, which was agreed to by voice vote; 4. H.Amdt. 1167 , to provide for a 1% across-the-board reduction in the bill's spending levels, with exceptions for the Capitol Police, the Architect of the Capitol's Capitol Police Buildings, Grounds and Security account, and the House Sergeant at Arms account, which failed by recorded vote (165-237, Roll no. 290); 5. H.Amdt. 1168 , to prohibit the use of funds for delivering printed copies of the United States House of Representatives Telephone Directory to the office of any Member of the House of Representatives, which was agreed to by voice vote; 6. H.Amdt. 1169 , to prohibit the use of funds for delivering printed copies of the Budget of the United States Government ; Analytical Perspectives, Budget of the United States Government ; or the Appendix, Budget of the United States Government , to the office of any Member of the House of Representatives, which was agreed to by voice vote; 7. H.Amdt. 1170 , to expand the list of parties with whom the federal government is prohibited from contracting due to serious misconduct on the part of the contractors, which was agreed to by voice vote; 8. H.Amdt. 1171 , to appropriate $2.5 million to reinstitute the Office of Technology Assessment (OTA), offset from funds from the Architect of the Capitol's Capital Construction and Operations Account, which failed by recorded vote (179-223, Roll no. 291); 9. H.Amdt. 1172 , to prohibit the use of funds for delivering a printed copy of the Federal Register to a Member of the House of Representatives, which was agreed to by voice vote; and 10. H.Amdt. 1173 , to reduce the Office of Congressional Ethics budget to the FY2016 levels ($1.467 million in FY2016, compared to $1.658 million in the House-reported bill, a difference of $191,000) and transfer remaining funds to the deficit reduction account, which failed by recorded vote (137-270, Roll no. 292); A motion to recommit with instructions failed by recorded vote (170-237, Roll no. 293). H.R. 5325 , as amended, was agreed to on June 10, with a vote of 233-175 (Roll no. 294). FY2017 Begins: Continuing Resolutions (CRs) Enacted As stated above, a separate legislative branch appropriations bill was not enacted prior to the start of FY2017 on October 1, 2016. Funding for legislative branch activities was initially provided through three CRs: P.L. 114-223 , through December 9, 2016; P.L. 114-254 , through April 28, 2017; and P.L. 115-30 , through May 5, 2017. The CRs included a few provisions related to the legislative branch, although they did not alter funding levels. These CR provisions continued the pay freeze for Members of Congress for one additional year; provided for the transfer of the O'Neill Building (located on 2 nd Street, SW, between C and D Streets, SW, Washington, DC, and previously known as Federal Office Building 8) to the House of Representatives; clarified that funding during the 115 th Congress for the Office of the Assistant Minority Leader of the Senate shall be available from funds otherwise available for the Office of the Secretary of the Conference of the Minority; continued the Senate National Security Working Group for the 115 th Congress; and provided for a gratuity payment to the widow of a deceased Member of the House. FY2017 Funding Enacted P.L. 115-31 was enacted on May 5, 2017, and provides $4.440 billion for legislative branch activities (Division I). This funding represents a $77.0 million increase (+1.7%) from the FY2016 enacted level. Funding in Prior Years: Brief Overview Legislative Branch: Historic Percentage of Total Discretionary Budget Authority The percentage of total discretionary budget authority provided to the legislative branch has remained relatively stable at approximately 0.4% since at least FY1976. The highest maximum level, 0.48%, was in FY1995, and the minimum, 0.31%, was in FY2009. FY2016 FY2016 funding was provided in Division I of the Consolidated Appropriations Act, 2016 ( P.L. 114-113 ), which was enacted on December 18, 2015. The $4.363 billion provided by the act represents an increase of 1.5% from the FY2015 level and is $165.7 million (-3.7%) less than the request. FY2015 FY2015 funding was provided in Division H of the Consolidated and Further Continuing Appropriations Act, 2015 ( P.L. 113-235 ), which was enacted on December 16, 2014. The $4.300 billion provided by the act represented an increase of $41.7 million (1.0%) from FY2014 and was $164.9 million (-3.7%) less than the request. FY2014 Neither a legislative branch appropriations bill, nor a continuing appropriations resolution (CR), containing FY2014 funding was enacted prior to the beginning of the fiscal year on October 1, 2013. A funding gap, which resulted in a partial government shutdown, ensued for 16 days. The funding gap was terminated by the enactment of a CR ( P.L. 113-46 ) on October 17, 2013. The CR provided funding through January 15, 2014. Following enactment of a temporary continuing resolution on January 15, 2014 ( P.L. 113-73 ), a consolidated appropriations bill was enacted on January 17 ( P.L. 113-76 ), providing $4.259 billion for the legislative branch for FY2014. FY2013 FY2013 funding of approximately $4.061 billion was provided by P.L. 113-6 , which was signed into law on March 26, 2013. The act funded legislative branch accounts at the FY2012 enacted level, with some exceptions (also known as "anomalies"), and not including across-the-board rescissions required by Section 3004 of P.L. 113-6 . Section 3004 was intended to eliminate any amount by which the new budget authority provided in the act exceeded the FY2013 discretionary spending limits in Section 251(c)(2) of the Balanced Budget and Emergency Deficit Control Act, as amended by the Budget Control Act of 2011 and the American Taxpayer Relief Act of 2012. Subsequent to the enactment of P.L. 113-6 , OMB calculated that additional rescissions of 0.032% of security budget authority and 0.2% of nonsecurity budget authority would be required. The act did not alter the sequestration reductions implemented on March 1, which reduced most legislative branch accounts by 5.0%. The accompanying OMB report indicated a dollar amount of budget authority to be canceled in each account containing nonexempt funds. FY2012 and Prior Division G of the FY2012 Consolidated Appropriations Act ( P.L. 112-74 ) provided $4.307 billion for the legislative branch. This level was $236.9 million (-5.2%) below the FY2011 enacted level. P.L. 112-10 provided $4.543 billion for legislative branch operations in FY2011. This level represented a $125.1 million decrease from the $4.668 billion provided in the FY2010 Legislative Branch Appropriations Act ( P.L. 111-68 ) and the FY2010 Supplemental Appropriations Act ( P.L. 111-212 ). The FY2009 Omnibus Appropriations Act provided $4.402 billion. In FY2009, an additional $25.0 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 a new Capitol Police radio system ($71.6 million) and additional funding for the Congressional Budget Office (CBO) ($2.0 million). As seen in Table 3 , the FY2016 legislative branch budget in constant dollars remained below the FY2004 level. Figure 1 shows the same information graphically, while also demonstrating the division of budget authority across the legislative branch in FY2016. The FY2017 level (not included in the table and figure) of $4.440 billion remains nearly 5% below the FY2010 level (not adjusted for inflation), which was the peak of legislative branch funding. Figure 2 shows the timing of legislative branch appropriations actions, including the issuance of House and Senate reports, bill passage, and enactment, from FY1996 through FY2016. It shows that fiscal year funding for the legislative branch has been determined on or before October 1 five times during this period (FY1997, FY2000, FY2004, FY2006, and FY2010), with another two bills enacted during the first month of the fiscal year (FY1998 and FY1999), two in November (FY1996 and FY2002), six in December (FY2001, FY2005, FY2008, FY2012, FY2015, and FY2016), and six in the next calendar year (FY2003, FY2007, FY2009, FY2011, FY2013, and FY2014). FY2017 (not shown in the figure) represented the seventh time that funding was enacted in the next calendar year, and at May 5, the latest date of enactment during this period. FY2017 Legislative Branch Funding Issues The following sections discuss the various legislative branch accounts. During consideration of the legislative branch bills, the House and Senate conform to a "longstanding practice under which each body of Congress determines its own housekeeping requirements and the other concurs without intervention." Senate Overall Funding The Senate requested $935.5 million for FY2017, a 7.5% increase over the $870.2 million provided in FY2016. The bill reported by the Senate Appropriations Committee ( S. 2955 ) recommended, and the FY2017 Consolidated Appropriations Act provides, $871.2 million, an increase of $1.0 million (+0.1%). Additional information on the Senate account is presented in Table 6 . Senate Committee Funding Appropriations for Senate committees are contained in two accounts. The inquiries and investigations account contains funds for all Senate committees except Appropriations. The Senate-reported bill recommended, and the FY2017 act provides, $133.3 million, the same as provided in FY2015 and FY2016. The Senate had requested $135.8 million, a 1.9% increase. The Committee on Appropriations account contains funds for the Senate Appropriations Committee. The Senate-reported bill recommended, and the FY2017 act provides, $15.1 million, equivalent to the FY2017 request and the FY2015 and FY2016 enacted level. Senators' Official Personnel and Office Expense Account24 The Senators' Official Personnel and Office Expense Account (SOPOEA) 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. The Senate-reported FY2017 bill recommended, and the FY2017 act provides, $390.0 million. This is the same level provided in FY2014, FY2015, and FY2016. The Senate had requested $445.9 million for FY2017, an increase of $55.9 million (+14.3%). Administrative Provisions The Senate-reported bill contained three administrative provisions, all of which were enacted in FY2017: 1. One provision, which was first included in FY2016, requires amounts remaining in the Senators' Official Personnel and Office Expense Account (SOPOEA) to be used for deficit reduction or to reduce the federal debt. 2. One provision provides authority to transfer funds between the Senate Commission on Art and the Architect of the Capitol. 3. One provision prohibited a pay adjustment for Members of Congress during FY2017. Members of Congress last received a pay adjustment in January 2009. Absent either a statutory prohibition for a Member pay adjustment or automatic limitations related to the General Schedule (GS), Members of Congress are scheduled to receive a maximum pay increase of 1.6%, or $2,800, in January 2017. Member salaries are funded in a permanent appropriations account, and the legislative branch bill does not contain language funding or increasing Member pay. A provision prohibiting the automatic Member pay adjustments could be included in any bill, and this prohibition was included in P.L. 114-254 (the Further Continuing and Security Assistance Appropriations Act, 2017, which was enacted on December 10, 2016). House of Representatives Overall Funding The House requested $1.187 billion for FY2017, a 0.5% increase from the FY2016 enacted level of $1.181 billion. The House Appropriations Committee Legislative Branch Subcommittee recommended a continuation of the FY2016 level. An amendment agreed to during the full committee markup increased this level by $8.3 million, offset by a reduction to the Architect of the Capitol's account, to a total of $1.189 billion (an increase of $8.3 million, or 0.7%, from the FY2016 enacted level) in the bill reported by the House Appropriations Committee (hereinafter House-reported bill). This level was continued in the House-passed bill and in the FY2017 act. Additional information on headings in the House of Representatives account is presented in Table 7 . House Committee Funding Funding for House committees is contained in the appropriation heading "committee employees," which comprises two subheadings. The first subheading contains funds for personnel and nonpersonnel expenses of House committees, except the Appropriations Committee, as authorized by the House in a committee expense resolution. The House Appropriations Committee recommended, and the House-passed bill and the FY2017 act contained, $127.1 million. This level represented an increase of $3.2 million (+2.5%) from the $123.9 million provided in FY2014, FY2015, and FY2016. The second subheading contained funds for the personnel and nonpersonnel expenses of the Committee on Appropriations. The House-passed bill and the FY2017 act contained $23.3 million, the same level provided in FY2014, FY2015, and FY2016. Members' Representational Allowance26 The Members' Representational Allowance (MRA) is available to support Members in their official and representational duties. The House Appropriations Committee Legislative Branch Subcommittee recommended $554.3 million, the same level provided in FY2014, FY2015, and FY2016. An amendment offered and agreed to at the full committee markup increased this level to $562.6 million (+1.5%). This level was contained in the House-passed bill and the FY2017 act. Administrative Provisions The House requested the continuation of administrative provisions from prior years related to 1. unexpended balances from the MRA; 2. limiting amounts available from the MRA for leased vehicles; and 3. limiting or prohibiting the delivery of copies of bills and resolutions, the Congressional Record , the U.S. Code , the Statement of Disbursements , the Daily Calendar , and the Congressional Pictorial Directory . The bill, as reported by the House Appropriations Committee, also contained a provision which would have authorized members of the Capitol Police to travel outside of the United States with Members of the House leadership on official business on a reimbursable basis. Additional provisions related to the delivery of printed copies of various documents were added during consideration of the House bill on the floor ( H.Amdt. 1168 , for the United States House of Representatives Telephone Directory ; H.Amdt. 1169 , for the annual budget documents; and H.Amdt. 1172 , for the Federal Register ). These provisions, as well as a new provision relating to cybersecurity assistance for the House from other federal entities, were all included in the FY2017 act. The FY2017 bill, as reported by the House Appropriations Committee and passed by the House, also contained a provision which would have frozen Member salaries at the 2009 level. As stated above, Member salaries are funded in a permanent appropriations account, and the legislative branch bill does not contain language funding or increasing Member pay. A provision prohibiting the automatic Member pay adjustments could be included in any bill, or be introduced as a separate bill. As stated above, this prohibition was included in P.L. 114-254 , the second continuing appropriations resolution. Support Agency Funding U.S. Capitol Police The U.S. Capitol Police (USCP) are responsible for the security of the Capitol Complex, including, for example, the U.S. Capitol, the House and Senate office buildings, the U.S. Botanic Garden, and the Library of Congress buildings and adjacent grounds. The USCP requested $409.6 million for FY2017, an increase of $34.6 million (+9.2%) from the $375.0 million the USCP received for FY2016. H.R. 5325 , as reported by the House Appropriations Committee and passed by the House, would have provided $391.3 million (+4.3%). The Senate-reported bill would have provided $387.0 million (+3.2%). The FY2017 act provides $393.3 million, an increase of $18.3 million (+4.9%). Additional information on the USCP is presented in Table 8 . Appropriations 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. Salaries—the Capitol Police requested $333.1 million for salaries, an increase of $24.1 million (+7.8%) from the $309.0 million provided in FY2016. The House-passed bill would have provided $325.3 million (+5.3%). The Senate-reported bill would have provided $320.0 million (+3.6%). The FY2017 act provides $325.3 million (+5.3%). General Expenses—the Capitol Police requested $76.5 million for general expenses, an increase of $10.5 million (+15.8%) from the $66.0 million provided in FY2016. The House-passed bill would have continued the FY2016 level. The Senate-reported bill would have provided $67.0 million (+1.5%). The FY2017 act provides $68.0 million (+3.0%). Another appropriation relating to the Capitol Police appears within the Architect of the Capitol account for Capitol Police buildings and grounds. USCP requested $37.5 million, an increase of $12.1 million (+47.5%) from the $25.4 million provided in FY2016. The House Appropriations Committee Legislative Branch Subcommittee recommended $33.7 million (+32.5%). An amendment agreed to at the full committee markup decreased this level by $7.0 million and increased the House Historic Buildings Revitalization Trust Fund by the same amount. The House-passed bill would have provided $26.7 million (+5.0%). The Senate-reported bill would have provided $29.6 million (+16.6%). The FY2017 act provides $20.0 million (-21.2%). Administrative Provision The Capitol Police requested one administrative provision, which would have expanded authority to dispose of and receive surplus or obsolete property. The House- and Senate-reported versions of this bill, as well as the FY2017 act, all included this provision. Office of Compliance 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. The Office of Compliance requested $4.3 million for FY2017, an increase of $356,000 (+9.0%). The House-passed and Senate-reported versions of the bill, as well as the FY2017 act, all contain $3.96 million, a continuation of the FY2015 and FY2016 level. Congressional Budget Office (CBO) 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. CBO requested $47.6 million, an increase of $1.1 million (+2.4%), from the $46.5 million provided in FY2016. The House-passed and Senate-reported versions of the bill, as well as the FY2017 act, all continue the FY2016 level. Administrative Provisions CBO requested two administrative provisions: 1. One provision would have made FY2017 funds available for the compensation of employees in specialty occupations with nonimmigrant visas. Similar authority has been requested, but not provided, since FY2012. The provision was not included in the House-passed or Senate-reported bill or the FY2017 act. 2. One provision would have authorized the Director of CBO to establish senior positions. The House-passed bill included this provision, while the Senate-reported bill did not. It was included in the FY2017 act. Architect of the Capitol The Architect of the Capitol (AOC) is responsible for the maintenance, operation, development, and preservation of the U.S. 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. Overall Funding Levels Operations of the Architect are funded in the following 10 accounts: capital construction and operations, 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. The Architect requested $694.3 million for FY2017, an increase of $81.4 million (+13.3%) from the FY2016 level of $612.9 million. The House Appropriations Committee Legislative Branch Subcommittee recommended $560.1 million, not including funding for the Senate office buildings. An amendment adopted at the full committee markup decreased this amount by $8.3 million. Another amendment adopted at the full committee markup increased funding for the House Historic Buildings Revitalization Trust Fund by $7.0 million, offset by funding from the Capitol Police Buildings, Grounds, and Security account. During consideration of H.R. 5325 in the House, two amendments affecting AOC were agreed to by voice vote, although they did not alter its overall funding level. One amendment ( H.Amdt. 1166 ) transferred $500,000 from the AOC's Capital Construction and Operations account to the AOC's Capitol Building and House Office Buildings accounts, providing $250,000 to each to bring the Capitol and House office buildings into compliance with General Services Administration requirements for federal buildings regarding lactation stations for breastfeeding mothers. Another amendment provided that funding in the Capital Construction and Operations account be used to conduct a feasibility study regarding the installation and operation of Capital Bikeshare stations on Capitol Grounds ( H.Amdt. 1165 ). The Senate-reported bill would have provided $419.6 million, not including funding for the House office buildings, a decrease of $8.7 million (-2.0%) from the FY2016 enacted level. The FY2017 act provides $617.9 million (+0.8%). Additional funding information on the individual AOC accounts is presented in Table 9 . Administrative Provisions The AOC also requested a number of administrative provisions: 1. a provision prohibiting the use of funds for bonuses for contractors behind schedule or over budget, first included in FY2015; 2. a provision prohibiting scrims containing photographs of building facades during restoration or construction projects performed by the Architect of the Capitol, first included in FY2015; 3. a new provision establishing a working capital fund; 4. a new provision providing authority for a House office building shuttle; and 5. a new provision allowing the use of expired funds for unemployment compensation payments. The House Appropriations Committee included these provisions, with the exception of that relating to the shuttle. It also included a new provision establishing a flag office revolving fund. The Senate Appropriations Committee included provisions related to contractors, scrims, and unemployment compensation payments. It also included a new provision establishing a flag office revolving fund and a new provision directing the AOC to "establish, document, and follow policies and procedures for suspension and debarment of firms or individuals the Architect has determined should be excluded from future contracts." The provisions related to bonuses for contractors, scrims, flag office revolving fund, unemployment compensation payments, contracting, and the House office building shuttle were included in the FY2017 act. Library of Congress (LOC) 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 160.7 million analog items; 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 nonpartisan 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. The Library requested $667.2 million for FY2017, an increase of $67.3 million (+11.2%) from the $599.9 million provided in FY2016. These figures do not include additional authority to spend receipts. The House-passed bill would have provided $628.9 million, an increase of $29.0 million (+4.8%). The Senate-reported bill would have provided $608.9 million, an increase of nearly $9.0 million (+1.5%). The FY2017 act provides $631.96 million, an increase of $32.0 million (+5.3%). The FY2017 budget contains the following headings: Salaries and expenses—The Library requested $472.9 million, an increase of $53.3 million (+12.7%) from the $419.6 million provided for FY2016. The House-passed bill would have provided $443.6 million (5.7%). The Senate-reported bill would have provided $428.6 million (+2.1%). The FY2017 act provides $450.7 million (+7.4%).These figures do not include $6.35 million in authority to spend receipts. Copyright Office—The Library requested $28.3 million, an increase of $5.2 million (+22.7%) from the $23.1 million provided for FY2016. The House-passed bill would have provided $27.1 million (+17.3%). The Senate-reported bill recommended, and the FY2017 provides, $23.1 million. These levels do not include authority to spend receipts ($35.8 million in FY2016; $45.7 million in the request; $41.7 million in the House-reported bill; $45.7 million in the Senate-reported bill; $45.7 million in the FY2017 act). Total budget authority including the authority to spend receipts, is $68.8 million ($9.95 million, or 16.9%, above the FY2016 enacted level). Congressional Research Service—The Library requested $114.4 million for FY2017, an increase of $7.5 million (+7.0%) from the FY2016 level of $106.9 million. The House-passed bill would have provided $107.9 million (+0.9%). The Senate-reported bill would have continued the FY2016 level. The FY2017 act provides $107.9 million (+0.9%). Books for the Blind and Physically Handicapped—The Library requested $51.6 million, a $1.3 million (+2.7) increase from the $50.2 million provided for FY2016. The House-passed and Senate-reported versions of the bill, as well as the FY2017 act, all continue the FY2016 level. The Architect's budget also contains funds for the Library buildings and grounds. For FY2017, $65.95 million was requested, an increase of $25.3 million (+62.1%) from the $40.7 million provided for FY2016. The House-passed bill would have provided $47.1 million (+15.7%). The Senate-reported bill would have provided $42.2 million (+3.7%). The FY2017 act provides $47.1 million (+15.7%). Administrative Provisions The Library requested authority to obligate funds for reimbursable and revolving fund activities ($188.2 million in FY2016). The House Appropriations Committee included this provision, as well as (1) a provision establishing the Library of Congress National Collection Stewardship Fund; (2) a provision extending film preservation programs; and (3) a provision extending sound recording preservation programs. Separate legislation ( H.R. 4092 , H.R. 5227 , and S. 2893 ) was also introduced addressing these funds and programs. S. 2893 , which reauthorized sound recording and film preservation programs, was enacted on July 29, 2016 ( P.L. 114-217 ). The Senate Appropriations Committee included the reimbursable and revolving fund activities provision. The reimbursable and revolving fund activities provision and the Library of Congress National Collection Stewardship Fund provision were both included in the FY2017 act. Government Publishing Office (GPO)32 The FY2017 act provides $117.1 million, the same level as provided in FY2016 and contained in GPO's budget request and the House-passed and Senate-reported versions of the bill. GPO's budget authority is contained in three accounts. 1. Congressional publishing— The FY2017 act provides $79.7 million. This level has remained unchanged since FY2014. 2. Public Information Programs of the Superintendent of Documents (salaries and expenses)— The FY2017 act provides $29.5 million, $1.0 million (-3.3%) less than the FY2016 enacted level. This is the same level contained in GPO's budget request and the House-passed and Senate-reported versions of the bill. 3. Government Publishing Office Business Operations Revolving Fund—the revolving fund supports the operation and maintenance of the Government Publishing Office. The FY2017 act provides $7.8 million, an increase of $1.0 million (+14.6%) from the FY2016 enacted level. This is the same level contained in GPO's budget request and the House-passed and Senate-reported versions of the bill. Government Accountability Office (GAO) GAO responds to requests for studies of federal government programs and expenditures. GAO may also initiate its own work. The FY2017 act provides $544.5 million, an increase of $13.5 million (+2.5%). GAO had requested $567.8 million, an increase of $36.8 million (+6.9%) from the $531.0 million provided for FY2016. The House-passed bill would have provided $533.1 million (+0.4%). The Senate-reported bill would have provided $542.4 million (+2.1%). These levels do not include offsetting collections ($25.5 million in FY2016; $23.4 million in FY2017). Open World Leadership Center 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. Established 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 interagency agreement. Open World requested $5.8 million for FY2017, an increase of $200,000 (+3.6%) from the FY2016 enacted level. The House Appropriations Committee recommended $1.0 million (-82.1%) for expenses associated with shutting down the program. During full committee consideration, an amendment was offered and withdrawn to increase funding for this program. The committee report stated, For many years the Committee has had concern with the placement of the Open World Leadership Center (OWLC) in the Legislative Branch with it mirroring numerous similar or nearly identical programs administered by other Federal agencies. In this fiscal environment where our national debt exceeds $19 trillion, it is important to eliminate duplicative programs. The Committee has provided $1,000,000 to cover the cost associated with the shutdown of the OWLC. The Committee directs the Director to retain any necessary prior year funds in the Trust to cover any cost in excess of the $1,000,000 provided in this bill to be utilized for the orderly shutdown. The Director is further directed that the program termination is to be finalized within one year of enactment of the Legislative Branch fiscal year 2017 appropriation bill. The Senate-reported bill would have continued funding at the FY2016 level, and this level was continued in the FY2017 act. Additionally, a budget amendment submitted by Open World on April 5, 2016, would have added "language inadvertently omitted" in the budget request, which would "add senior immediately before 'officials'." Neither the FY2017 act, nor the House-passed and Senate-reported bills, included this change. Prior Year Discussion of Location and Funding of Open World The location and future of Open World, attempts to assess its effectiveness, and its inclusion in the legislative branch budget, have been discussed at appropriations hearings and in report language for more than a decade. The funding level for Open World has also varied greatly during this period, although it has decreased each year since FY2009. For FY2016, the House subcommittee mark proposed $1.0 million for an orderly shutdown of Open World. Language in the full committee print, released prior to the markup of the FY2016 bill, stated, The Committee believes given our current fiscal environment, and in light of both the lack of quantifiable results from the Open World Leadership Center and its duplication of programs more appropriately offered by the State Department, the program has long outlived its short-term intent. The Committee has provided an allocation to be used for the orderly shutdown during fiscal year 2016 of the Open World Leadership Center. An amendment offered by Representative Fortenberry at the FY2016 full committee markup proposed to add $4.7 million for Open World, offset from funding for the "Architect of the Capitol, Capitol Power Plant" budget. The operations of Open World, including assessments of its impact, were discussed prior to the adoption (by voice vote) of the amendment. An amendment made in order by the House Rules Committee proposed the elimination of the $5.7 million included in the House-reported bill for Open World and would have applied the savings to the spending reduction account. The amendment, H.Amdt. 239 , was agreed to (224-199). Open World was also the subject of two amendments proposed but not made in order by the House Rules Committee: (1) one amendment submitted would have redirected the $4.7 million added to Open World during the full committee markup back to the "Architect of the Capitol, Capitol Power Plant"; and (2) one amendment would have redirected $2.5 million from Open World to reinstitute the Office of Technology Assessment (OTA). The Senate-reported FY2016 bill would have provided $5.7 million, equivalent to the FY2015 level, and the FY2016 Consolidated Appropriations Act provides $5.6 million. For FY2015, the House committee recommended $3.4 million, while the Senate committee recommended $5.7 million. Both reports discussed the conflict in Ukraine and Open World's activities in the region. The FY2015 act provided $5.7 million. For FY2014, the House subcommittee mark would have provided $1.0 million. An amendment to restore funding for Open World to the FY2013 post-sequester level was debated and withdrawn during the full committee markup. The House committee report stated, For many years the Committee has had concern with the placement of the Open World Leadership Center (OWLC) in the Legislative Branch. The Committee understands the program has some strong champions on the Committee. However, with further reductions being made to every program within the Legislative Branch, the Committee has provided $1,000,000 to cover the cost associated with the shutdown of the OWLC. The Committee directs the Executive Director of the OWLC to retain any necessary prior year funds in the Trust to cover any cost in excess of the $1,000,000 provided in this bill be utilized for the orderly shutdown. The Executive Director is further directed that the program termination is to be finalized within one year of enactment of the Legislative Branch fiscal year 2014 appropriation bill. The FY2014 Senate-reported bill would have provided $4.0 million, as well as a provision allowing the Librarian of Congress to transfer up to $6.0 million in nonappropriated funds to Open World. The final enacted FY2014 level was $6.0 million. The FY2013 House-reported bill would have provided $1.0 million, a decrease of $9.0 million (-90.0%), from the $10.0 million provided in FY2012 and requested for FY2013. The House report stated that this funding level would "cover the cost associated with the shutdown" and directed that "the program termination is to be finalized within one year of enactment of the Legislative Branch fiscal year 2013 appropriations bill." H.Amdt. 1281 , agreed to by recorded vote (204-203, Roll no. 373), eliminated this funding. At the Senate FY2013 budget request hearing on March 1, 2012, the subcommittee discussed potential options for increasing private funding, including the hire of a development professional. The Senate-reported bill would have provided $10.0 million. The FY2013 act provided $8.0 million, not including sequestration or the across-the-board rescission. The House-passed FY2012 bill ( H.R. 2551 ) would have provided $1.0 million, a decrease of 91.2% from FY2011. The House report stated, "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 stated 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 FY2012 act contained the Senate-reported level. The FY2011 level of $11.4 million represented a decrease of $623,000 (-5.2%) from the $12.0 million provided for FY2010. The FY2010 level represented a decrease of $1.9 million (-13.7%) from FY2009. Additionally, the FY2010 House Appropriations Committee report stated 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 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. The FY2009 level of $13.9 million was a $4.92 million increase (+54.8%) from FY2008. The location within the legislative branch was discussed 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, which may be seen as more neutral and nonpartisan. 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. The $8.98 million provided in FY2008 represented a decrease of $4.88 million (-35.2%) from the $13.86 million provided in FY2007 and FY2006. The location of Open World was also discussed 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." In 2004, GAO issued a report on the Open World program, examining program participation, purpose, and accountability. John C. Stennis Center for Public Service Training and Development The center was created by Congress in 1988 to encourage public service by congressional staff through training and development programs. The FY2017 act, budget request, and the House-passed and Senate-reported versions of the FY2017 bill all contained $430,000, the same level provided in the FY2014, FY2015, and FY2016 acts. General Provisions As in past years, Congress is considering a number of general provisions related to the legislative branch. Table 4 lists the provisions considered, the stage originally proposed, and final disposition. Introduction to Summary Tables and Appendix Table 5 through Table 9 provide information on funding levels for the legislative branch overall, the Senate, the House of Representatives, the Capitol Police, and the Architect of the Capitol. The tables are followed by an Appendix , which lists House, Senate, and conference bills and reports; public law numbers; and enactment dates since FY1998. Appendix. Fiscal Year Information and Resources

The legislative branch appropriations bill provides funding for the Senate; House of Representatives; Joint Items; Capitol Police; Office of Compliance; Congressional Budget Office (CBO); Architect of the Capitol (AOC); Library of Congress (LOC), including the Congressional Research Service (CRS); Government Publishing Office (GPO); Government Accountability Office (GAO); Open World Leadership Center; and the John C. Stennis Center. The FY2017 legislative branch budget request of $4.659 billion was submitted on February 9, 2016. By law, the President includes the legislative branch request in the annual budget submission without change. The House and Senate Appropriations Committees' Legislative Branch Subcommittees held hearings in March to consider the FY2017 legislative branch requests. On April 20, 2016, the House Appropriations Committee Legislative Branch Subcommittee held a markup of the draft bill. The bill was ordered reported to the full committee by voice vote. On May 17, the House Appropriations Committee held a markup of the bill. Seven amendments were considered: two were adopted, four were not adopted, and one was withdrawn. The bill was ordered reported by voice vote. It would have provided $3.481 billion, not including Senate items (H.R. 5325, H.Rept. 114-594). On June 9, 2016, the House agreed to a structured rule for consideration of the legislative branch bill (H.Res. 771), which made 13 amendments in order. During consideration of H.R. 5325, 10 amendments were offered. Six were agreed to (all voice votes), and four were not (all recorded votes). H.R. 5325 was agreed to on June 10, with a vote of 233-175 (Roll no. 294). On May 19, the Senate Appropriations Committee held a markup of its version of the FY2017 bill. It would have provided $3.021 billion, not including House items. The bill was reported by a vote of 30-0 (S. 2955, S.Rept. 114-258). The House- and Senate-proposed totals for legislative branch activities (including all House and Senate items) differ by $37.0 million, with the House proposing $4.436 billion for FY2017 and the Senate proposing $4.399 billion. H.R. 5325 was not enacted, however, and funding for the beginning of FY2017 was provided by three continuing resolutions (P.L. 114-223, through December 9, 2016; P.L. 114-254, through April 28, 2017; and P.L. 115-30, through May 5, 2017). The Consolidated Appropriations Act, 2017 (P.L. 115-31), enacted on May 5, 2017, provides $4.440 billion for legislative branch activities for FY2017 (+1.7% from FY2016). The enacted FY2017 level remains nearly 5% below the FY2010 level, which was the peak of legislative branch funding, not adjusted for inflation. The FY2016 level of $4.363 billion represented an increase of $63 million (+1.5%) from the FY2015 level of $4.300 billion, and the FY2015 level represented an increase of $41.7 million (+1.0%) from the FY2014 funding level of $4.259 billion. The FY2013 act funded legislative branch accounts at the FY2012 enacted level, with some exceptions (also known as "anomalies"), less across-the-board rescissions that applied to all appropriations in the act, and not including sequestration reductions implemented on March 1. The FY2012 level of $4.307 billion represented a decrease of $236.9 million (-5.2%) from the FY2011 level, which itself represented a $125.1 million decrease (-2.7%) from FY2010. The smallest of the appropriations bills, the legislative branch comprises approximately 0.4% of total discretionary budget authority.

Appendix A In their CCDF state plans, states are required to describe their treatment ofTANF families, transitioning families, and families at risk of welfare dependencewith respect to CCDF subsidy receipt. State responses to this CCDF plan provisionvaried in detail and structure. Appendix A reflects the language used by states intheir CCDF plans, with minor editing for consistency and clarity. Although all statesprovide responses to this provision, it is unclear for some states whether these threegroups receive priority relative to other families eligible for subsidies, or in whatorder these families will be served. For example, in New Hampshire, TANFfamilies, transitioning families, and at-risk families are described as having priorityover other families (with the exception of families that already have a child receivinga subsidy and need care for an additional child); however, there is no indication ofhow these three groups of families receive priority relative to each other . In addition,the information provided by a few states did not specifically address how thesegroups of families are treated by the state. In these cases, the table entry reads "noinformation." Appendix A1. State Descriptions of Treatment of TANF-relatedGroups Under CCDF Source : Table prepared by the Congressional Research Service (CRS) based on information from CCDF state plans submitted by the states to theDepartment of Health and Human Services (HHS).

The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 ( P.L. 104-193 , PRWORA) restructured the major federal-state child care programs. It repealed three welfare-relatedchild care programs and initiated a new set of federal rules referred to as the Child Care andDevelopment Fund (CCDF). The CCDF combines funds provided under Section 418 of the SocialSecurity Act established by PRWORA with funds provided under the Child Care and DevelopmentBlock Grant (CCDBG). Both streams of funding are authorized through FY2002. Funds aredistributed as grants to states for their use in subsidizing child care services to low-income familieswith children. Federal law defines eligible children as those under age 13 residing with a family whose income does not exceed 85% of the State Median Income (SMI), taking into account family size. Thefederal eligibility rules are maximum income limits for states in designing their CCDF programs. States may adopt income eligibility limits below that maximum, and currently, all but nine stateshave indeed set a lower eligibility limit. Regardless of the established limits, because CCDF is notan entitlement for individuals, states are not required to aid families even if their incomes fall belowstate-determined eligibility thresholds. Although states are not required to guarantee child care for welfare families, states may give special treatment to families receiving assistance from the Temporary Assistance for Needy Families(TANF) program, recognizing that under TANF, both states and individuals are now subject to workrequirements. Generally, TANF families continue to have some special status in states' CCDFprograms. In some states, TANF families are categorically eligible for services, although they maynot actually receive service because funding may not always be available. TANF families are notresponsible for a co-payment for child care services in 22 states. Federal law requires states to assure that payment rates to child care providers ensure that CCDF-eligible children receive equal access to care comparable to that available to children noteligible for subsidies. States generally set payment rates based on prevailing market rates for childcare. The most recent state plans indicate that 45 states (or territories) based their current paymentrates on market rate surveys conducted in 2000 or 2001; and rates of the remaining seven states werebased on surveys conducted in or prior to 1999. Federal law also requires that states use not less than 4% of federal child care funds made available for each fiscal year to administer activities designed to improve the quality of child care. Prior to 1996, the CCDBG Act included a list of activities for which the quality improvement fundswere to be spent; however, those categories are no longer itemized in law. Nevertheless, as part ofthe CCDF plan, states indicate whether they will spend any of their child care quality funds onactivities that fall into those categories authorized under prior law (and any others).

Political Background Uzbekistan gained independence at the end of 1991 with the breakup of the Soviet Union. The landlocked country is the largest in Central Asia in terms of population and the third-largest in territory (behind Kazakhstan and Turkmenistan; see box and Figure 1 ). The existing president, Islam Karimov, retained his post following the country's independence, and was reelected in 2000 and 2007. He has pursued a policy of cautiously opening the country to global economic and other influences. In January 2002, Karimov orchestrated a referendum on a new constitution that created a bicameral legislature. A constitutional provision extended the presidential term to seven years. The legislature (termed the Oliy Majlis or Supreme Assembly) consists of a 120-member (later expanded, see below), directly elected lower chamber, the Legislative Chamber, and a 100-member upper chamber, the Senate. The Senate is composed of 16 members appointed by the president, with the rest selected by local legislatures. The Legislative Chamber has formal responsibility for drafting laws. Constitutional amendments approved in April 2003 established that—after the presidential election at the end of 2007—the prime minister would exercise greater power. In January 2005, Karimov explained that he aimed to create three powerful branches of government, to correct a situation where "everything now depends on me." Only government-controlled parties operate legally: the People's Democratic Party (PDP), formerly the communist party headed by Karimov; the Adolat (Justice) Social Democratic Party; the Liberal-Democratic Party (LDP), consisting of government-connected businessmen; the Milliy Tiklanish (National Revival) Party, consisting of state-supported intellectuals; and the Ecological Movement of Uzbekistan. Opposition parties such as Birdamlik, Birlik, Erk, Free Farmers, and the Sunshine Coalition are illegal. The former Fidokorlar (Self-Sacrifice) National Democracy Party, created by Karimov as a youth party, merged with the National Revival Party in June 2008, and the enlarged party joined the "Democratic Bloc" of Legislative Chamber factions (including Adolat and the Liberal Democratic Party) in August 2008. A constitutional law on parties and democratization came into effect in 2008 that permits "opposition" party deputies in the Legislative Chamber to offer alternative bills and take part in debates. The law also calls for the president to "consult" with Legislative Chamber factions before nominating a candidate for prime minister. In December 2008, President Karimov signed electoral legislation that eliminated the nomination of candidates for legislative and presidential elections by independent initiative groups, leaving only parties as eligible to nominate candidates. The law also expanded the size of the Legislative Chamber from 120 to 150. Fifteen of the members of the Chamber are to be elected by delegates to a conference of the Ecological Movement of Uzbekistan (EMU), registered as a political party in September 2008. The EMU proclaims that it is not like green parties in other countries, so that it can focus on environmental issues rather than grasping for political power. The Uzbek Central Election Commission (CEC) in mid-November 2007 approved four candidates to run in the prospective December 23, 2007, presidential election. Incumbent President Karimov was nominated by the LDP. The party which Karimov once headed, the PDP, nominated its current head, Asliddin Rustamov. The Adolat Social Democratic Party nominated its head, Dilorom Toshmuhammadova. A citizen's initiative committee nominated Akmal Saidov. The CEC disqualified the candidates nominated by the Milliy Taklanish and Fidokorlar parties at their conventions (the latter party had sponsored Karimov during his 2000 election), saying they had not gathered enough signatures. Although the Uzbek constitution bars a president from more than two terms, the CEC argued that since the most recent constitution was approved in 2002, Karimov's "first term" followed his election in January 2000, and that he was eligible to run for a "second term" in December 2007. According to the report of a small election observation mission sponsored by the OSCE's Office of Democratic Institutions and Human Rights (ODIHR), the Uzbek CEC and local electoral commissions controlled public appearances and spending by the candidates. There were no campaign debates and media coverage was minimal, according to ODIHR. Each presidential candidate used similar language to laud economic development and democratization under the incumbent president. State-owned media urged the electorate to vote for Karimov. According to the CEC, Karimov received 88% of 14.8 million votes with a 90.6% turnout. The OHIDR election mission issued a press statement assessing the election as "generally fail[ing] to meet many OSCE commitments for democratic elections." Besides the problems noted above, others included lax rules regarding early voting, frequent voting by one member of a household for all members, and an observed low turnout. Elections to the Legislative Chamber were held on December 27, 2009. Over 500 candidates from the four approved parties ran for 135 seats, and an additional 15 seats were filled by voting at a conference of the EMU. Turnout reportedly was almost 88% of 17.2 million registered voters. The Central Electoral Commission reported that in 39 districts no candidate had received over 50% of the vote, so that run-offs would be held on January 10, 2010. Following these run-offs, the Liberal Democratic Party had won 53 seats, the People's Democratic Party had won 32 seats, the Milliy Tiklanish Party had won 31 seats, and the Adolat Social Democratic Party had won 19 seats. The OSCE declined to send observers, stating that the electoral environment did not permit a free and fair contest. Some U.S. embassy personnel observed some of the voting, and the embassy stated afterward that the election campaign failed to reflect diverse viewpoints, since candidates from only pro-Karimov parties were permitted to run. Indirect elections to the Senate were held on January 20-22, 2010. The president's 16 appointees to the Senate included deputy prime ministers, the chairman of the Supreme Court, and the foreign minister, making the Senate an amalgam of the three branches of government. Perhaps to create the appearance of diversity, the Liberal Democratic Party, the Milliy Tiklanish Party, and the Adolat Social Democratic Party have declared that they form a "majority democratic bloc" in the Legislative Chamber. The People's Democratic Party has declared that it is the "minority opposition" party. Opening a joint session of the newly elected legislature in late January 2010, President Karimov called for studying the activities of the U.S. Congress in order to boost the role of budgeting and oversight in the Uzbek legislature. In a speech in November 2010, President Karimov called for several constitutional changes which were approved by the legislature and signed into law by the president in April 2011. One of the changes provides for the political party that controls a majority of seats in the lower legislative chamber to have the right to nominate a candidate for prime minister (all existing political parties are pro-Karimov). Procedures also are outlined for the legislature to hold a vote of no confidence in the prime minister. The prime minister is given responsibility for appointing regional administrators, a power formerly lodged with the president. Another amendment specifies that in the event the president is incapacitated, the chairman of the Senate will serve as the interim head of state pending the holding of a presidential election within three months. Some skeptics have linked the constitutional changes to government concerns that civil discontent could become manifest as it did in several Middle Eastern countries in early 2011. Others suggest that since some of the ostensible reform efforts predate the "Arab Spring," they are linked to infighting within the elite. Perhaps supporting the latter view, in mid-July 2011 the legislature passed a joint resolution criticizing an economic report delivered by the prime minister. On December 5, 2011, the legislature approved amendments to the constitution reducing the presidential term from seven to five years. The change was hailed as advancing democratization, but was a reversion to the pre-2002 term in office. In March 2012, the legislature approved holding legislative elections on December 28, 2014, and the presidential election in March or April 2015. Some observers suggest that President Karimov might consider succession contingencies at that time, such as designating a possible heir. In April 2012, Uzbek legislators and officials visiting the United States reported that bills had been introduced to provide for the legislature to hold hearings to question the prime minister, to hold a vote of non-confidence in the government, and to strengthen the rights of NGOs. Displaying a guarded attitude toward democratization, President Karimov stated in June 2012 that "we should live in an evolutionary way ... not in a revolution or coup.... Tell me if it is possible to say a people happy, if they live in uncertainties: how will life change tomorrow, how will prices change, what sort of calamities are awaiting us.... Only peace, tranquility and unity make ... the Uzbek people [happy].... This is the Uzbek people's biggest demand from life." U.S. analyst Martha Olcott has argued that Uzbek society is becoming more religiously traditional (although not radical), and that politics will probably be influenced by these societal views, so that a secular liberal democratic political system may not soon emerge. In December 2012, President Karimov stressed that the country was following a path of "evolutionary" democratization, including by increasing the checks and balances among the three branches of power and strengthening political parties. At the same time, he stated that the government's power would continue to increase in the "transitional period" in order for it to direct the reforms, and cautioned that the process of democratization was lengthy and never-ending. Human Rights The NGO Freedom House repeatedly has included Uzbekistan among nine countries such as North Korea, Sudan, Saudi Arabia, and Turkmenistan ranked as "the world's worst human rights abusers" in terms of human rights and civil liberties. According to the State Department's Country Reports on Human Rights Practices for 2012 , police routinely beat and otherwise mistreated detainees to obtain confessions, and torture reportedly was common in prisons and detention facilities. The government frequently harassed, arrested, and prosecuted human rights activists and political oppositionists. Most human rights organizations estimated that authorities held hundreds or even thousands of political prisoners. There were no jury trials. In the vast majority of criminal cases brought to court, the defendant was found guilty. Judges often based their verdicts solely on confessions and witness testimony extracted through abuse and threats to family members. In mid-2012, Gulnaza Yuldasheva, a human rights activist, was convicted of charges of extortion viewed by many observers as politically motivated; she had earlier accused a number of local officials of complicity in human trafficking. Officials released some high-profile prisoners during the year, and a few police officers were convicted on charges of torture or other abuse. In late 2012, legislation was approved that ostensibly expanded the use of habeas corpus in criminal cases. The government severely limited freedom of expression. The law imposed significant fines for libel and defamation, and insulting the president was punishable by up to five years in prison. The government used such charges as well as other methods to arrest, harass, and intimidate journalists. The government allowed publication of a few private newspapers with limited circulation that included infrequent stories critical of government socio-economic policies. Four state-run television channels dominated broadcasting. Regional television outlets sometimes broadcast some moderately critical stories on local issues. In late 2012, the government reportedly issued new regulations widening control over media, including the power to block or ban media that threaten the integrity of the "national information space." The government regularly gave explicit instructions about the types of stories permitted for publication. The government often restricted freedom of assembly. Authorities dispersed and occasionally detained persons who were involved in peaceful protests. The law requires that all non-governmental organizations (NGOs) be registered formally with the government. The government compelled most NGOs to join a state-controlled NGO association that enabled close oversight over their funding and activities. The government limited freedom of travel and emigration, in particular through the continued requirement for citizens and permanent residents to obtain exit visas, although it generally granted the visas. There were reports that the government delayed exit visas for human rights activists and independent journalists. Government-compelled forced labor occurred during the cotton harvest, including 15- to 18-year-old students, teachers, medical workers, government and military personnel, retirees, and persons receiving welfare. Credible reporting suggested that the expanded use of forced mobilization of adult state workers was to compensate for reductions in labor by children younger than 15. Since November 2006, the State Department has designated Uzbekistan a "country of particular concern" (CPC), for severe religious and other human rights violations that could lead to U.S. sanctions. However, since 2009, the State Department has issued waivers for Uzbekistan, so that no U.S. sanctions have been taken. According to the State Department, the Uzbek government "engaged in or tolerated particularly severe violations of religious freedom," including restrictions on unregistered groups and the prohibition of many activities, such as proselytizing. Many members of registered and unregistered minority religious groups faced heavy fines and short jail terms. The government continued to deal harshly with Muslims who practiced outside of sanctioned mosques, but permitted the regular activities of religious groups deemed traditionally present in the country, including the Muslim, Jewish, Catholic, and Russian Orthodox communities. The State Department followed the recommendation of the U.S. Commission on International Religious Freedom in again designating Uzbekistan as a CPC. In June 2013, the State Department reported that Uzbekistan is a source country for human trafficking for forced labor and sex, and that while the government greatly reduced the number of children under 15 years of age involved in the 2012 cotton harvest, the government continued to subject older children and adults to forced labor in the harvest. Also, Uzbekistan has not demonstratively investigated or prosecuted government officials suspected to be complicit in forced labor. The State Department estimates that there are over 1 million individuals subject to state-imposed internal forced labor in Uzbekistan. Since designations began in 2003, Uzbekistan has ranked as a Tier 2, Tier 2 Watch List, or Tier 3 country (a Tier 2 country does not fully comply with the minimum standards for the elimination of trafficking but is making significant efforts to comply; a Watch List country does not fully comply, the number of victims may be increasing, and efforts to comply are slipping; a Tier 3 country does not fully comply and is not making significant efforts to do so). In the 2003, 2006, and 2007 reports, Uzbekistan was listed as a Tier 3 country, but in the 2008-2012 reports, Uzbekistan was on the Tier 2 Watch List. In the 2011-2012 reports, Uzbekistan was granted waivers from an otherwise required downgrade to Tier 3 because the government had written plans to comply, according to the State Department. However, the government plans were not realized, and since Uzbekistan had exhausted its maximum of two consecutive waivers, it was placed on Tier 3 in the 2013 report. Countries placed on Tier 3 are subject to certain sanctions, including the withholding of non-humanitarian, non-trade-related foreign assistance. However, Uzbekistan has received partial or full waivers. The U.S. Department of Labor has listed Uzbekistan as among countries that use child labor to pick cotton. This list is meant to inform the choices made by the buying public. In addition, on July 23, 2013, cotton from Tajikistan and Uzbekistan again was included on a list that requires U.S. government contractors to certify that they have made a good faith effort to determine whether forced or indentured child labor was used to produce the cotton. In testimony to Congress in April 2013, an official of the U.S. International Labor Rights Forum (IRLF), an NGO, reported that as a member of the Cotton Campaign, an international coalition of NGOs, industries, and trade unions, the IRLF had supported diplomatic and economic pressure on Uzbekistan to end forced child and adult labor in cotton production. He reported that forced child and adult labor continued to be used in the autumn 2012 cotton harvest, and that security personnel were deployed on the farms to enforce production quotas and to prevent pickers from taking pictures or otherwise documenting the use of forced labor. Ostensibly, the pickers were "volunteers" recruited from government agencies, private firms, colleges, and high schools, the latter including a majority of all faculty members. Children under age 15 were officially excused from the harvest, although many aged 11-15 were observed in the fields. Individuals could pay a fee in lieu of participating in the harvest, but most reportedly were afraid of repercussions such as dismissal from a job or university if they did not participate, according to the ILRF official. He also reported that the use of forced labor throughout the economy was increasing. The IRLF has called for the U.S. Customs Service to enforce the Tariff Act of 1930 to block the importation of Uzbek cotton materials produced by forced labor The U.N. Children's Fund (UNICEF) was permitted to monitor the autumn 2011 cotton harvest in Uzbekistan, but not the 2012 harvest, and the country continues to bar monitors from the U.N.'s International Labor Organization. The Uzbek Ministry of Labor asserted in early September 2012 that the use of forced child labor in the agricultural sector was not permitted in Uzbekistan. It stated that all cotton in the country is produced on private "family farms," where international legal norms permit children who are members of farmers' families to assist in chores. Observers have pointed out that the Uzbek government owns the land and sets production quotas and prices, and that the farmers are tenants under contract. At his confirmation hearing on May 15, 2011, Ambassador-designate to Uzbekistan George Krol reportedly stated that the United States will "relentlessly raise individual cases of [human rights] repression both privately and publicly at all levels of the Uzbekistani government and will seek to identify opportunities to support and expand space for civil society and human rights activists." He also pledged that the United States would continue to support "embattled civil society and independent media." In June 2013, Hasan Choriyev—the 71-year old father of oppositionist Bahodyr Choriyev, who fled Uzbekistan in 2004 and resides in the United States—was arrested on rape charges the day after a report that his son might be interested in eventually running for president. Observers deemed the charges politically motivated, given the elder Choriyev's ill health and the fact that he had been detained for questioning on another matter at the time of the alleged rape. On June 26, 2013, 12 U.S. Senators sent a letter to President Karimov urging him to release human rights lawyer Agzam Turgenov and journalists Dilmurod Saidov and Salijon Abdurakhmanov, whom had been imprisoned in 2008-2009 and were termed political prisoners by the Senators. In July 2013, the U.N. Human Rights Council issued a working group report on Uzbekistan that contained recommendations by the member states on improving human rights conditions in Uzbekistan. The United States urged that forced labor and hazardous child labor be eliminated, that all torture allegations be independently investigated, that politically motivated prosecutions be ended, and that the harassment and detention of persons who exercise their rights to freedoms of expression, assembly, association, and religion be ended and that those held on such grounds be released. Uzbekistan rejected all the U.S. recommendations, as well as all others as factually incorrect or un-germane. The Uzbek delegation asserted that there are no political prisoners in Uzbekistan, and that so-called journalists and human rights defenders who were imprisoned had been sentenced for criminal actions. They stated that all allegations of torture are investigated and that as a result, five law enforcement officers had been brought to justice in 2012 and that religious freedom is recognized, except for proselytism, missionary activities, and the operation of unregistered religious groups. Missionary activities and proselytism, it warned, could upset the majority Muslim population and inter-faith relations. The delegation asserted that Uzbekistan does not use forced child labor during the cotton harvest, and rejected calls for an ILO special mission to inspect the harvest on the grounds that such requests were the "result of competition for economic markets [by] a number of Western cotton companies." They claimed that an April 2013 decision by the ICRC to halt visits to prisons in Uzbekistan was not due to lack of cooperation by Uzbekistan, as averred by the ICRC. They also stated that male homosexual relations would continue to be outlawed in accordance with tradition. Economic Developments After economic dislocations associated with the breakup of the Soviet Union, the Uzbek economy ceased to decline and began to turn around in 1996. In 2003, Uzbekistan announced that it would permit full currency convertibility, but vitiated the reform by reducing money in circulation, closing borders, and placing punitive tariffs on imports. These restrictions helped fuel organized crime, corruption, and consumer shortages. Uzbekistan is the world's third-largest cotton exporter. The agricultural sector accounts for about one-fifth of the country's GDP, and nearly one-half of the population depends on agriculture and related activities for their livelihoods. The largest portion of foreign currency earnings is based on cotton exports, followed by exports of gold and natural gas. Most exports in 2011 went to China, Kazakhstan, Turkey, Russia, Ukraine, and Bangladesh. The government closely controls export earning sectors. The government claims that 16% of the population remains in poverty, based on calories of food consumption per day. A sizeable portion of the working-age population has migrated abroad for work. Some international companies have boycotted purchases of Uzbek cotton and finished goods on the grounds that forced child and adult labor is used in harvesting. In response to the global economic downturn in 2008, the Uzbek government launched an anti-crisis program to increase budgetary expenditures on infrastructure modernization, extend credit to export industries, restructure bank debts, boost investment in small-sized businesses, and augment public-sector wages and social welfare. Transfers from the Fund for Reconstruction and Development (FRD; a pool of export and portfolio earnings launched in 2006, currently said to hold $15 billion) were used for some of these expenditures, although the Economist Intelligence Unit (EIU) firm alleges that mainly state-owned companies received the funds. A new industrial and infrastructure modernization program set at $47 billion was launched for 2011-2015, which the government hopes to finance partly with FRD funds and increased domestic and foreign direct investment (FDI). A new program of privatization has been announced to attract FDI. However, since 2010, dozens of foreign investors have had their businesses seized by the Uzbek government. Some Turkish businessmen whose stores were seized in 2011 alleged that they were tortured until they signed confessions of tax evasion and illegal activities. In January 2013, a Russian telecom firm filed for bankruptcy in Uzbekistan, accusing Uzbek government officials of seeking to destroy the firm and seize its assets. These confiscations of foreign assets reportedly have contributed to a sizeable falloff in FDI since 2011. The EIU states that the Uzbek government's economic data are untrustworthy, so that the true state of the economy is hard to ascertain. The EIU estimates that GDP increased by 8.0% in 2012. Economic growth was supported by increasing remittances by migrant workers and robust growth in the service, construction, and agricultural sectors, but was hampered somewhat by stalling world prices for gold and falling prices for cotton. These problems may continue to impede GDP growth in 2013, which the EIU estimates may slow to 7.3%. In July 2013, Uzbekistan reported a near-record grain harvest. Migrant workers remitted $2.3 billion in 2012, according to the World Bank (Russia's Central Bank reported remittances of $5.7 billion in 2012). By some accounts, up to one-fourth or more of Uzbekistan's labor force may be employed abroad. Appearing to discount the pressures driving Uzbeks to seek work abroad, on June 20, 2013, President Karimov stated that "I describe as lazy those who go to Moscow and sweep its streets and squares. One feels disgusted with Uzbeks going there for a slice of bread. Nobody is starving to death in Uzbekistan.... I call such people lazy because they go there in order to make big money fast, and they are a disgrace to us all." The EIU estimates that inflation was 14.3% at the end of 2012. The Uzbek government has tried to limit inflation through price controls on food and energy, but also has contributed to inflation by increasing public sector wages, pensions, and educational stipends at an average rate of about 20% per year since 2006, according to the World Bank. Added restrictions in early 2013 on the purchase of foreign exchange by residents may increase the import costs for private businesses forced to obtain foreign currency on the black market. In late 2008, Tashkent suspended its membership in the Eurasian Economic Community (a Russia-led group including Belarus, Kazakhstan, Kyrgyzstan, and Tajikistan that promotes unified customs tariffs and free trade). Some observers linked this action to Uzbekistan's opposition to Russian leader Vladimir Putin's neo-imperialist initiatives (other moves include suspending participation in the Collective Security Treaty Organizaton; see below). However, during his June 4, 2012, visit to Uzbekistan, President Putin and President Karimov signed a memorandum of understanding pledging Russian support for Uzbekistan joining the CIS Free Trade Zone, launched in 2011.Uzbekistan was formally admitted as a member of the Free Trade Zone at the end of May 2013. Uzbekistan's strict border controls and corruption stifle regional trade, according to observers. The United States and Uzbekistan have minimal trade. U.S. exports to Uzbekistan were about $285 million in 2012 (mainly aircraft; see below), and imports were about $26 million, according to the U.S. Commerce Department. Among major trade initiatives, Uzbekistan purchased four Boeing 767s in late 2008, of which three were delivered by mid-2012. A joint venture between General Motors and the Uzbek state automobile firm UzAvtosanoat, termed GM Uzbekistan, was formed in 2008 and assembles over 200,000 automobiles annually for the Uzbek domestic market and for export to Russia and elsewhere. Another joint venture between the two firms opened a factory in November 2011 to assemble engines for GM Uzbekistan. Tajikistan has alleged that Uzbekistan delays rail freight shipments, purportedly to pressure Tajikistan to halt construction of the Rogun hydro-electric power dam on the Vakhsh River, which Uzbekistan fears could limit the flow of water into the country. In November 2011, Uzbekistan closed a rail link to southern Tajikistan, reporting that a bridge was damaged, but since then allegedly has dismantled the span. In early April 2012, Tajikistan's prime minister and its foreign ministry denounced the rail restriction as part of an "economic blockade" aiming to destabilize Tajikistan. The Uzbek prime minister responded that all Uzbek actions were in accordance with bilateral agreements or responses to Tajik actions, so that the accusations were "groundless." In July 2013, Tajikistan claimed that it had released water from its Qayroqqum reservoir into the Syr Darya River, which flows into Uzbekistan and Kazakhstan. Tajik officials stated that they acted to avert water shortages downstream, and blamed the lowered river flow on upsteam Kyrgyzstan, which was impounding virtually all water in its Toktogul reservoir for winter power generation. Oil and Gas British Petroleum's (BP's) Statistical Review of World Energy reports that Uzbekistan has about 600 million barrels of proven oil reserves and an estimated 39.7 trillion cubic feet of proven natural gas reserves as of 2012 (negligible in terms of world oil reserves but about 0.6% of world gas reserves). Uzbekistan is a net importer of oil. Uzbek oil production has been declining for many years, attributable to lack of investment. The country consumes the bulk of its gas production domestically, but has used its network of Soviet-era gas pipelines to export some gas to Russia and to other Central Asian states (Kazakhstan, Kyrgyzstan, and Tajikistan). According to BP, Uzbekistan exported about 479 bcf of gas in 2010 (since then, BP's Statistical Review has not reported exports for Uzbekistan). According to some reports, gas exports declined to 424 bcf in 2011 but rebounded slightly to 441.4 bcf in 2012. Gas is provided to Russia and Kazakhstan through the Russian-owned Central Asia-Center Pipeline system. Uzbekistan began to export some gas through this pipeline system to Ukraine in 2011. Reportedly, Uzbekistan has been an unreliable gas exporter to other Central Asian states in recent winters, diverting exports to meet urgent cold-weather domestic needs. At the end of 2012, Uzbekistan suddenly ended gas shipments to Tajikistan, and these had not resumed as of August 2013. Uzbekistan largely has been closed to Western energy investment, although efforts to attract international energy firms have appeared to increase in recent years. Russian firms Gazprom and Lukoil are the largest investors in Uzbek gas development and production. Reportedly, Gazprom pays European-pegged gas prices for only a fraction of imports from Uzbekistan. In 2005, CNPC and Uzbekistan's state-owned Uzbekneftegaz firm announced that they would form a joint venture to develop oil and gas resources. In 2007, Uzbekistan and China signed an agreement on building a 326-mile section of the Central Asia-China Pipeline, and a joint venture between Uzbekneftegaz and CNPC launched construction in 2008. Two side-by-side pipelines were completed in 2009-2010, and the third is under construction. In October 2011, Uztransgaz (Uzbek gas transportation firm) and a subsidiary of CNPC signed a contract to supply gas though this pipeline beginning in 2012. In April 2012, China announced it would spend $15 billion for oil and gas exploration in Uzbekistan. A production sharing consortium composed of Uzbekneftegaz, Lukoil, the Korea National Oil Corporation, and CNPC is exploring for gas in the Aral Sea region. In August 2012, Uzbekistan began to export gas to China through the Central Asia-China pipeline. The Uzbek State Statistics Committee reported that energy exports in 2012 had nearly doubled over those of the previous year, from $2.78 billion to $5.03 billion, with exports to China probably accounting for much of the increase. Reportedly, the exports constrained domestic supplies, which were under further pressure from the declining output of Uzbekistan's oil and gas fields. Uzbekistan reportedly exported 141 bcf of gas to China in the latter part of 2012 and plans to supply 353 bcf of gas to China in 2013. In May 2013, Shokir Fayzullayev, the chairman of the board of the state holding company Uzbekneftegaz (Uzbek Oil and Gas), denied that gas exports were to blame for shortages. He claimed that the domestic gas distribution system was inadequate, particularly in the winter, but that it was being upgraded. Foreign Policy and Defense Home to more than half of the population of Central Asia, Uzbekistan seeks to play a leading role in regional affairs. Foreign policy is highly dependent on presidential decision-making. A new foreign policy concept was submitted to the legislature by President Karimov and quickly approved in early August 2012. It states that the main goals of Uzbekistan's foreign policy are strengthening the state's independence and sovereignty; ensuring a role in international affairs; joining the ranks of democratic and developed countries; and creating security, stability, and cooperative ties with neighboring states. Relations with Central Asian states are deemed the highest foreign policy priority because the vital interests of the country are connected with the region, including water sharing. The concept states that "Uzbekistan has always remained committed to conducting an open, friendly, and pragmatic policy towards its neighbors [and] is taking political, economic and other measures to prevent its involvement in armed conflicts and tensions in neighboring countries." The concept calls for regional problems to be solved without the interference of external forces. It proclaims that Uzbekistan "reserves the right to conclude unions, join commonwealths and other interstate groups, and also leave them." At the same time, however, the concept appears to embrace neutrality in security relations, specifying that "Uzbekistan pursues a peace-loving policy and does not take part in military-political blocs," and that the country "reserves the right of exit from any interstate group in the case of its transformation into a military-political bloc" (these provisions appear to reflect Uzbekistan's limited or non-participation in military exercises; see below). The concept also states that Uzbekistan neither will permit the stationing of foreign military bases on its soil—ostensibly referring to new bases—nor will participate in peacekeeping operations abroad. From the late 1990s until mid-2005, Karimov's priority was to seek closer ties with the United States, the European Union, and NATO while maintaining working relations with Russia and China. However, after the mid-2005 events in Andijon (see below), he shifted to closer ties with the latter two states. In 2001, Uzbekistan joined the Shanghai Cooperation Organization and in 2003 insisted on hosting its Regional Anti-Terrorism Center. During his early June 2012 visit to China to attend a SCO summit, President Karimov and Chinese President Hu Jintao had a side meeting and signed a declaration on strategic partnership to herald closer ties. Uzbekistan will host a meeting of the SCO prime ministers in September 2013. Uzbekistan has ongoing tensions with other Central Asian states over its mining of borders, water-sharing, border delineation, and other issues. Tajikistan's relations with Uzbekistan have been problematic, including disagreements about water-sharing, Uzbek gas supplies, the mining of borders, border demarcation, and environmental pollution. In July 2008, the head of the Tajik Supreme Court asserted that Uzbek security forces had bombed the Supreme Court building the previous summer as part of efforts to topple the government. In late 2010, Uzbekistan began a transit slowdown and other economic measures to pressure Tajikistan to halt building the Rogun dam (see above). Turkmenistan's relations with Uzbekistan and Azerbaijan have been tense. Azerbaijan and Turkmenistan have rival claims to some Caspian Sea oil and gas fields. Turkmenistan and Uzbekistan have vied for regional influence and argued over water-sharing. In 2002, the Turkmen government accused Uzbek officials of conspiring to overthrow it. Uzbekistan also objected to the treatment of ethnic Uzbeks in Turkmenistan under the previous president. The Kyrgyz premier rejected claims by Karimov in 2005 that Kyrgyzstan had provided training facilities and other support for the Andijon militants. Karimov again accused Kyrgyzstan in late May 2009 of harboring terrorists whom had attacked across the border. After the April 2010 coup in Kyrgyzstan, Uzbekistan tightened border controls with this country, greatly harming its economy. Conflict between ethnic Uzbeks and ethnic Kyrgyz in southern Kyrgyzstan in June 2010 further strained relations between the two countries. Up to 100,000 ethnic Uzbeks fled fighting in southern Kyrgyzstan to refugee camps in Uzbekistan. Although critical of the Kyrgyz government, Uzbekistan did not intervene militarily or permit its citizens to enter Kyrgyzstan to join in the fighting. On July 17, 2012, border guards exchanged gunfire at a Kyrgyzstan-Uzbekistan border post, reportedly killing a guard on each side. Uzbekistan responded by restricting border crossings at this post. In January 2013, Kyrgyz border guards wounded five Uzbeks in the Uzbek enclave of Sokh in Kyrgyzstan's Batken Region, bordering Uzbekistan. The Uzbeks allegedly had attempted to block an incursion into Sokh by the Kyrgyz border guards. Up to 1,000 local Uzbeks then temporarily took over three dozen Kyrgyz hostage. Uzbekistan in retaliation closed a road from Kyrgyzstan to a Kyrgyz enclave in Uzbekistan, and this road remains closed. In July 2013, Kyrgyzstan began building a fence around the Sokh enclave. That same month, Kyrgyz guards allegedly killed two Uzbek guards along the Namangan-Jalalabad regional border during a reported shoot-out. On the other hand, there have been some contacts between Karimov and other Central Asian leaders: In early September 2012, President Karimov visited Kazakhstan for a bilateral summit. One observer suggested that this summit was an effort by the two major regional powers to join together to spur greater region-wide integration, including common responses to security threats such as terrorism and instability in Afghanistan. The two leaders also aimed to bolster significant trade ties and issued a joint statement on regional water-sharing. In mid-June 2013, President Nazarbayev visited Uzbekistan. The two presidents signed a strategic partnership treaty, stressing that their two countries were the most strategically important in Central Asia and the necessity of holding "constant" bilateral consultations. Karimov stated that closer bilateral ties were needed to address the drawdown of International Security Assistance Force (ISAF) operations in Afghanistan and to buttress economic development and trade. Both leaders stated that each country was economically complementary to the other. Both also emphasized that regional water issues should be resolved peacefully and equitably with an internationally mediated independent examination of environmental hazards. However, President Karimov also suggested that the Kambarata and Rogun dams should not be constructed because of the danger of earthquakes, and rejected the idea that water was a commodity that could be traded. Since Berdimuhamedow came to power, relations between Turkmenistan and Uzbekistan have improved. In early October 2012, President Karimov visited Turkmenistan and met with President Berdimuhamedow, and the two leaders discussed boosting trade and other cooperation. They also called for region-wide talks before Tajikistan and Kyrgyzstan build dams that could affect water-sharing. In February 2013, President Karimov phoned Berdimuhamedow to invite him to visit to discuss joint projects. Uzbekistan has developed some ties with post-Taliban Afghanistan. In August 2011, Uzbekistan completed a 50-mile railroad linking its border town of Hairatan with the city of Mazar-e-Sharif in Afghanistan. The railway is part of the Northern Distribution Network (NDN) of U.S. and NATO-developed land, air, and sea routes from Europe through Eurasia to Afghanistan. Since 2002, Uzbekistan has provided some electricity to northern Afghanistan. Since early 2008, President Karimov has advocated the opening of U.N.-sponsored "6+3" Afghan peace talks (participants would include regional powers Uzbekistan, Tajikistan, Turkmenistan, Pakistan, China, and Iran and outside powers NATO, the United States, and Russia), similar to the "6+2" Afghan peace talks he had helped originate and which were held from 1999 to 2001 (NATO was not included at that time). The United States has stressed an Afghan-led reconciliation process (see also below, " Contributions to Counter-Terrorism "). The Uzbek armed forces is the largest in the region in terms of manpower, but some observers have argued that Kazakhstan's military modernization efforts are challenging Uzbekistan's security dominance. The armed forces consist of about 24,500 ground force troops, 7,500 air force troops, and 16,000 joint troops. There are also up to 19,000 internal security (police) troops and 1,000 national guard troops. Uzbekistan spent about 3.1% (about $1.4 billion) of its GDP in 2011 on the defense sector, which would be about 10% of the budget. One report stated that much of this spending was on officer and servicemen's benefits, and that this high level of defense spending was straining the budget. Uzbekistan's military doctrine proclaims that it makes no territorial claims on other states and adheres to nuclear non-proliferation. President Karimov has stated that he strongly opposes military hazing and supports adequate social support for the troops. Military cooperation between Russia and Uzbekistan is ensured through a 1992 Friendship Treaty, a 1994 military treaty, a 1999 accord on combating terrorism and Islamic extremism, and a November 2005 Treaty of Alliance. The latter accord calls for mutual consultations in case of a security threat to either party. After withdrawing in 1999, Uzbekistan rejoined the Collective Security Treaty Organization in December 2006 (CSTO; members have included Russia, Belarus, Armenia, and the Central Asian states except Turkmenistan). However, Uzbekistan declined to participate in rapid reaction forces established in June 2009 because of concerns that the forces could become involved in disputes within the Commonwealth of Independent States (CIS; a grouping of Soviet successor states) on the basis of decisions made by the affected parties (rather than solely upon the agreement of all CSTO members). At CSTO summits in December 2010 and December 2011, the members reportedly agreed on procedures for intervening in domestic "emergency" situations within a member state at the behest of the member. At the latter meeting, they also agreed that no member could host a foreign military base without the permission of the CSTO. Uzbekistan reportedly raised concerns about these measures. On June 20, 2012, Uzbekistan informed the CSTO that it was suspending its membership in the organization, including because the CSTO was ignoring its concerns. However, Uzbek officials stated that the country would continue to participate in the CIS air defense system and other military affairs. According to some observers, the withdrawal of Central Asia's largest military from the CSTO highlighted the organization's ineffectiveness. During President Putin's early June 2012 visit to Uzbekistan, the two sides concluded a Declaration on Deepening the Strategic Partnership, building on a 2004 agreement, which called for mutual consultations in the event of a threat to either party. Uzbekistan signed a strategic partnership accord with China within a few days and with Kazakhstan in June 2013 (see above). According to some observers, these accords have been pursued by Uzbekistan as preferable to the CSTO as a means to buttress cooperation on stability in Central Asia as ISAF draws down its forces in Afghanistan. President Karimov highlighted his concerns about Afghanistan in early May 2013 when he stated that "the main threat for not only Uzbekistan but also for all countries surrounding Afghanistan is the cruel war that has been continuing in Afghanistan for over 30 years.... Unfortunately, when [ISAF] leaves, conflicts will intensify between the forces which are opposing each other.... Terrorism, drug addiction, drug trafficking, and various religious and ethnic conflicts ... will escalate.... Tension will definitely increase in the Central Asian countries after they pull out without having settled the problem of Afghanistan." Although the SCO Regional Anti-Terrorism Center is in Tashkent, Uzbek troops have not participated in SCO exercises, although its officers have been observers. Uzbek officers were observers at SCO military exercises held in Kazakhstan in June 2013 (Kazakh, Kyrgyz, and Tajik troops took part, while Russian and Chinese troops held separate SCO Peace Mission 2013 exercises in Russia in August 2013). Terrorism and Unrest On February 16, 1999, six bomb blasts in Tashkent's governmental area by various reports killed 16-28 and wounded 100-351. Karimov termed the bombing an assassination attempt. He alleged that exiled Erk Party leader Mohammad Solikh (Salih) led the plot, assisted by Afghanistan's Taliban and IMU co-leaders Tahir Yuldashev and Juma Namanganiy. Solikh denied any role in the bombings. In November 2000, Yuldashev and Namanganiy received death sentences and Solikh 15.5 years in prison. Another defendant, Najmiddin Jalolov (see below), received 18 years (all in absentia ). Other security threats included the invasion of neighboring Kyrgyzstan in July-August 1999 by several hundred IMU and other guerrillas. They were rumored to be aiming to create an Islamic state in south Kyrgyzstan as a springboard for a jihad in Uzbekistan. By mid-October 1999, they had been forced out of Kyrgyzstan with Uzbek aid. In August 2000, dozens of IMU and other guerrillas again invaded Kyrgyzstan and Uzbekistan, but were expelled by late October. A series of bombings and armed attacks took place in Uzbekistan in late March-early April 2004, reportedly killing 47 individuals. President Karimov asserted that the attacks were aimed to "cause panic among our people, [and] to make them lose their trust" in the government. The then-Combined Forces Commander for Afghanistan, Lieutenant General David Barno, visited Uzbekistan in April 2004 and stressed that "we stand with Uzbekistan in facing down this terrorist menace." The obscure Islamic Jihad Union of Uzbekistan (IJU; reportedly a breakaway faction of the IMU) claimed responsibility. Suspected terrorists testified at a trial in mid-2004 that Jalolov was the leader of IJU, that they were trained by Arabs and others at camps in Kazakhstan and Pakistan, and that the IJU was linked to Hizb ut-Tahrir, the Taliban, Uighur extremists, and Al Qaeda. During this trial, explosions occurred on July 30, 2004, at the U.S. and Israeli embassies and the Uzbek Prosecutor-General's Office in Tashkent. The IMU and IJU claimed responsibility. On May 25-26, 2009, a police checkpoint was attacked on the Kyrgyz-Uzbek border, attacks took place in the border town of Khanabad, and four bombings occurred in Andijon in the commercial district, including at least one by suicide bombers. Several deaths and injuries were alleged, although reporting was suppressed. Uzbek officials blamed the IMU, although the IJU allegedly claimed responsibility. President Karimov flew to Andijon on May 31. In late August 2009, shootings took place in Tashkent that resulted in the deaths of three alleged IMU members and the apprehension of other group members. The Uzbek government alleged that the group had been involved in the 1999 explosions and in recent assassinations in Tashkent. In September 2000, the State Department designated the IMU as a Foreign Terrorist Organization, stating that the IMU, aided by Afghanistan's Taliban and by Osama bin Laden, resorts to terrorism, actively threatens U.S. interests, and attacks American citizens. The "main goal of the IMU is to topple the current government in Uzbekistan," the State Department warned, and it linked the IMU to bombings and attacks on Uzbekistan in 1999-2000. IMU forces assisting the Taliban and Al Qaeda suffered major losses during coalition actions in Afghanistan, and IMU co-head Namanganiy was probably killed. Former CIA Director Porter Goss testified in March 2005 that the IJG/IJU "has become a more virulent threat to U.S. interests and local governments." In May 2005, the State Department designated the IJG/IJU as a Foreign Terrorist Organization and Specially Designated Global Terrorist, and in June, the U.N. Security Council added the IJG/IJU to its terrorism list. In June 2008, IJG head Jalolov and his associate Suhayl Fatilloevich Buranov were added to the U.N. 1267 Sanctions Committee's Consolidated List of individuals and entities associated with bin Laden, al Qaeda, and the Taliban. Also, the U.S. Treasury Department ordered that any of their assets under U.S. jurisdiction be frozen and prohibited U.S. citizens from financial dealings with the terrorists. IMU head Yuldashev reportedly was killed in late August 2009 in Pakistan by a U.S. predator drone missile, and Jalalov allegedly similarly was killed in late September 2009. Yuldashev's deputy, Abu Usmon Odil, became the head of the IMU. In July 2011, an Uzbek citizen on an expired student visa was arrested on charges of being directed by IMU terrorists to assassinate President Obama. He confessed and was sentenced in 2012. Two other ethnic Uzbeks were arrested in the United States in early 2012 on charges of collaborating with the IJU. One of the Uzbeks had been granted refugee status after he fled the Uzbek government crackdown in Andijon in 2005. He was arrested at a U.S. airport while allegedly planning to join IJU terrorists abroad. In May 2013, an ethnic Uzbek was arrested in Idaho on charges of providing money and computer support to the IMU for an unspecified attack. The 2005 Violence in Andijon, Uzbekistan Dozens or perhaps hundreds of civilians were killed or wounded on May 13, 2005, after Uzbek troops fired on demonstrators in the eastern town of Andijon. The protestors had gathered to demand the end of a trial of local businessmen charged with belonging to an Islamic terrorist group. The night before, a group stormed a prison where those on trial were held and released hundreds of inmates. Many freed inmates then joined others in storming government buildings. President Karimov flew to the city to direct operations, and reportedly had restored order by late on May 13. On July 29, 439 people who had fled from Uzbekistan to Kyrgyzstan were airlifted to Romania for resettlement processing, after the United States and others raised concerns that they might be tortured if returned to Uzbekistan. The United States and others in the international community repeatedly called for an international inquiry into events in Andijon, which the Uzbek government rejected as violating its sovereignty. In November 2005, the EU Council approved a visa ban on 12 Uzbek officials it stated were "directly responsible for the indiscriminate and disproportionate use of force in Andijon and for the obstruction of an independent inquiry." The Council also embargoed exports of "arms, military equipment, and other equipment that might be used for internal repression." In October 2007 and April 2008, the EU Council suspended the visa ban for six months but left the arms embargo in place. In October 2008, the EU Council praised what it viewed as some positive trends in human rights in Uzbekistan and lifted the visa ban, although it left the arms embargo in place. In October 2009, it lifted the arms embargo. At the first major trial of 15 alleged perpetrators of the Andijon unrest in late 2005, the accused all confessed and asked for death penalties. They testified that they were members of Akramiya, a branch of Hizb ut-Tahrira (HT), a banned Islamic political organization launched in 1994 by Akram Yuldashev that allegedly aimed to use force to create a caliphate in the area of the Fergana Valley located in Uzbekistan. Besides receiving assistance from HT, Akramiya was alleged to receive financial aid and arms training from the IMU. The defendants also claimed that the U.S. and Kyrgyz governments helped finance and support their effort to overthrow the government, and that international media colluded with local human rights groups and non-governmental organizations (NGOs) in this effort. The U.S. and Kyrgyz governments denied involvement, and many observers criticized the trial as appearing stage-managed. Reportedly, 100 or more individuals were arrested and sentenced, including some Uzbek opposition party members and media and NGO representatives. Partly in response, the U.S. Congress tightened conditions on aid to Uzbekistan at that time (see below). U.S. Relations According to testimony to Congress in 2012 by Assistant Secretary of State Robert Blake, "Uzbekistan has been a critical part of regional support for Afghanistan, building a rail line connecting Afghanistan to Central Asia and providing electricity that benefits the Afghan people. In addition, Uzbekistan has a central role in the NDN, with the majority of supplies transiting through the Uzbek-Afghan border." He also stated that U.S. officials continue to raise human rights concerns and that "we continually advocate for those who seek peaceful democratic reforms. In particular, we ask the government to take steps to eliminate the forced labor of children and adults during the cotton harvest.... We are also working with the Government of Uzbekistan to increase religious freedom by addressing its overly restrictive religious registration policies and allegations of arbitrary arrests and detentions of peaceful religious leaders." He raised hopes that Uzbekistan would address restrictive currency conversion law and pervasive corruption, so that U.S. investment could increase. He also called for Uzbekistan to facilitate scientific and educational exchanges. During President Karimov's March 2002 U.S. visit, former Uzbek Foreign Minister Abdulaziz Komilov and former Secretary of State Colin Powell signed a Declaration on Strategic Partnership and Cooperation that set forth broad-scale goals for political, economic, security, and humanitarian cooperation. The accord pledged the United States to "urgent consultations" in the case of external security threats to Uzbekistan and pledged Uzbekistan "to further intensify the democratic transformation of society in the political, economic and spiritual areas," and to "ensure the effective exercise and protection of human rights." U.S. relations with Uzbekistan were set back in 2005 after the United States joined others in the international community to criticize an Uzbek government crackdown in the town of Andijon (see above). The criticism contributed to Uzbekistan's closure of over a dozen U.S.-based or U.S.-supported non-governmental organizations (NGOs), the termination of U.S. basing rights at Karshi-Khanabad (see below), a fall-off in official and diplomatic contacts, and the strengthening of U.S. congressional restrictions on aid to the Uzbek government (see directly below). U.S.-Uzbek relations recently have improved, according to the Administration. Assistant Secretary Blake visited Uzbekistan in November 2009 and stated that his meetings there were "a reflection of the determination of President Obama and Secretary Clinton to strengthen ties between the United States and Uzbekistan." He proposed that the two countries set up high-level annual consultations to "build our partnership across a wide range of areas. These include trade and development, border security, cooperation on narcotics, the development of civil society, and individual rights." The first Annual Bilateral Consultation (ABC) took place in late December 2009 with a U.S. visit by an Uzbek delegation led by Foreign Minister Vladimir Norov. The two sides drew up a plan for cooperation for 2010 that involved diplomatic visits, increased military-to-military contacts, and investment and trade overtures. In November 2010, Assistant Secretary Blake testified to Congress that the Obama Administration has increased its engagement with Uzbekistan on a full agenda of security, economic and human rights issues. In the regional security field, Uzbekistan has become a key partner for the United States' effort in Afghanistan…. It has facilitated transit for essential supplies to Coalition forces and constructed an important railroad line inside of Afghanistan.... We have seen an improved relationship with Uzbekistan, but many challenges remain. We continue to encourage the Uzbek authorities to address significant human rights concerns. During her December 2010 visit to Uzbekistan, Secretary of State Hillary Clinton stated that an improved bilateral relationship was "crucial" to U.S. interests. She reportedly thanked President Islam Karimov for Uzbekistan's support for the Northern Distribution Network (transport routes supporting military operations in Afghanistan) and for other assistance to Afghanistan. She stated that issues of human rights also had been discussed. She hailed the signing of a bilateral science and technology cooperation agreement as an effort "to try to find other ways to connect with and promote positive cooperation between our two countries." The second U.S.-Uzbek ABC took place in February 2011 with a visit to Uzbekistan led by Assistant Secretary Blake. The talks reportedly included security cooperation, trade and development, science and technology, counter-narcotics, civil society development, and human rights. A U.S. business delegation discussed means to increase trade ties. Blake reported that the United States had purchased $23 million in Uzbek goods for transit to Afghanistan in FY2010 (see below). President Obama telephoned President Karimov on September 28, 2011, to thank him for Uzbekistan's cooperation in stabilization efforts in Afghanistan, and reportedly to urge him to facilitate the transit of U.S. and NATO cargoes into and out of Afghanistan. During her October 22-23, 2011, visit to Tajikistan and Uzbekistan, Secretary Clinton discussed the U.S. "New Silk Road Vision" to turn Afghanistan into a regional transportation, trade, and energy hub linked to Central Asia. She also warned the presidents of both countries that restrictions on religious freedom could contribute to rising religious discontent. A congressional delegation led by Representative Dan Burton visited Uzbekistan in early July 2012 and met with President Karimov, who called for closer Uzbek-U.S. ties. The third ABC was held in August 2012, and like the second involved a visit to Tashkent by a U.S. delegation led by Assistant Secretary Blake. He reported that the meeting covered Uzbekistan's support for U.S. operations in Afghanistan, energy, agriculture, health, parliamentary exchanges, education, science and technology, counter-narcotics, border security, counter-terrorism, religious freedom, trafficking in persons, and human rights. At an associated U.S.-Uzbek business forum, Assistant Secretary of State Blake raised concerns about currency convertibility and contract sanctity that hamper foreign investment. In a speech in October 2012, Blake stated that because of Uzbekistan's poor human rights record, the United States provided it only non-lethal security assistance. Indicative of U.S. interest in Uzbekistan, Deputy Assistant Secretary of State Jane Zimmerman visited Uzbekistan in mid-July 2013, reportedly to discuss human rights issues, and Deputy Assistant Secretary of Commerce Matthew Murray visited in May to discuss trade and investment (U.S. businesses discussed projects in Uzbekistan at a business round table in Washington D.C. later that month). Assistant Secretary Blake visited Uzbekistan in late April 2013. He reported that human trafficking and civil society problems were among human rights issues that were discussed. He indicated that discussions were beginning on providing Uzbekistan with possible excess defense articles from Afghanistan. He also stated that trade and investment issues were discussed, including U.S. concerns about added restrictions on currency convertibility and repatriation. Assistant Secretary of State Mike Hammer visited Uzbekistan in April 2013. He discussed U.S. concerns about freedom of the press, while praising some Uzbek open government initiatives. In March 2013, Secretary Kerry met with visiting Uzbek Foreign Minister Kamilov. Secretary Kerry stated that U.S.-Uzbek relations were continuing to improve, and to expand beyond mutual concerns about Afghanistan. In February 2013, a Congressional delegation headed by Representative Dana Rohrabacher visited Uzbekistan. Cumulative U.S. assistance budgeted for Uzbekistan in FY1992-FY2010 was $971.36 million (all agencies and programs), according to the data compiled by the State Department's Office of the Coordinator of U.S. Assistance to Europe and Eurasia. Of this aid, $393.0 million (about two-fifths) was budgeted for combating weapons of mass destruction (including Comprehensive Threat Reduction aid), Foreign Military Financing, counter-narcotics, Partnership for Peace, and anti-crime support. Food, health, and other social welfare and humanitarian aid accounted for $222.4 million (nearly one-fourth), and democratization aid accounted for $174.1 million (nearly one-fifth). See Table 1 and Table 2 . Budgeted assistance was $11.34 million in FY2011 and $16.7 million in FY2012, and the Administration has requested $11.6 million for FY2014 (numbers include funds from the Economic Support Fund and other "Function 150" foreign aid, and exclude Defense and Energy Department funds). Country totals are not yet available for FY2013. The main priorities of U.S. assistance requested for FY2014 are technical advice for Uzbekistan's planned accession to WTO ($3 million); training for judges and defense lawyers on habeas corpus, funding to improve the legal environment for NGOs, and other support for local NGOs and independent media ($1.8 million); and funding for health programs ($3 million). In FY2003 foreign operations appropriations ( P.L. 108-7 ) and thereafter, Congress prohibited assistance to the government of Uzbekistan unless the Secretary of State determined and reported that Uzbekistan was making substantial progress in meeting commitments to respect human rights; establish a multiparty system; and ensure free and fair elections, freedom of expression, and the independence of the media. Congress received a determination of progress in FY2003. In FY2004 and thereafter, however, some aid to Uzbekistan was withheld because of lack of progress on democratic reforms. In FY2008, Congress added a provision blocking Uzbek government officials from entering the United States if they were deemed to have been responsible for events in Andijon or to have violated other human rights. In late 2009, Congress permitted ( P.L. 111-84 , §801)—for the first time since restrictions were put in place—the provision of some assistance on national security grounds to facilitate the acquisition of supplies for U.S. and NATO operations in Afghanistan from countries along the Northern Distribution Network. In 2010, Congress permitted ( P.L. 111-117 ) an expanded IMET program for training Uzbek military officers on human rights, civilian control of the military, and other democracy topics. Consolidated Appropriations for FY2012 ( P.L. 112-74 ; signed into law on December 23, 2011) provides for the Secretary of State to waive conditions on assistance to Uzbekistan for a period of not more than six months and every six months thereafter until September 30, 2013, on national security grounds and as necessary to facilitate U.S. access to and from Afghanistan. The law requires that the waiver include an assessment of democratization progress, and calls for a report on aid provided to Uzbekistan, including expenditures made in support of the NDN in Uzbekistan and any credible information that such assistance or expenditures are being diverted for corrupt purposes. The law also extends a provision permitting expanded IMET assistance for Uzbekistan. The State Department has issued waivers for assistance to Uzbekistan, while assessing human rights conditions as of "serious concern." Under the waivers, $2.69 million in Foreign Military Financing was provided to Uzbekistan for FY2012, and $1.5 million is requested for FY2014. The Consolidated and Further Continuing Appropriations Act for FY2013 ( P.L. 113-6 ; signed into law on March 26, 2013), calls for foreign assistance to be provided under the authority and conditions provided in FY2012 in P.L. 112-74 . Contributions to Counter-Terrorism Even before the terrorist attacks on the United States on September 11, 2001, Uzbekistan had cooperated with the United States on regional anti-terrorism efforts, including allegedly serving as a base for U.S. drone operations in Afghanistan. This Uzbek support was attributed by observers to the country's concerns about the IMU. An agreement on the U.S. use of the Khanabad airbase, near the town of Karshi (termed the K2 base) for Operation Enduring Freedom (OEF) in Afghanistan was signed in October 2001, and a joint statement pledged the two sides to consult in the event of a threat to Uzbekistan's security and territorial integrity. This non-specific security pledge was reiterated in the March 2002 "Strategic Partnership" accord (mentioned above). In addition to security assurances and increased military and other aid, U.S. forces in Afghanistan killed many terrorists belonging to the Islamic Movement of Uzbekistan (IMU; dedicated to the forceful establishment of Islamic rule in Uzbekistan). Uzbekistan allegedly also served as a site for extraordinary renditions of U.S. terrorism suspects in the early 2000s. Following U.S. criticism of Uzbek government actions in Andijon, the government demanded at the end of July 2005 that the United States vacate K2 within six months (U.S.-Uzbek relations had shown strains before this demand). On November 21, 2005, the United States officially ceased operations at K2. The Uzbek government has permitted Germany to maintain a small airbase at Termez with about 163 troops. According to some German reports, the country has paid an average of 11 million euros since 2002 for basing privileges. Among possible signs of improving U.S.-Uzbek relations, in early 2008 Uzbekistan reportedly permitted U.S. military personnel under NATO command, on a case-by-case basis, to transit through the Termez airbase operated by Germany. President Karimov attended the NATO Summit in Bucharest, Romania, in early April 2008 and stated that Uzbekistan was ready to discuss the transit of non-lethal goods and equipment by NATO through Uzbekistan to Afghanistan. This issue was part of the agenda during then-Assistant Secretary of State Richard Boucher's May 30-June 3, 2008, visit to Uzbekistan. After the Commander of the U.S. Central Command, General David Petraeus, visited Uzbekistan in January 2009, the country reportedly began facilitating the transit of U.S. non-lethal supplies to Afghanistan as part of the NDN. A first rail shipment of U.S. non-lethal supplies departed from Latvia and entered Afghanistan in late March 2009 after transiting Russia, Kazakhstan, and Uzbekistan. President Karimov announced in May 2009 that the United States and NATO had been permitted to use the Navoi airport (located between Samarkand and Bukhara in east-central Uzbekistan) to receive non-lethal supplies, which could then be transported by air, rail, and ground to Afghanistan. In August 2009, General Petraeus visited and signed an accord on boosting military educational exchanges and training. Reportedly, these visits also resulted in permission by Uzbekistan for military overflights carrying weapons to Afghanistan. President Karimov hailed the visit by General Petraeus as a sign that "relations between our states are developing further. In the fact that we are meeting with you again I see a big element of the fact that both sides are interested in boosting and developing relations." Among other security-related visits, in November 2010, then-U.S. Central Command Commander James Mattis visited Uzbekistan, where he signed a military cooperation accord with General-Major Kabul Berdiyev, the Uzbek Minister of Defense, on engagements and training between USCENTCOM and the Ministry of Defense to be held in 2011, a follow-on to the accord signed in August 2009. In late May 2011, Deputy National Security Advisor Denis McDonough met with President Karimov to discuss Uzbekistan's assistance to Afghanistan. In early July 2011, Principal Deputy Assistant Secretary of State, Bureau of Political-Military Affairs, Kurt Amend visited Uzbekistan. His specialties include defense cooperation and status of forces negotiations. In February 2012, the director of the U.S. Drug Enforcement Administration's Middle East regional office, Mark Destito, visited the Interior Ministry and reportedly discussed DEA training courses carried out in Uzbekistan. Also in February 2012, Elizabeth Jones, the Deputy Special Representative for Afghanistan and Pakistan, visited Uzbekistan to discuss its cooperation efforts in Afghanistan. In late March 2012, then-USCENTCOM Commander Mattis visited Uzbekistan and met with Karimov. During this visit, the two sides signed an accord on military air transit of cargo and personnel from Afghanistan, which the Uzbek legislature later approved. In early June 2012, NATO Secretary General Anders Fogh Rasmussen announced that agreements had been reached with Uzbekistan, Kazakhstan, and Tajikistan for the land transit of materials from Afghanistan. On June 12-13, 2012, Deputy Secretary Bill Burns visited Uzbekistan to discuss security issues, including Afghanistan. He also met with civil society representatives. A few days later, Alice Wells, the National Security Council's Senior Director for Russian and Eurasian Affairs, visited Uzbekistan. U.S. Transportation Command (USTRANSCOM) Commander William Fraser visited in October 2012, reportedly to discuss NDN-related issued, and new USCENTCOM Commander Lloyd Austin visited in July 2013. Although Uzbekistan's rail network to Afghanistan has been relied upon to ship most of the fuel used by ISAF, corruption and bureaucracy in Uzbekistan reportedly have posed challenges to the use of the NDN routes through the country. Reportedly, only a small percentage of ISAF material is being shipped out of Afghanistan along the NDN for a variety of reasons, including the difficulties of the mountainous terrain in northern Afghanistan, the focus of current military operations in eastern Afghanistan, and restrictions by NDN transit states on cargoes, particularly Uzbekistan.

Uzbekistan gained independence at the end of 1991 with the breakup of the Soviet Union. The landlocked country is a potential Central Asian regional power by virtue of its population, the largest in the region, its substantial energy and other resources, and its location at the heart of regional trade and transport networks. The existing president, Islam Karimov, retained his post following the country's independence, and was reelected in 2000 and 2007. He has pursued a policy of caution in economic and political reforms, and many observers have criticized Uzbekistan's human rights record. The United States pursued close ties with Uzbekistan following its independence. After the terrorist attacks on the United States in September 2001, Uzbekistan offered over-flight and basing rights to U.S. and coalition forces. However, U.S. basing rights at Karshi-Khanabad were terminated in 2005 following U.S. criticism and other actions related to the Karimov government's allegedly violent crackdown on unrest in the southern city of Andijon. Since then, the United States has attempted to improve relations, particularly in support of operations in Afghanistan. In 2009, Uzbekistan began to participate in the Northern Distribution Network of land, sea, and air transit routes from Europe through Eurasia for U.S. and NATO military supplies entering and exiting Afghanistan. Cumulative U.S. assistance budgeted for Uzbekistan in FY1992-FY2010 was $971.36 million (all agencies and programs). Of this aid, about two-fifths was budgeted for combating weapons of mass destruction (including Comprehensive Threat Reduction aid), Foreign Military Financing, counter-narcotics, Partnership for Peace, and anti-crime support. Food, health, and other social welfare and humanitarian aid accounted for nearly one-fourth, and democratization aid accounted for nearly one-fifth. Budgeted assistance was $11.3 million in FY2011 and $16.7 million in FY2012, and the Administration has requested $11.6 million for FY2014 (these latter amounts include foreign assistance listed in the Congressional Budget Justification for Foreign Operations, and exclude Defense and Energy Department funding; country data for FY2013 are not yet available). In FY2003 foreign operations appropriations (P.L. 108-7) and thereafter, Congress prohibited foreign assistance to the government of Uzbekistan unless the Secretary of State determined and reported that Uzbekistan was making substantial progress in meeting commitments to respect human rights; establish a multiparty system; and ensure free and fair elections, freedom of expression, and the independence of the media. In FY2008, Congress added a provision blocking Uzbek government officials from entering the United States if they were deemed to have been responsible for events in Andijon or to have violated other human rights. Consolidated Appropriations for FY2012 (P.L. 112-74) provides for the Secretary of State to waive conditions on assistance to Uzbekistan for a period of not more than six months and every six months thereafter until September 30, 2013, on national security grounds and as necessary to facilitate U.S. access to and from Afghanistan. Such waivers have been issued.

Introduction Moving beyond its traditional place in personal computers and corporate servers, software today may be integrated in everyday consumer goods such as televisions, refrigerators, thermostats, coffee makers, garage door openers, automobiles, vacuums, and printers, as well as personal medical devices (for example, glucose meters, asthma inhalers, and blood pressure monitors ). Software enables modern consumer products' operations or provides users with convenient features such as automation, Wi-Fi connectivity, and remote control via laptops, smartwatches, and smartphones. Products that can communicate with the Internet are sometimes referred to as "smart" devices or "connected" appliances. The incorporation of software in everyday consumer products has benefited consumers because it provides "new qualities to ordinary products, making them safer, more efficient, and easier to use." When consumers purchase these "software-enabled" products from retailers, they become the owner of the hardware components of the device or machine. In contrast, however, they may only acquire a license (a form of legal permission) to use any embedded software during the time of their product ownership. Manufacturers of electronic devices may employ software licensing as a legal mechanism to restrict unauthorized resale of their products (via secondary marketplaces such as craigslist and eBay) or to prohibit product alterations or repairs that they do not officially sanction. Furthermore, some companies have incorporated into their products software or computer chips that provide "digital rights management" (DRM) measures that attempt to control their consumers' post-purchase behavior. For example, manufacturers have installed DRM in gourmet coffee makers and printers to prevent the use of third-party, unlicensed coffee pods and toner cartridges that are often cheaper and possibly easier to acquire than brand-name, manufacturer-authorized accessories. DRM also may be used to prevent consumers from modifying the software in their cell phones in order to connect the devices to different wireless carriers. The inclusion of licensed software and DRM in consumer products and devices has raised concerns about the ability of consumers to repair, modify, or resell their personal property because engaging in such activities may potentially violate provisions of the Copyright Act (or the Act). Some consumers may be surprised to discover that copyright law has anything to do with relatively mundane consumer products, such as coffee makers and thermostats, that do not store, display, or play copyrighted material such as movies, television shows, music, pictures, or electronic books. Yet the software itself that is installed in these consumer products is subject to copyright protection. Thus, because many everyday consumer products contain copyrighted software, copyright law may impact how these products are used, modified, or resold by consumers. This report examines copyright law issues raised by software-enabled consumer goods. The report will begin with a review of general principles of copyright law and then explain how copyright law applies to software programs generally. The report will then analyze copyright law provisions, including fair use, the first sale doctrine, and DRM, that may limit or otherwise affect consumers' ability to repair, resell, or modify their software-enabled electronic devices. The report will first provide a general background of these issues, then discuss selected case law applicable to each doctrine, and finally analyze the interplay of these concepts with consumer rights and expectations regarding their software-enabled electronic devices. The report will conclude with a summary of federal agency studies and federal and state legislation that relate to this topic. Fundamentals of Copyright Law The Copyright Clause of the U.S. Constitution authorizes Congress to "promote the Progress of Science … by securing for limited Times to Authors … the exclusive Right to their respective Writings.... " Copyright is a federal grant of legal protection available to the creator or owner of certain forms of creative expression (referred to as "works" in copyright parlance), including books, movies, photography, art, and music. Copyright protection does not extend to any underlying abstract idea, procedure, process, system, method of operation, concept, principle, or discovery, but rather it only protects the manner in which those ideas are expressed. A copyright holder possesses several exclusive legal entitlements under the Copyright Act, which provide the holder with the right to determine whether and under what circumstances the protected work may be used by third parties. The grant of copyright permits the copyright holder to exercise several exclusive rights, including the right to reproduce the copyrighted work, distribute copies of the work, publicly perform the work, and publicly display the work. A copyright holder may also permit a third party to exercise one of these exclusive rights. Such permission is often granted in the form of a license, which is usually expressed in a written contract. A license allows a third party to do something with a protected work that implicates a copyright holder's exclusive rights without concern of violating the copyright holder's rights. Each exclusive right of a copyright holder may be subject to licensing. For example, a third party wishing to duplicate a copyrighted work as well as publicly perform the work must negotiate separate licenses from the copyright holder to engage in the different activities. The terms of a licensing agreement may include certain limitations or conditions on using the copyrighted work and may require payment of a royalty fee. Unauthorized use of a copyrighted work by a third party in a manner that implicates one of the copyright holder's exclusive rights generally constitutes infringement. The copyright holder may file a lawsuit against an alleged infringer to enforce his or her intellectual property rights. The Copyright Act provides several civil remedies to the copyright holder who is harmed by infringement. However, certain unauthorized uses may not constitute infringement if the activities come within the scope of several statutory limitations on the copyright holder's exclusive rights, two of which (fair use and first sale) are discussed later in this report. In addition, copyrights are limited in the number of years a copyright holder may exercise his or her exclusive rights. In general, the creator of the work (referred to as an "author" in copyright parlance) may enjoy copyright protection for the work for a term lasting the entirety of his or her life plus 70 additional years. At the expiration of a term, the copyrighted work becomes part of the public domain. A work in the public domain is available for anyone to use without the need to seek prior permission from the creator of the work. Mere ownership of a book, compact disc, or other material object that embodies a copyrighted work does not convey to the possessor of those objects any rights in the copyright. As the Copyright Act explains, Ownership of a copyright, or of any of the exclusive rights under a copyright, is distinct from ownership of any material object in which the work is embodied. Transfer of ownership of any material object, including the copy … in which the work is first fixed, does not of itself convey any rights in the copyrighted work embodied in the object… Thus, for example, a person who buys a copy of a book does not obtain the right to reproduce that book (beyond what may be permissible under fair use, discussed later in this report); similarly, someone who purchases a music compact disc (CD) is not entitled to duplicate that CD and distribute the copy to another person. Copyrights and Software As noted above, copyright protection is available for a variety of written materials (such as books, magazines, and newspapers), which the Copyright Act refers to as "literary works." The Act's definition of this term appears to include software programs, and courts and legislative history have supported the view that the category of "literary works" includes computer programs. (The Act also defines a "computer program" as "a set of statements or instructions to be used directly or indirectly in a computer in order to bring about a certain result." ) Thus, software developers may claim copyright protection for their software programs. The Copyright Act establishes a few limitations on the reproduction rights of software copyright holders. Section 117(a) of the Act allows the owner of a particular copy of a software program to create copies of the software that are necessary as an "essential step" in using the computer program and as "back-up" copies for the personal use of the individual software owner. Furthermore, Section 117(c) provides that an owner of a machine may "make … a copy of a computer program if such copy is made solely by virtue of the activation of a machine that lawfully contains an authorized copy of the computer program, for purposes only of maintenance or repair of that machine…." Section 117(d) defines "maintenance" of a machine to mean "the servicing of the machine in order to make it work in accordance with its original specifications and any changes to those specifications authorized for that machine," and "repair" of a machine to mean "the restoring of the machine to the state of working in accordance with its original specifications and any changes to those specifications authorized for that machine." Licensing Versus Ownership of Software A software company typically structures the original transaction between the company and its consumers as a license, rather than as an outright sale . In other words, the software manufacturer provides the end user with a limited license to use the software (via an "end user license agreement," or EULA), the terms of which may restrict further distribution and other activities with respect to the copyrighted software. As one legal commentator has explained, [M]any of the rights that purchasers of goods have come to expect—for instance, the right to use the goods for their intended purpose, or to resell them—do not automatically apply to purchases of most software or digital content. Instead, the copyright holder must specifically grant such rights. If such rights are withheld or withdrawn, the buyer may find that he has in fact bought nothing at all. Most mass marketed software is subject to so-called "shrinkwrap" licenses, referring to a piece of paper containing EULA terms that has been wrapped in transparent plastic along with the computer floppy disks inside the product's packaging. For software that is offered as a download through the Internet, the license is often referred to as a "click-through" license because, after a window or pop-up box appears on the computer screen prior to downloading or installing the software, users must click on an icon to accept the terms of the electronic agreement before proceeding. By tearing the shrinkwrap plastic packaging surrounding physical software media or, when using accessing software online, by clicking on boxes labeled "accept," "yes," or "I agree," the consumer is indicating his or her consent to the terms of the EULA, which typically include restrictions on copying, usage, distribution, modifications, and legal remedies. In the leading opinion concerning the enforceability of shrinkwrap licenses, the U.S. Court of Appeals for the Seventh Circuit ruled in 1996 that "shrinkwrap licenses are enforceable unless their terms are objectionable on grounds applicable to contracts in general (for example, if they violate a rule of positive law, or if they are unconscionable)." Federal district courts have also upheld the enforceability of click-through agreements. Advanced Copyright Law Concepts Because software embedded in many modern consumer products may be subject to copyright protection, this section of the report will describe several advanced copyright topics, including fair use, first sale, and digital rights management, that may impact consumers' ability to repair, modify, or sell their electronic devices. The next section will discuss selected case law examples applicable to each of these topics. Fair Use Doctrine The doctrine of "fair use," codified in Section 107 of the Copyright Act, recognizes the right of the public to make reasonable use of copyrighted material, under particular circumstances, without the copyright holder's consent. For example, a teacher may be able to use reasonable excerpts of copyrighted works in preparing a scholarly lecture or commentary, without obtaining permission to do so. The Copyright Act expressly mentions fair use "for purposes such as criticism, comment, news reporting, teaching, scholarship, or research." However, the Copyright Act requires a federal court to consider and evaluate, on a "case-by-case" basis, several statutory factors in determining whether any particular conduct constitutes a "fair use": the purpose and character of the use including whether such use is of a commercial nature or is for nonprofit educational purposes; the nature of the copyrighted work; the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and the effect of the use upon the potential market for or value of the copyrighted work. The first decade of litigation involving software companies primarily addressed the extent to which copyright protection was available for computer programs and did not analyze the applicability of the fair use doctrine to software copyright infringement claims. However, beginning in the early 1990s, courts have considered the affirmative fair use defense in several high profile software cases, as will be discussed in the next section. First Sale Doctrine Section 109(a) of the Copyright Act expresses the "first sale doctrine" that limits the copyright owner's exclusive control over distribution of the material objects in which a work is expressed. The doctrine permits the owner of a particular copy of a copyrighted work to sell or dispose of that copy without the copyright owner's permission. The U.S. Supreme Court has previously explained that "[t]he whole point of the first sale doctrine is that once the copyright owner places a copyrighted item in the stream of commerce by selling it, he has exhausted his exclusive statutory right to control its distribution." For example, someone who purchases a new book in a bookstore (thus constituting the "first sale" of that particular copy) may thereafter distribute the book (for example, share it with a friend, give it away to a public library, or sell it to a used book store) without obtaining prior consent of the book's copyright owner. Owners of lawful copies of a copyrighted work are thus immunized from copyright infringement liability when they transfer ownership of those copies to other individuals. However, the first sale doctrine limits only the copyright owner's distribution rights; thus, owners of lawful copies who reproduce or publicly perform the work, without obtaining prior permission of the copyright owner, may be liable for infringement (unless they qualify for certain statutory exceptions or can successfully invoke the fair use doctrine). Notably, however, if the copyright owner merely licenses a copy of the work to a user (such that legal title in the copy does not pass to the possessor), the doctrine does not apply. Thus, retailers often characterize transactions involving digital media content as a purchase of a limited license to access or use the material, rather than as a sale, in order to avoid the effects of the first sale doctrine and retain control over downstream distribution (reselling or donating the media to others) and other post-purchase consumer actions (such as using the digital media on hardware devices that are not produced or authorized by the retailer). Compelling public policy reasons support the first sale doctrine. As the U.S. Supreme Court has explained, "The primary objective of copyright is not to reward the labor of authors, but 'to promote the Progress of Science and useful Arts.'" In accordance with this constitutional mandate, the Copyright Act balances the rights of copyright holders in their intellectual property with the public's interest in having robust ownership rights in the tangible material in which copyrighted works are fixed. By terminating the distribution right of copyright holders after the initial sale of a particular copy, owners of those copies benefit from having unrestrained alienability of personal property. There are several statutory exceptions to the first sale doctrine. The Record Rental Amendment Act of 1984 prevents owners of sound recordings from renting, leasing, or lending those material objects, for the purposes of direct or indirect commercial advantage, without the authorization of the copyright owners of those works. (This statute does not apply to retailers selling previously owned compact discs or used vinyl records, as these are completed transfers of ownership as opposed to temporary rentals.) The Computer Software Rental Amendments Act of 1990 extended this first sale doctrine exception to software, thus preventing owners of a particular copy of a computer program from renting, leasing, or lending it for the purposes of direct or indirect commercial advantage. These two amendments to the first sale statute were apparently "prompted by concern that commercial lending could encourage unauthorized copying and displace sales, thereby diminishing the incentive for creation of new sound recordings" and software programs. Notably, the Computer Software Rental Amendments Act contained an express exemption to its software rental prohibition, providing that it did not apply to "a computer program which is embodied in a machine or product and which cannot be copied during the ordinary operation or use of the machine or product." This statutory language demonstrates that over a quarter century ago, Congress wanted to distinguish traditional software programs that run on computers from software embedded in products to enable their operation. Digital Rights Management In 1998, Congress passed the Digital Millennium Copyright Act (DMCA), in part to help copyright owners protect their exclusive rights against infringement facilitated by digital technologies, including the Internet. Section 1201(a)(1) of the DMCA prohibits any person from circumventing a technological measure that effectively controls access to a copyrighted work. Technology-based measures to thwart copyright infringement (usually unauthorized reproduction and distribution) include Internet video streaming protections, encrypted transmissions, and content scrambling systems (CSS) on DVD media. These measures are often referred to as digital rights management (DRM) because they permit copyright holders to control access to, and use of, digital content through certain technological restrictions. The DMCA makes the act of gaining access to copyrighted material by circumventing DRM security measures, itself, a violation of the Copyright Act. Prohibited conduct includes descrambling a scrambled work; decrypting an encrypted work; or avoiding, bypassing, removing, deactivating, or impairing a technological measure, without the authority of the copyright owner. In addition, the DMCA prohibits the selling of products or services that circumvent access-control measures, as well as trafficking in devices that circumvent "technological measures" protecting "a right" of the copyright owner. Violations of the DMCA are subject to civil remedies and criminal penalties. In contrast to copyright infringement, which concerns the unauthorized or unexcused use of copyrighted material, the DMCA's anti-circumvention provisions prohibit the actual act of DRM circumvention, as well as the design, manufacture, import, offer to the public, or trafficking in technology used to circumvent those copyright protection measures, regardless of the actual existence or absence of copyright infringement activity. Thus, someone who disables or bypasses a DRM measure but takes no further action with respect to the underlying copyrighted material (e.g., copying, distributing, publicly performing or displaying the work), may have committed a DMCA offense but not copyright infringement. While the fair use doctrine may be raised as a defense to claims of copyright infringement, courts have held that fair use does not excuse a violation of the DMCA. The statutory prohibition on circumventing DRM is not absolute. The DMCA empowers the Librarian of Congress to issue regulations every three years that provide temporary exemptions to Section 1201(a)(1), thereby giving consumers the right to disable digital locks that control access to specific "classes" of copyrighted materials. Proposals for such classes are submitted by members of the public during a lengthy rulemaking proceeding; the Register of Copyrights then offers recommendations of designated classes to the Librarian for approval. The Librarian-approved exemptions to the DMCA's "anti-circumvention" prohibition allow users to lawfully modify or disable the particular access controls during the three-year period for which the regulation applies. (The Librarian is required by the DMCA to issue a ruling every three years in order to ensure that the classes remain technologically and commercially appropriate.) In addition, the DMCA includes provisions that allow circumvention in three situations involving "reverse engineering": (1) an individual may circumvent a DRM measure "for the sole purpose of identifying and analyzing those elements of the program that are necessary to achieve interoperability of an independently created computer program with other programs, and that have not previously been readily available to [that person]"; (2) an individual "may develop and employ technological means" that are "necessary" to enable interoperability; and (3) these technological means may be made available to others "solely for the purpose of enabling interoperability of an independently created computer program with other programs." Selected Case Law Involving Copyrighted Software This section provides examples of how the three copyright law concepts described in the previous section have been interpreted and applied by courts in cases involving software copyrights. As noted by the U.S. Copyright Office, courts that have considered copyright issues involving software to date "have not generally distinguished between software installed on general purpose computers and that embedded in everyday products." Thus, it remains to be seen whether, in the future, courts will view copyright protection for software-enabled consumer products any differently than they have for "traditional" software that runs on computers, video game consoles, servers, and communication devices. Fair Use of Copyrighted Software Courts have accepted the fair use defense to infringement claims involving copyrighted software when the cases involve "reverse engineering" a computer program in order to gain access to its unprotected functional elements. For example, in Sega Enterprises Ltd. v. Accolade, Inc., the U.S. Court of Appeals for the Ninth Circuit (Ninth Circuit) held that Accolade's disassembly and reverse engineering of Sega's copyrighted computer program was a fair use. Accolade reverse engineered the program in order to manufacture video games on cartridges that were compatible with Sega's gaming console, Genesis. Accolade's copies of Sega's software enabled it to discover the functional requirements for compatibility with the Genesis console. Even though Accolade's ultimate purpose was the development of Genesis-compatible games for sale, the appellate court found that Accolade's purpose in reverse engineering Sega's copyrighted software code was to study the functional requirements for Genesis compatibility and thus constitutes a fair use. In another case involving video games , Sony Computer Entertainment, the maker of the Sony PlayStation video game console, brought a copyright infringement action in 1999 against Connectix Corporation, which produced a software program called Virtual Game Station that allowed PlayStation games to be played on regular computers. In order to develop the software program, Connectix needed to "reverse engineer" Sony's software that operates its PlayStation (called the basic input-output system or BIOS). Such reverse engineering, however, required Connectix to repeatedly copy Sony's copyrighted software. The district court ruled that the copying of the BIOS was not protected by the Copyright Act's fair use provision and issued an injunction that prevented Connectix from selling the Virtual Game Station. The Ninth Circuit reversed the lower court and remanded with instruction to dissolve the injunction, holding that "[t]he intermediate copies made and used by Connectix during the course of its reverse engineering of the Sony BIOS were protected fair use, necessary to permit Connectix to make its non-infringing Virtual Game Station function with PlayStation games." In reaching this decision, the appellate court relied on Sega Enterprises that had established the following rule regarding reverse engineering of software code in order to gain access to elements that are not protected by copyright: "Where disassembly is the only way to gain access to the ideas and functional elements embodied in a copyrighted computer program and where there is a legitimate reason for seeking such access, disassembly is a fair use of the copyrighted work, as a matter of law." In a lawsuit filed in 2010, the software company Oracle alleged that Google had copied parts of Oracle's software code related to its Java programming language and incorporated it into its Android mobile operating system, which is used in many tablets and smartphones. Oracle argued that Google should have paid license fees to use the Java code and sought $8.8 billion in damages for the alleged copyright infringement, while Google asserted that it copied only a small portion of the code in order to transform it into a new mobile operating system that did not compete against any of Oracle's products. In May 2016, a federal jury unanimously found that Google's use of the software code was protected by the fair use doctrine and thus was not liable for copyright infringement. Oracle is expected to appeal the fair use decision to the U.S. Court of Appeals for the Federal Circuit. Software Licensees and First Sale Doctrine In 2010, the U.S. Court of Appeals for the Ninth Circuit decided a significant case involving the rights of software licensees in Vernor v. Autodesk, Inc. The appellate court held that the Copyright Act's first sale limitation on copyright holders' distribution rights (codified in Section 109) and the "essential step" limitation (in Section 117) on software copyright holders' reproduction rights do not apply to parties who are only licensed to use their copies of software; that is, they may not raise these statutory limitations as affirmative defenses to charges of copyright infringement. In this case, the software produced by Autodesk (called AutoCAD) was subject to a EULA that imposed several conditions and restrictions, including (1) Autodesk retains title to all copies of the software; (2) the customer is granted a nonexclusive and nontransferable license to use it; (3) the customer is prohibited from renting, leasing, or transferring the software without the company's prior consent; and (4) the customer is prohibited from engaging in certain activities such as modifying the software. In addition, the appellate court noted that the software company has an elaborate system in place to enforce its license requirements: It assigns a serial number to each copy of AutoCAD and tracks registered licensees. It requires customers to input "activation codes" within one month after installation to continue using the software. The customer obtains the code by providing the product's serial number to Autodesk. Autodesk issues the activation code after confirming that the serial number is authentic, the copy is not registered to a different customer, and the product has not been upgraded. Once a customer has an activation code, he or she may use it to activate the software on additional computers without notifying Autodesk. In 1999, Cardwell/Thomas & Associates, Inc. (CTA) purchased 10 licensed copies of the AutoCAD software program. CTA later upgraded to a newer version of the software. Autodesk's software licensing agreement requires its customers to destroy copies of previous versions of the software. However, instead of doing so, CTA sold the older software version to the defendant Vernor at an office sale. Vernor then listed several copies on eBay for sale. In August 2007, Vernor brought a declaratory action against Autodesk, seeking a determination that his resales of the used software are protected by the first sale doctrine and do not infringe Autodesk's copyright. The district court held that Vernor's sales were non-infringing under the first sale doctrine and the essential step defense. The Ninth Circuit vacated the district court's decision to grant summary judgment in favor of Vernor. The appellate court explained that "a software user is a licensee rather than an owner of a copy where the copyright owner (1) specifies that the user is granted a license; (2) significantly restricts the user's ability to transfer the software; and (3) imposes notable use restrictions." Applying this test, the court determined that CTA was a licensee, and not an owner, of a particular copy of copyrighted software, and thus not entitled under the first sale doctrine to resell the copies in its possession to Vernor. Because CTA was a licensee, CTA could not, because of the restrictions in the license, convey title to the copies to Vernor, who could also not pass ownership to any prospective eBay purchasers. The Ninth Circuit found that both CTA's original sale to Vernor and Vernor's sale on eBay infringed Autodesk's exclusive right to distribute copies of its copyrighted software. Furthermore, the court explained that neither CTA, Vernor, nor Vernor's customers are entitled to invoke the essential step defense because they are all licensees and not owners of copies of the software. DRM Circumvention In addition to copyright infringement claims, software copyright holders have sometimes added claims under Section 1201 of the DMCA if the defendant's actions involved circumvention of technological security measures. For example, Apple filed a civil lawsuit in 2008 against Psystar Corporation, which made and sold unauthorized "clones" of Macintosh computers. Apple had sold its Macintosh operating system on a DVD so that customers could upgrade their Mac computers to the latest version of the operating system; however, the terms of Apple's software license prohibited users from installing and running the software on any computers not manufactured by Apple. To enforce this license restriction, Apple included a technological measure that prevented the operating system from working on non-Apple computers. Apple alleged that Psystar used decryption measures to disable Apple's technological scheme and then installed the software onto its computers. Apple sued Psystar for copyright infringement as well as for violations of the DMCA's anti-circumvention provision. The federal court agreed with Apple's copyright infringement claims, finding Psystar liable for violating Apple's exclusive rights of reproduction, distribution, and adaptation. The court also ruled in favor of Apple on its DMCA violation claim. Analysis: Copyright Law and Software-Enabled Consumer Electronic Products End user license agreements that apply to copyrighted software may prohibit the owner of an electronic device from reselling the product, or from modifying or repairing the installed software, unless such activities are performed by a service provider that has been authorized by the equipment manufacturer to do so. This section discusses how software licenses and the provisions of copyright law discussed herein may affect consumers' rights and expectations regarding the software-enabled devices and products that they purchase. Resale of Devices In many instances, the original equipment manufacturer may not develop the software programs embedded within consumer products; instead, the product manufacturer may enter into contracts with third-party software developers to produce customized software. Such contracts, however, are often license agreements that make the product manufacturer only a licensee of the software, as opposed to owners of the software. Thus under the rationale of the Vernor case discussed above, the manufacturer cannot transfer title or ownership interest in the software to the consumer that purchases the product. Instead, the consumer in this situation would acquire only an "implied license" to use such embedded software that is an essential part of the product's functioning. Because the original purchaser of consumer electronic products merely holds a license to use the software embedded within them, the "first sale doctrine" is not applicable to this software, according to cases like Vernor . Instead, companies may offer customers the option of paying a "software license transfer" fee in exchange for the right to sell their software-enabled product to another consumer. In the absence of obtaining such permission of the original equipment manufacturer, consumers who try to resell their software-enabled electronic devices may risk potential copyright infringement liability or liability for breach of the EULA contract. This possibility is often mentioned with respect to computers, servers, and telecommunications networking equipment, but some believe that it could soon affect everyday consumer goods, as more of those products are sold with pre-installed software. However, others have expressed doubts about this outcome, arguing, for example, that "[i]f a software company ever prevented owners of an everyday product from reselling their goods on the secondary market, it would not be long before the manufacturer of that product found a different software provider to partner with. Arguably, neither the software developer nor product provider would survive very long if it garnered a reputation for such anti-consumer behaviors." In addition, the legal consequences of such resale activity have not yet been judicially established, as courts have not addressed whether, or to what extent, copyright infringement liability may apply in this situation. Modification of Devices: the Example of "Locked" Cellphones Copyright issues could also arise as a result of attempting to modify consumer software-enabled products. It is useful to consider the issue of product modifications through the lens of a recent example, involving "locked" cellphones. Cellphone carriers use software installed on wireless devices, such as iPhones and Android smartphones, to enable those devices to connect to their communication networks. Such software also ensures that the devices cannot operate on networks other than for which the device was originally used; the device is thus "locked" to a particular carrier such as AT&T or Verizon. The wireless carriers assert that they retain ownership of the phone's copyrighted software and only license it to consumers who purchase the phone. After their initial service contract expires, consumers may wish to modify their cellphones, or have them "unlocked," in order to use them on a different service provider's network. If the carrier or device retailer refuses to unlock the phone at the customer's request in order to fulfill this goal, the consumer (or an independent repair professional) could be in violation of the DMCA if he or she attempts to modify the phone's software in such a way that circumvents the digital lock (a DRM measure) that restricts the phone to the original carrier. However, in rulemakings conducted in 2006 and 2010, the Librarian of Congress approved an exemption to the DMCA that allowed consumers to bypass or disable the software locks on their cell phones in order to move their phones over to other wireless networks, without incurring liability under the DMCA. The rulemaking provided that the DMCA's anti-circumvention provisions would not apply to "[c]omputer programs in the form of firmware that enable wireless telephone handsets to connect to a wireless telephone communication network, when circumvention is accomplished for the sole purpose of lawfully connecting to a wireless telephone communication network." In the fall of 2012, the Librarian curtailed the cell phone unlocking exemption, limiting it to phones that were originally acquired from a carrier before January 26, 2013. Many consumer protection groups, digital rights activists, and newspaper editorials objected to the Librarian's decision to narrow the cellphone unlocking exemption. The Obama Administration also called on Congress to provide a narrow "legislative fix" to ensure that consumers can switch carriers (and use their existing phones on alternative networks) once their service agreement has ended. In response, Congress passed in 2014 the Unlocking Consumer Choice and Wireless Competition Act, which temporarily restored the cellphone unlocking exemption from 2010. It also instructed the Librarian of Congress to consider (in its next rulemaking proceeding) whether to extend the unlocking exemption to include other types of mobile devices, such as tablet computers, in addition to cellphones. In the most recent DMCA exemption rulemaking that was concluded in October 2015, the Librarian adopted a cellphone unlocking exemption similar to the 2010 exemption and also expanded the exemption to a variety of wireless devices such as tablets, mobile hotspots, and wearable wireless devices, such as smartwatches or fitness tracker devices. In addition, the Librarian approved, for the first time, an exemption that permits circumvention of access controls to allow the diagnosis, repair, and "lawful modification" of "motorized land vehicles," such as personal cars, commercial vehicles, and agricultural equipment. The cellphone unlocking example demonstrates the possible copyright implications of modifying software-enabled devices. To the extent that such modifications require copying any embedded software in a device, the activity could be an infringement of the software copyright. And to the extent that such modification involves circumventing DRM measures (as it did in the cellphone unlocking scenario), the DMCA could also be involved. The Librarian's triennial rulemaking proceeding is a complicated, lengthy, and temporary way to address the issue. Furthermore, while the regulation directly applies to DMCA concerns, it would not affect copyright infringement claims. Repair of Devices: the Proposed "Digital Right to Repair" Consumers with broken electronic devices are faced with several options: (1) throw them away and purchase new, replacement models; (2) contact the original equipment manufacturer's repair division or a service provider that has been authorized by the manufacturer to perform repair work; (3) attempt to perform the repair themselves; or (4) seek out independently owned repair facilities that are willing to fix them. Yet performing maintenance on software-enabled products "often will require copying of the software," and thus, anyone attempting to repair these products may risk violating the software copyright holder's right to control reproduction of the protected work. In addition, some manufacturers have threatened to take legal action against users for posting online copies of their copyrighted product service manuals (or other instructions for product repair), thus making it difficult for members of the public to locate such information. To address this situation, some consumer rights organizers and independent repair services have argued for a so-called "digital right to repair" to be enacted into federal or state laws that would either provide consumers with an affirmative right to repair their electronic property however they see fit or limit their liability for copyright infringement if they attempt such repairs. Advocates for a right to repair digital devices (such as iFixit and the Repair Association ) believe that consumers should be given more options to fix their malfunctioning electronic devices beyond the limited number of authorized dealers that may charge high repair prices, such as making publicly available do-it-yourself repair instructions or offering repair manuals, diagnostic equipment, and replacement parts to small, independent repair facilities. In addition, advocates for a right to repair believe that repairing old or faulty devices contributes to the longevity of a product and reduces electronic waste by slowing down the pace of discarded electronics ending up in landfills. Lastly, these groups believe that consumers would benefit from being able to purchase lower cost, "refurbished" electronics that are sold by resellers of used equipment. On the other hand, the consumer electronics industry has opposed legislative efforts to loosen restrictions on consumers' rights to repair or modify their electronic devices. Technology companies resist changing the status quo regarding electronics repair for a variety of reasons. First, they believe that "maintaining tight control over consumer repair options preserves the integrity of their products and provides a better customer experience." In addition, electronic industry trade associations have raised concerns that manufacturers' confidential and propriety information may be at risk if they are required to divulge to anyone how their devices are made and can be repaired. Also, according to the Consumer Technology Association (which represents a wide variety of electronics companies), manufacturers have created certification programs that provide tools and training to independent repair facilities that wish to apply to become authorized repairers of their electronic devices. Finally, manufacturers have expressed concerns about the possible damage to their brand and reputation, as well as the safety of their customers, as a result of improper, faulty repair work done by unauthorized service providers. Federal Agency Studies Related to Software-Enabled Consumer Products Two federal agencies that have responsibility for administering intellectual property laws have examined, or are in the process of reviewing, copyright issues relating to software-enabled consumer products or devices. U.S. Department of Commerce Internet Policy Task Force "White Paper" In January 2016, the Department of Commerce's Internet Policy Task Force published a White Paper that examined aspects of copyright law and policy in the digital age, including the applicability of the first sale doctrine to digital content and consumer devices that contain embedded software. The Task Force concluded that copyright law's first sale doctrine did not require revision "at this time" because it found "insufficient evidence to show that there has been a change in circumstances in markets or technology" to justify it. However, the White Paper noted that the situation may change in the future, explaining that The Task Force did not hear evidence that licenses purporting to restrict a consumer's ability to resell [an electronic product] have been used with respect to embedded software that operates a functional product, other than a computer or related equipment. Thus, the record before us does not establish that … consumer products … are currently sold subject to such licenses. We do believe, however, that the alienability of everyday functional products is an important issue for consumers. If the market develops so that such devices are commonly sold with restrictions on subsequent purchasers' use of necessary software, further attention would be warranted. U.S. Copyright Office Forthcoming Report On October 22, 2015, Senators Grassley and Leahy wrote a letter to the Register of Copyrights that requested the U.S. Copyright Office to "undertake a comprehensive review of the role of copyright" in "everyday products" that contain software. The Senators asked the Office to seek public input in performing this review, "including from interested industry stakeholders, consumer advocacy groups, and relevant federal agencies." The letter establishes a deadline of December 15, 2016, for completion of this report. The Copyright Office published a notice of inquiry in the Federal Register on December 15, 2015, that invited public comments regarding the following issue: "whether the application of copyright law to software in everyday products enables or frustrates innovation and creativity in the design, distribution and legitimate uses of new products and innovative services." The Office is also soliciting "information as to whether legitimate business interests or business models for copyright owners and users could be improved or undermined by changes to the copyright law in this area." The notice specifically states that the study is not intended to address more general questions about copyright protection for software or issues involving the DMCA's prohibition on the circumvention of technological protection measures on copyrighted works. The Office has received a wide variety of public comments on this issue. For example, one group representing consumer interests argued that "consumer rights and expectations should be as equivalent as possible with respect to software-enabled consumer products as they have been for products containing no software." Another commentator objected to the use of end user licensing agreements accompanying software-enabled devices, criticizing them as "contracts of adhesion, offered on a take-it-or-leave-it basis by service providers with far greater bargaining power, legal sophistication, and time to consider the terms than their users." Finally, one public interest organization observed that Users do not inherently distinguish between software-enabled devices and other devices they may own. When a user purchases a device, she likely assumes that she may use it for any purposes of which it is capable, repair it, alter it, sell it, or just give it away. Copyright's most significant influence on user engagement with software-enabled devices may be to limit which of these otherwise unremarkable activities are legitimate either under the terms of the [Copyright] Act or under the licenses that control access to and use of the software on that device. On the other hand, submissions from representatives of copyright holders oppose changes to current law to deal with software-enabled consumer products. An organization representing copyright holders argued that "[u]ntil we find ourselves confronted with significant examples of embedded software licensors actively preventing downstream consumers from reselling products that they own, it is prudent to consider this problem as no more than theoretical posturing." A trade association of software and information industries stated that "[t]he licensing of software contributes to product integrity: the operation of the product in the manner in which the consumer expects, and the manufacturer intends. … The manufacturer and software provider should be permitted to decide whether or not the software in a consumer good has been licensed, sold, or is the subject of a service contract." Finally, an organization representing many large and small businesses urged the Copyright Office to "resist any temptation to treat software in devices as deserving only second-class copyright protection. The software embedded in devices constitutes a copyrightable work and therefore deserves the full respect of the law." Legislation Legislation has been proposed, but not passed into law, at both the federal and state levels, that would modify the rights of consumers with respect to software-embedded consumer electronic devices and products. Federal Legislation Legislation has been introduced in the 114 th Congress, the You Own Devices Act (YODA) ( H.R. 862 ), that would amend the Copyright Act to provide that the first sale doctrine applies to any software program that is embedded in a machine or other product, thus permitting consumers to dispose of their unwanted electronic devices without needing to worry about copyright infringement. Specifically, YODA provides that "if a computer program enables any part of a machine or other product to operate, the owner of the machine or other product is entitled to transfer an authorized copy of the computer program, or the right to obtain such copy, when the owner sells, leases, or otherwise transfers the machine or other product to another person." YODA also states that this transfer right may not be waived by any agreement. Thus, under YODA, if someone purchases a used electronic device, he or she would also acquire the right to use the software that makes the device function. In addition, YODA provides that the person to whom the machine or product is transferred is entitled to receive any security patches or other fixes to correct errors in the embedded software program. The bill's amendments would take effect on the date of enactment and would apply to transfers of computer programs occurring on or after that date. Another bill, the Breaking Down Barriers to Innovation Act of 2015 ( S. 990 ), would, among other things, require the Librarian of Congress, in making approval decisions regarding proposed temporary exemptions to Section 1201(a)(1) of the DMCA, to consider the impact that the DMCA's anti-circumvention prohibition has on "repair, recycling, research, or other fair uses, and on access to information not subject to copyright protection." The Unlocking Technology Act of 2015 ( H.R. 1587 ) would directly amend the DMCA to allow circumvention of digital rights management and other technological protection measures if the purpose of such action "is to engage in a use that is not an infringement of copyright." The legislation would thus create a permanent exemption to the DMCA so that consumers may unlock their electronic communication devices in order to switch cellular carriers. However, the amendment could also potentially apply to other types of consumer electronics. State Legislation State legislation to date has primarily focused on the "right to repair." Supporters of a right to repair electronic devices are attempting to duplicate the success of the automotive right to repair initiative. In 2012, an overwhelming majority of voters in Massachusetts answered yes to an election ballot question asking them if they approve of state legislation "requiring motor vehicle manufacturers to allow vehicle owners and independent repair facilities in Massachusetts to have access to the same vehicle diagnostic and repair information made available to the manufacturers' Massachusetts dealers and authorized repair facilities." After Massachusetts passed the automotive right to repair law in 2013, trade groups representing automobile manufacturers announced that they had reached an agreement with advocates of the automotive right to repair movement. First, the major automobile trade associations signed a "memorandum of understanding" with independent garages and auto parts retailers that essentially extends the provisions of Massachusetts' law nationwide. In exchange, the advocates promised to stop lobbying other state legislatures regarding the enactment of right to repair legislation. The agreement was intended to avoid a "patchwork of 50 differing state bills, each with its own interpretations and compliance parameters." However, it is worth noting that the memorandum of understanding does not have the force of law and lacks penalties for noncompliance that are provided in the Massachusetts law. In the past few years, a small number of states (Minnesota, Nebraska, Massachusetts, and New York ) have considered state legislation that would facilitate the repair of consumer electronic devices, though none have been enacted into law. These bills contain similar provisions, such as a requirement that original equipment manufacturers make diagnostic software and repair information and tools available for purchase by independent, third-party repair shops, though the various proposals would not require manufacturers to divulge trade secrets in doing so. In addition, while the legislation applies to digital electronic equipment, it expressly exempts motor vehicles. Some critics of the legislation argue that the bills are too vaguely worded and would apply to too many electronic products (such as medical devices and farm equipment), thus encouraging a wide range of companies to combine their lobbying efforts in opposition to the measures. Concluding Observations Software installed on modern electronic devices and products help to shape the consumer's ownership experience by adding convenient features that enhance the product's operation (such as automation, connectivity to social media platforms, or operability with smartphone apps). However, such software may restrict (either by technological (DRM) or legal (licensing) means) the product's functions, accessories, or repair options to only those that have been authorized by the original equipment manufacturer. As described in this report, copyright protection of the software embedded in consumer devices affords certain benefits to the equipment manufacturer, while at the same time potentially creating uncertainty about the rights of users to resell, modify, or repair everyday products that they have purchased. The difficulty in analyzing software-enabled consumer electronic products from a copyright law perspective arises from the fact that software within the device is subject to copyright protection, and yet the physical hardware of the device is not copyrightable matter. In addition, the courts have not yet directly considered how fair use, the first sale doctrine, or the DMCA applies to consumers owning software-embedded products. The extent to which copyright law applies, or should apply, to such products thus remains open to debate. Some lawmakers and consumers may be satisfied with the status quo regarding the resale, modification, or repair of software-enabled products and, thus, may not see a need to make any changes to the law unless new circumstances warrant them. In addition, narrower, targeted legislation or market solutions could address the repair or modification of particular types of products, such as the examples of automobile repair and cellphone unlocking have demonstrated. Other interest groups, however, believe strongly in broadly protecting the ownership rights of consumers and object to efforts by device manufacturers to assert post-purchase control over electronic products through copyright law. If Congress decides that this issue merits legislative attention, it would likely need to weigh the appropriate balance between the rights of software copyright holders and manufacturers on the one hand and the rights and expectations of consumers on the other.

Modern consumer electronic devices and products often contain software programs that facilitate their operations or provide automation, Wi-Fi and smartphone connectivity, remote control, and other sophisticated functions. Equipment manufacturers have integrated software in televisions, refrigerators, thermostats, coffee makers, garage door openers, automobiles, vacuums, printers, and medical devices. When consumers buy these "software-enabled" products from retailers, they acquire ownership of the physical hardware, but may only receive a limited license (a form of legal permission) to use the embedded software. However, the software license's terms and conditions may restrain certain consumer behavior after purchasing the product. Some consumer rights organizations and civil liberties groups have raised concerns that software licensing, in restricting the unauthorized resale of a product or prohibiting certain product modifications or repairs, unnecessarily limits how consumers can use software-enabled products. In addition, some products may include "digital rights management" (DRM) technologies that prevent consumers from altering the installed software or control the types of accessories that may be used with them. For example, manufacturers have installed DRM in gourmet coffee makers and printers to prevent consumers from using generic, unlicensed coffee pods and toner cartridges, respectively, that are usually cheaper and easier to acquire than brand-name, manufacturer-authorized parts. Wireless carriers have also used DRM in smartphones to prevent the devices from connecting to, and operating on, unauthorized cellular networks. Thus, consumers with such "locked" cellphones cannot use them on a different service provider's network once their contract has expired with their original mobile carrier. It may seem unusual that copyright law has any application or relevance to consumer electronic products. After all, such products do not, by themselves, fall within the traditional categories of copyrightable subject matter: literary, musical, dramatic, and pictorial works; motion pictures; and sound recordings. Yet the software embedded in many consumer electronic products may be subject to copyright protection; thus, these devices contain copyrighted content. As a result, copyright law may impact the rights of consumers to repair, modify, or sell their personal property that contains copyrighted software, to the extent that such activities involve making changes to the software or transferring ownership of the product with the original software still running on it. Consumers or businesses that engage in such actions with respect to software-enabled electronic products, without the authorization of the software developer or original equipment manufacturer, may be in violation of the federal Copyright Act. This report provides a discussion and analysis of copyright law issues that may be implicated by the repair, modification, or resale of software-enabled consumer electronic devices. These issues include software licensing, fair use, the first sale doctrine, and the anti-circumvention provisions of the Digital Millennium Copyright Act (DMCA). It also examines state and federal legislation that has been offered related to this issue, including the You Own Devices Act (H.R. 862), Breaking Down Barriers to Innovation Act of 2015 (S. 990), and the Unlocking Technology Act of 2015 (H.R. 1587).

Introduction Two issues affecting housing were prominent in the 109 th Congress: the annual budget process and the effects of Hurricane Katrina. In addition to these overarching issues, other proposals addressed in the 109 th Congress included legislation to create a stronger regulator for Fannie Mae and Freddie Mac, and revisions to the FHA loan insurance program. Legislation was also introduced on behalf of the Administration to replace the Section 8 voucher program with a new block grant and to make major changes to the public housing program. In the area of the budget generally, as of the date of this report, Congress had not yet enacted an FY2007 spending bill for the Department of Housing and Urban Development (HUD). The President submitted his budget request on February 6, 2006. It included reductions for several programs, including the Community Development Block Grant (CDBG) program, and increases for other programs, such as the Section 8 voucher program. The Appropriations Committees in both houses held hearings on the budget in which Members from both parties expressed concern about several proposed funding reductions. The House of Representatives passed its version of the funding bill ( H.R. 5576 ) on June 14, 2006, and the Senate Appropriations Committee reported its version to the full Senate on July 26, 2006. Both versions of H.R. 5576 restored some of the proposed reductions in the President's budget, including funds for the CDBG program, the Section 202 Housing for the Elderly program, and the Section 811 Housing for the Disabled program. At the time of this update, Congress has enacted three continuing resolutions that provide funding for HUD; the third of these expires on February 15, 2007. After Hurricane Katrina, Congress enacted two FY2006 funding bills that provided funds to HUD for hurricane recovery and reconstruction ( P.L. 109-148 and P.L. 109-234 ). The majority of these funds was provided to the CDBG program in states affected by the hurricanes. Overarching Policy Issues The Budget Environment Members of Congress have shown increasing concern about the size of the federal budget deficit and have sought ways to reduce it. The President has outlined a two-pronged approach for reducing the federal budget deficit: (1) increase revenues to the Treasury without raising taxes and (2) cut spending. In both FY2006 and FY2007, the President sought to keep discretionary spending growth below the rate of inflation. Although as of the date of this report, Congress had not passed an FY2007 spending bill, in FY2006 Congress kept growth below the rate of inflation. The majority of HUD's budget is discretionary funding, and many of its programs were targeted for funding reductions in the 109 th Congress. In his FY2006 budget, the President asked Congress to cut funding for several programs, including Housing for the Elderly and Disabled, and to eliminate funding for several others, including the Community Development Block Grant (CDBG) program, HOPE VI, and Brownfields redevelopment. Congress did not enact most of the requested cuts in FY2006. In FY2007, the President again requested large cuts for several HUD programs, including Housing for the Elderly and Disabled, and CDBG. The Administration criticized all of the programs slated for reduction for being ineffective or inefficient. Efforts to contain discretionary spending have also increased internal pressures in the HUD budget. The cost of the Section 8 voucher program is partially pegged to housing costs, which have risen faster than inflation. As a result, the voucher program requires increased funding to serve the same number of people. Since HUD's overall budget has been constrained, any increases in funding for the voucher program have come at the expense of other programs. Another internal HUD budget pressure involves the contribution of the Federal Housing Administration's (FHA) insurance program. FHA collects fees from participants, and excess fees are used by Congress to offset the cost of the HUD budget. FHA's market share has been dropping in recent years, and as a result, the amount of excess fees has been declining. With fewer fees to offset the cost of the HUD budget, the President and Congress have had to find additional dollars to keep the overall budget at the same level. In this budget environment, Congress faced pressure to reduce funding for HUD's programs in the FY2006 and FY2007 appropriations processes. At the same time, Congress continues to face pressure to maintain or increase funding for housing programs because of a growing concern about a perceived shortage of affordable housing. Housing Affordability The U.S. Housing Act of 1949 established a national goal of "a decent home and a suitable living environment for every American family." Since the establishment of that goal, great progress toward it has been made, with record homeownership rates and the elimination of much of the slums and blight that plagued the first half of the last century. At the same time, problems remain. The bipartisan, congressionally mandated Millennial Housing Commission's 2002 final report identified "affordability" as "the single greatest housing challenge facing the nation." The Harvard Joint Center for Housing Studies found that between 2001 and 2004, the number of households paying more than 30% of their income toward housing increased from 31.3 million to 35 million. While affordability is the overarching concern, different challenges face owners and renters. Rising Housing Prices Although the housing market is beginning to show signs of slowing, an unprecedented U.S. housing boom led to record housing prices again in 2005. Home equity stood at $11.2 trillion in 2005, up from $10 trillion in 2004, and it is estimated that the wealth effect from rising housing prices generated one-third of the growth in consumer spending that year, helping to buoy the economy. Homeownership rates slipped just slightly from their previous high in 2004, from 69% to 68.9% in 2005. And minorities, who have consistently lagged behind whites in homeownership rates, have made some gains. Between 1995 and 2005, the percentage of minority homeowners increased from 43.7% to 53.1%; during the same period, the percentage of white homeowners increased from 70.9% to 75.8%. Despite this positive news, fears about the health of the housing market and the sustainability of recent homeownership gains are growing. Speculation about a housing "bubble" has permeated local and national real estate news. Former Federal Reserve Chairman Alan Greenspan, in testimony before the Joint Economic Committee on June 9, 2005, noted that, while he did not believe that the U.S. was experiencing a national housing bubble, home prices in some markets seemed to have risen to unsustainable levels. The pace of future interest rate increases, the health of the economy, and the rate of job growth will all play an important role in determining the pace of future housing price appreciation. More serious market corrections could occur if speculators begin to fear the end of the boom has arrived. Soaring home prices have also resulted in a proliferation of exotic and potentially risky mortgage products that make the entry into homeownership in these hot markets more affordable. Loans for more than the value of the home, interest-only loans, and various forms of adjustable rate mortgages have all become options for households buying high-priced homes they could not otherwise afford. At the lower end of the market, relaxed credit standards and the proliferation of subprime loans have expanded the pool of first-time homebuyers to include families with little or no cash and with limited or blemished credit histories. While all of these practices have helped to increase the national homeownership rate, they come with repayment risks. If interest rates soar, buyers with adjustable rate loans and interest-only loans will be in for payment shocks, and some might find themselves at risk of default. If the economy falters and there are job losses, some low- and moderate-income families could be at risk of default if they become unemployed. A small but growing number of low- and moderate-income homeowners are already considered severely "cost-burdened," meaning that they are spending half or more of their incomes on housing. Rent Burdens In 2004, 8.4 million renter households were severely cost-burdened (paying more than 50% of their income toward housing), an increase of more than 1 million from 2001. While moderate-income renters are not immune from severe rent burdens, low-income renters face the greatest burdens; more than 86% of severely cost-burdened renters were in the bottom quintile of the income distribution. When low-income families pay such a large portion of their incomes for housing, they have little left to meet their other needs, let alone establish savings or build assets. The problem of severe rent burdens appears to be growing as the supply of low-cost rental units continues to dwindle. Harvard University's 2006 Joint Center for Housing Studies report attributes the growing affordability problem to two factors: land use regulations that drive up the price of housing and the growth of low-wage jobs. The report notes that solving the problem will be difficult, and will require the cooperation of government, business, and nonprofit organizations. However, the federal government's role in addressing what HUD has termed "worst-case housing needs" is increasingly in question, as deficits grow and pressure to restrain domestic spending mounts. Rebuilding after the 2005 Hurricanes After the initial need to evacuate and relocate families after the 2005 hurricanes, the focus primarily shifted to recovery and rebuilding of flood-damaged areas. The storms caused unprecedented damage to the Gulf Coast housing stock. Studies estimated that the hurricanes and their related flooding damaged 1.2 million housing units. Of those, over 305,000 were seriously damaged. Most of the seriously damaged units were owner occupied—about 63% or 193,000 homes. More than half of them lacked flood insurance (55%) and about a quarter of them lacked any insurance (23%). Louisiana, specifically New Orleans, was hit the hardest; about 67% of the seriously damaged units were located in Louisiana (204,737 renter and owner-occupied homes). The demolition and rebuilding of housing structures in affected areas got off to a slow start, particularly in and around New Orleans. The Federal Emergency Management Agency (FEMA) released flood maps for New Orleans on April 12, 2006. The levees have been mostly rebuilt. As of August 2006, one year after Hurricane Katrina, the Army Corps of Engineers had demolished 185 housing units in Orleans Parish, and just under 38,600 building permits had been issued. In part, the pace of rebuilding has been slowed by uncertainty at the local, state, and federal levels about what the new New Orleans should be and how it should look. The appropriate balance of public sector and private sector effort in rebuilding the damaged housing stock is also still under debate. Private insurance will cover some of the cost, and new investment may come to the area, but given the enormity of the damage, the local, state, and federal governments have been heavily involved. Thus far, Congress has approved more than $16 billion in Community Development Block Grant (CDBG) funds and increased tax credit allocations to affected states to aid in their rebuilding. The plans developed by local communities for spending the CDBG funds were approved in the late spring and early summer, so the money is beginning to flow to local communities. Other proposals were offered to expand the government's role, including one to create an entity to buy out owners of damaged properties in at-risk areas, although none was enacted before the close of the second session of the 109 th Congress. (For more information, see CRS Report RL33761, Rebuilding Housing After Hurricane Katrina: Lessons Learned and Unresolved Issues , by [author name scrubbed].) Housing Reconstruction After the 2005 Hurricanes Community Development Block Grant Funds On June 15, 2006, the President signed P.L. 109-234 , an emergency supplemental appropriations act, and the second of two laws that provided funds for Gulf Coast recovery efforts following the hurricanes of 2005. The law included $5.2 billion in additional CDBG assistance for the states of Alabama, Florida, Louisiana, Mississippi, and Texas. It limited the amount that any one state may receive to $4.2 billion, and encouraged states to target assistance to infrastructure reconstruction and activities that would spur the redevelopment of affordable rental housing, including federally assisted housing and public housing. It did not include language originally included in the Senate bill prohibiting the use of CDBG funds for activities reimbursable by the Small Business Administration, but kept in place a provision prohibiting the use of CDBG funds for activities reimbursable by FEMA or the Army Corps of Engineers. The law contained provisions regarding the use and administration of funds that do the following: require that at least $1 billion of the CDBG amount be used for repair and reconstruction of affordable rental housing in the impacted areas; allow each state to use no more than 5% of its supplemental CDBG allocation for administrative expenses; allow the affected states to seek waivers of program requirements, except those related to fair housing, nondiscrimination, labor standards, and environmental review; allow Governors of the affected states to designate one or more entities to administer the program; decrease the low- and moderate-income targeting requirement from 70% to 50% of the funds awarded; require each state to develop a plan for the proposed use of funds to be reviewed and approved by HUD; direct HUD to ensure that each state's proposed plan gives priority to activities that support infrastructure development and affordable rental housing activities; require each state to file quarterly reports with House and Senate Appropriations Committees detailing the use of funds; require HUD to file quarterly reports with the House and Senate Appropriations Committees identifying actions by the Department to prevent fraud and abuse, including the duplication of benefits; and prohibit the use of CDBG funds to meet matching fund requirements of other federal programs. Of the $5.2 billion appropriated for CDBG disaster recovery activities, $12 million was transferred to HUD's salaries and expenses account, with $7 million of this amount set aside for the cost of administering the Katrina Disaster Housing Assistance Program/Disaster Voucher Program (KDHAP/DVP). The act also transfered $9 million to the Office of Inspector General and $6 million to HUD's Working Capital Funds to be used to improve the capabilities of HUD's disaster recovery grant reporting system. On July 11, 2006, HUD announced that $4.2 billion of the $5.2 billion supplemental appropriation for CDBG would be allocated to Louisiana, and on August 18, it announced how funds would be distributed to the remaining states (see Table 2 ). HUD determined the distribution of funds for Alabama, Florida, Mississippi, and Texas based on unmet need and an analysis of data from FEMA and the Small Business Administration. It then invited each state to provide their own data on remaining recovery needs in order to make its decision. Prior to enactment of P.L. 109-234 , Congress approved $11.5 billion in supplemental CDBG disaster-recovery assistance in the Defense Appropriations Act for FY2006, P.L. 109-148 , which was signed by the President on December 30, 2005. These funds were to be used for "necessary expenses related to disaster relief, long-term recovery, and restoration of infrastructure in the most impacted and distressed areas" in the five states (Alabama, Florida, Louisiana, Mississippi, and Texas) impacted by Hurricanes Katrina, Rita, and Wilma. The act allowed the affected states to use up to 5% of their supplemental allocation for administrative costs; HUD to grant waivers of program requirements (except those relating to fair housing, nondiscrimination, labor standards, and the environment); Mississippi and Louisiana, the most affected states, to use up to $20 million for Local Initiative Support Corporation and Enterprise Foundation-supported local community development corporations; and the Governor of each state to designate multiple entities to administer a portion, or all of a state's share of the $11.5 billion. The act also lowered the income targeting requirement for activities benefitting low- and moderate-income persons from 70% to 50% of the state's allocation; limited the maximum amount of assistance any of the five states may receive to no more than 54% of the total amount appropriated; and required each state to develop, for HUD's approval, a plan detailing the proposed use of funds, including eligibility criteria and how the funds will be used to address long-term recovery and infrastructure restoration activities. But the law did not specify the method to be used to allocate funding among the five states. That task was left to HUD. On January 25, 2006, HUD Secretary Alphonso Jackson announced the allocation of the $11.5 billion among the five states (see Table 3 ). According to an agency press release, HUD used a number of data sources in developing the methodology for allocating the $11.5 billion in CDBG supplemental assistance, including data sources from FEMA, the Small Business Administration, the National Oceanic and Atmospheric Administration (NOAA), and the U.S. Geological Survey. Using data from these agencies, HUD calculated for each of the five states, the extent of each state's unmet housing needs and areas of concentrated distress. HUD defined unmet housing needs as homeowners and low-income renters whose homes had major or severe damage, while concentrated distress was defined as the total number of housing units with major or severe housing damage in counties where 50% or more of the units had major or severe damage. HUD then allocated 55% of the funds based on each state's unmet housing needs and the remaining 45% on the degree of concentrated distress as measured by each state's share of damaged and destroyed housing stock, and business and infrastructure damage. On February 13, 2006, HUD published a notice of allocations, waivers, and alternative requirements governing the $11.5 billion in CDBG disaster recovery assistance. In addition to providing waivers allowing the states to allocate funds to CDBG entitlement communities and to directly administer the program, the notice also included language stating that "Funds allocated are intended by HUD to be used toward meeting unmet housing needs in areas of concentrated distress." The language included in the act did not restrict the use of these funds to unmet housing needs. Rather, the act provided some level of flexibility allowing funds to be used for long term recovery and infrastructure restoration in the areas most affected by the Gulf Coast Hurricanes of 2005. The Louisiana Recovery Corporation Act Bills were introduced in both the House and Senate ( H.R. 4100 and S. 2172 , respectively) to create a Louisiana Recovery Corporation as a federal government agency with the mission of coordinating the economic stabilization and redevelopment of areas within Louisiana that were devastated or significantly distressed by Hurricane Katrina or Hurricane Rita. Although the House Financial Services Committee reported H.R. 4100 to the House on December 15, 2005, neither the House or Senate bill received a floor vote. As described in H.R. 4100 and S. 2172 , the corporation would have followed local redevelopment plans, and depended on financial incentives to obtain residential and commercial property. It would not have had the power of eminent domain. It would have purchased homeowners' equity for a portion of the pre-hurricane value and paid the mortgage lenders no more than 60% of the pre-hurricane mortgage balance. Owners and mortgage holders would have benefitted in cases where the post-hurricane values were less than these amounts. Because mortgages would have been forgiven in those cases, owners with mortgages would have benefitted more than owners without mortgages. The corporation would have built infrastructure and sold the property to developers to complete the redevelopment process. The original owners would have had the right of first refusal to the developed property or to similar property in a similar location. The two bills proposed to fund the corporation for a 10-year period outside of the appropriations process through $100 million in start-up funds and a $30 billion government bond issue. Housing Assistance Section 8 Voucher Funding and Reform The Section 8 voucher program has come under criticism in recent years for increases in its cost without corresponding increases in the number of families it serves. In FY2006, Congress funded the program at $15.8 billion, a 7% increase over FY2005, and it accounted for more than 46% of the total HUD budget (in part because of reductions to other programs). The program has also been criticized for not promoting self-sufficiency among its participants and for its administrative complexity, which results in high rates of error in calculating subsidies. In response to these critiques, two major initiatives have emerged over the past several years. The first involves changes to the way the program is funded. Beginning with the FY2003 appropriations act and continued in the FY2004, FY2005, and FY2006 laws, Congress has converted the voucher program from a unit-based, actual cost program to a budget-based, fixed cost program. Prior to FY2003, PHAs had a number of vouchers that they were authorized to distribute, and HUD reimbursed them for the actual cost of those vouchers (statutorily set at roughly rent minus 30% of family income). In FY2005, PHAs were funded based on the number of vouchers they were using and the cost of those vouchers in a snapshot of time—May through July 2004—with an adjustment for inflation. This new "budget-based" environment left some PHAs with less funding than they required to continue serving the same number of families at the same level that they had in the past. Many PHAs made program adjustments to reduce costs, but they were constrained by federal laws and regulations governing the size of benefit they must provide and the income levels of the families they must serve. The FY2006 appropriations law continued the trend and allocated funds to agencies based on what they received in FY2005, plus inflation, pro-rated to fit within the amount appropriated. The President's budget requested that Congress use the same formula again for FY2007, but a final FY2007 funding formula was not adopted before the close of the 109 th Congress. (For more information, see CRS Report RS22376, Changes to Section 8 Housing Voucher Renewal Funding, FY2003-FY2006 , by [author name scrubbed].) The second major initiative was an Administration-led drive to eliminate the existing Section 8 voucher program and replace it with a new and restructured housing subsidy program. On April 13, 2005, Senator Allard introduced S. 771 , and on April 28 Representative Gary Miller introduced H.R. 1999 , the State and Local Housing Flexibility Act of 2005. Title I of S. 771 was titled the Flexible Voucher Act, and its provisions were similar to those in the Administration's Flexible Voucher Program (FVP) proposal from the 108 th Congress. It would have replaced the Section 8 voucher program with the Flexible Voucher Program and would have expanded eligibility for the program to higher-income families. It would also have given PHAs the option to set time limits or increase tenant contributions toward rent. The bills included two additional titles, one that would have modified the eligibility and rent rules for public housing and another that would have extended and expanded the Moving to Work Demonstration program. S. 771 was referred to the Senate Banking Committee, and H.R. 1999 was referred to the House Financial Services Committee; no action was taken on either bill before the end of the 109 th Congress. On June 14, 2006, the House Financial Services Committee approved H.R. 5443 , the Section 8 Voucher Reform Act of 2006. This bipartisan bill was introduced by Subcommittee Chair Representative Ney and Ranking Member Representative Waters on May 22, 2006. The bill aimed to make the Section 8 voucher program more efficient, easier to administer, and more capable of promoting economic self-sufficiency. It featured changes to the way tenant income is calculated for purposes of rent and income determination, modifications to the housing quality reviews, and a new funding allocation method that would have blended elements of previous allocation strategies and recent strategies. The bill also featured a small expansion of the Moving To Work demonstration, with a focus on performance standards and evaluation. The bill received no further action before the close of the 109 th Congress. (For more information, see CRS Report RL33270, The Section 8 Housing Voucher Program: Reform Proposals in the 108 th and 109 th Congresses , by [author name scrubbed].) Public Housing Operating Funds HUD will begin using a new formula to distribute public housing operating funds to public housing authorities in January 2007. The new formula will cause major changes in the way PHAs receive funding, with the potential that some PHAs will receive substantial increases in funding and others will receive substantial decreases. Operating funds make up the difference between what tenants pay in rent and the cost of running public housing. The amount a PHA receives is based on a set of allowable expenses set by HUD. PHAs calculate their budgets by totaling up the allowable expenses for all of their units and subtracting the amount they receive in tenant rents. HUD then adds together all of the agencies' budgets and compares the total to the amount Congress appropriated for the operating fund that year. Typically, Congress appropriates less than the full amount that PHAs qualify for under the formula, so HUD applies an across-the-board cut to agencies' budgets, called a proration. The 2006 proration was 86%, so agencies' budgets were cut by 14%. The new funding formula for FY2007, established by HUD through regulation, adopts new allowable expense levels. It also requires PHAs to adopt a new form of property management—called asset-based management—by FY2011. Some agencies will qualify for a higher budget under the new allowable expense levels and others will face reductions. Those that face a decrease can transition to asset-based management sooner to help limit their losses. However, the magnitude of gains and losses under the new formula will depend on how much is appropriated for the operating fund and, subsequently, how low a proration HUD will set. The President requested $3.5 billion for operating funds in FY2007, which is the same amount that was provided in FY2006. According to HUD estimates, the requested FY2007 funding level would lead to an 85% proration. PHA advocacy groups have protested that HUD's request would be insufficient to meet their needs. They disagreed with HUD's estimated proration and estimated that the actual proration at the requested funding level would be close to 80%. The 109 th Congress adjourned without adopting a final FY2007 funding level for the Public Housing Operating Fund. (For more information, see CRS Report RS22557, Public Housing: Fact Sheet on the New Operating Fund Formula , by [author name scrubbed].) HOPE VI Funding The HOPE VI program provides competitive grants to PHAs for the demolition and/or revitalization of distressed public housing. HOPE VI has been popular with many Members of Congress, but it has been criticized by the Administration, which argues that grantees spend money too slowly, and by tenant advocates, who argue the program displaces more families than are housed in new developments. Reflecting these criticisms, HUD proposed no new funding for HOPE VI in its FY2004, FY2005, FY2006, and FY2007 budget submissions. Congress continued funding the program in FY2004 ($149 million), FY2005 ($143 million), and FY2006 ($100 million), although at lower levels than in previous years ($570 million in FY2003). HUD's FY2006 budget asked Congress to rescind the funds Congress appropriated for the program in FY2005, but Congress rejected the proposal. HUD's FY2007 budget again asked Congress to rescind the funds it appropriated in the prior year. Authorization for the HOPE VI program was set to expire at the end of FY2006. On July 27, 2005, Senator Mikulski introduced a bipartisan bill to reauthorize the program through FY2011. The HOPE VI Improvement and Reauthorization Act of 2005 ( S. 1513 ) included provisions designed to promote collaboration with local school systems and give priority to grant applicants that minimize both temporary and permanent displacement of public housing residents. Another HOPE VI reauthorization bill, H.R. 5347 , was introduced by Representative Shays on May 10, 2006. The bill, which would have reauthorized the current program for five years, was voted out of the House Financial Services Committee on May 24, 2006. While no HOPE VI reauthorization bill was enacted, the continuing resolution (CR) that funds HUD into the 110 th Congress ( P.L. 109-289 , as amended by P.L. 109-383 ), includes a provision extending the HOPE VI program for the duration of the CR. (For more information, see CRS Report RL32236, HOPE VI Public Housing Revitalization Program: Background, Funding, and Issues , by [author name scrubbed].) Section 202 Housing for the Elderly Program Funding The Section 202 Housing for the Elderly program primarily provides capital grants and project rental assistance to private non-profit developers so that they can provide housing for very low-income elderly households (those with a member age 62 or older). The Section 202 program also provides funds for service coordinators to work at Section 202-funded housing developments and connect residents with available services in the community, and for conversion of buildings to assisted living facilities. In FY2006, Congress appropriated $735 million for elderly housing programs. Of this amount, $51 million went to fund service coordinators and $24.5 million was allocated for assisted living conversion. The majority of remaining funds were available to fund capital grants and project rental assistance for the Section 202 program. For FY2007, however, the President proposed to fund the Section 202 program at $546 million, approximately $196 million less than the President's FY2006 request, and a reduction of almost 26% from the FY2006 appropriation. According to HUD estimates, the amount requested in the President's budget for FY2007 would have funded the construction of 2,730 new elderly housing units, compared to FY2006, when 4,313 new units were funded. In their versions of the appropriations bill ( H.R. 5576 ), neither the House nor the Senate Appropriations Committee followed the President's recommendation. The House would have provided $747 million for Section 202, while the Senate Appropriations Committee would have provided $750 million. As of the date of this report, Section 202 is funded under a continuing resolution ( P.L. 109-383 ) that provides funding at the FY2006 level. (For more information, see CRS Report RL33508, Section 202 and Other HUD Rental Housing Programs for Low-Income Elderly Residents , by [author name scrubbed].) Section 811 Housing for the Disabled Program Funding The Section 811 Housing for the Disabled program provides capital grants and project rental assistance to developers that construct, acquire, or rehabilitate accessible housing for very low-income persons with disabilities. The program also provides Section 8 Mainstream Vouchers for disabled tenants to use in the private rental market. In FY2007, for the second year in a row, the President's budget proposed to cut funding for the Section 811 program nearly in half, from $237 million in FY2006 to $119 million. The previous fiscal year, FY2006, the President's budget request similarly would have reduced funding for the program, to $120 million from the FY2005 appropriation of $238 million. The proposed cut for FY2007 differed from the request for FY2006, which would have provided funds only for Section 8 vouchers, and none for capital grants or project rental assistance contracts (PRAC). While the FY2007 budget request would have allocated $75 million for voucher renewals and approximately $15 million for new vouchers, it would also have provided some funds for PRAC renewals and amendments ($15 million) and new PRAC ($13 million). Both the House and the Senate Appropriations Committee recommended that the Section 811 program be funded at $240 million, slightly above the FY2006 level ( H.R. 5576 ). The program is currently funded at the FY2006 level under a continuing resolution, P.L. 109-383 . Homelessness The Homeless Assistance Grants fund the four major homeless assistance programs—Shelter Plus Care (S+C), the Supportive Housing Program (SHP), Section 8 Moderate Rehabilitation Single Room Occupancy (SRO), and Emergency Shelter Grants (ESG)—authorized by the McKinney-Vento Homeless Assistance Act ( P.L. 100-77 ) and administered by HUD. The act, which was signed into law in 1987, has remained unauthorized since 1994. The President's FY2007 budget request, like his FY2004 through FY2006 budget requests, proposed to consolidate the three competitive components of the Homeless Assistance Grants account (S+C, SHP, and SRO) into one program. On September 29, 2005, Senator Jack Reed introduced a bill ( S. 1801 ) to reauthorize the McKinney-Vento Act. It similarly would have consolidated the three competitive Homeless Assistance Grants into one Homeless Assistance Program and would have made funds available for permanent housing for non-disabled homeless families (current law does not allow funds to be used for permanent housing for non-disabled families). The bill would also have included homeless families in the definition of the chronically homeless (discussed below) under certain circumstances. Another bill, H.R. 5041 , introduced by Representative Rick Renzi on March 29, 2006, also proposed to reauthorize the McKinney-Vento Act and consolidate the competitive grants. H.R. 5041 provided that no less than 30% of funds be used for permanent housing for disabled individuals or families with a disabled member. No action was taken on either S. 1801 or H.R. 5041 . In 2002, the Bush Administration set a goal of ending chronic homelessness in 10 years. The chronically homeless are generally single adults with serious mental health and/or substance abuse problems. While the chronically homeless are estimated to constitute only about 10% of the homeless population, they are estimated to absorb more than half of the resources available for the homeless. The Administration's plan calls for increasing the number of permanent housing units with supportive services (referred to as permanent supportive housing) developed every year. As a part of that plan, the Administration first proposed a $200 million Samaritan Initiative for FY2004, which would have funded the development of permanent supportive housing for the chronically homeless. Legislation to enact the Samaritan Initiative was introduced in the 108 th Congress, but was not enacted and funds were not provided. The President also proposed Samaritan Initiative funding in FY2005 and FY2006, with no action by Congress. In FY2006, Congress funded the homeless assistance grants at $1.3 billion, approximately $86 million more than in FY2005. For FY2007, the President requested just over $1.5 billion, again including a set-aside for the Samaritan Initiative of $200 million. Both the House and the Senate Appropriations Committee recommended more than $1.5 billion for the homeless assistance grants in the HUD funding bill ( H.R. 5576 ), although neither version contained separate funds for the Samaritan Initiative. Currently, the homeless assistance grants are funded at the FY2006 level under a continuing resolution, P.L. 109-383 . (For more information on homeless programs, see CRS Report RL30442, Homelessness: Targeted Federal Programs and Recent Legislation , coordinated by [author name scrubbed].) Housing Finance Fannie Mae, Freddie Mac, and Federal Home Loan Bank Regulation Fannie Mae and Freddie Mac are government chartered, privately owned corporations charged with supporting the secondary mortgage market. By purchasing mortgages from the original lenders, they free up funds to be lent for more mortgages. They do this by purchasing existing mortgages and either packaging and selling them to investors, or keeping them in their own portfolios. They are not allowed to lend directly to homeowners. To finance their portfolios, they sell bonds and other debt to investors. The secondary mortgage market has improved the efficiency of mortgage lending and lowered the interest rate that home owners pay. Many economists and other analysts believe that because of their ties to the federal government, Fannie Mae and Freddie Mac (also known as government-sponsored enterprises or GSEs) can borrow at lower interest rates than they could otherwise and that some of this advantage accrues to stockholders and employees. Regulation of Fannie Mae and Freddie Mac is split between two parts of HUD. The independent Office of Federal Housing Enterprise Oversight (OFHEO) is the safety and soundness regulator. It has been the primary regulator during recent accounting problems, although the Securities and Exchange Commission and the Department of Justice have also been involved, especially in the case of Fannie Mae. (See CRS Report RS21949, Accounting Problems at Fannie Mae , and CRS Report RS21567, Accounting and Management Problems at Freddie Mac , both by [author name scrubbed], for more details.) On May 23, 2006, Fannie Mae signed a consent order with OFHEO agreeing to limit its portfolio of mortgages and mortgage-backed securities to $727 billion, the December 13, 2005, level. OFHEO has said that this limitation is likely to remain in place for several years. Fannie Mae filed its annual report (form 10-K) with the Securities and Exchange Commission on December 6, 2006, which was approximately 21 months late. The work on the restatement of financial records continues at both of the GSEs. HUD's Financial Institutions Regulation Division establishes and monitors affordable housing lending goals at Fannie Mae and Freddie Mac. The Federal Home Loan Bank System is comprised of 12 regional banks (the Banks) that collectively comprise the third housing GSE. Started in 1932 as lenders to the savings and loan associations that were the primary lenders for home mortgages, the Banks have undergone major changes, particularly since the cleanup of the savings and loan association failures of the 1980s. As a result, membership in the Banks has changed, today encompassing more commercial banks than savings associations and including credit unions, insurance companies, and some associated housing providers. Purposes of lending—while still primarily housing-related—now include agricultural and small business lending. The changes also have resulted in special mission set-asides for low- and moderate-income housing, special programs for community development, and a continuing responsibility for paying debt raised to fund deposit insurance payouts in the 1980s. For both mission and safety and soundness, the five-member Federal Housing Finance Board (FHFB) regulates the System. Two bills were introduced in the first session of the 109 th Congress to strengthen the oversight of Fannie Mae, Freddie Mac, and the banks under a single regulator. Most analysts believe that the Senate bill ( S. 190 ) would have given the new regulator greater powers than the House bill ( H.R. 1461 ), especially in the area of limiting the size the GSEs mortgage portfolios, which, some argue, could be a source of risk to the nation's financial system. H.R. 1461 , unlike S. 190 , would have created a new Affordable Housing Fund that could have contributed as much as $350-$400 million for the development of affordable housing over the first two years. H.R. 1461 included controversial limits on the ability of nonprofit organizations that receive money from the fund to attempt to influence public policy. H.R. 1461 would also have raised the maximum size of the mortgage that Fannie Mae and Freddie Mac could purchase in high cost areas of the country. This ceiling, known as the conforming loan limit, was $417,000 for one-unit properties for 2006. The main impact would have been to allow Fannie and Freddie to purchase more mortgages on homes on the east and west coasts. (For more information on this issue, see CRS Report RS22172, The Conforming Loan Limit , by [author name scrubbed] and [author name scrubbed].) The House passed H.R. 1461 on October 26, 2005. The Senate did not vote on H.R. 1461 . The Senate Banking and Urban Affairs Committee ordered S. 190 reported to the Senate on July 28, 2005. The full Senate did not consider S. 190 . For more a detailed comparison of the bills, see CRS Report RL32795, Government-Sponsored Enterprises (GSEs): Reform Legislation in the 109 th Congress , by [author name scrubbed]. For information on controversial provisions concerning Fannie Mae and Freddie Mac see CRS Report RS22336, GSE Reform: A New Affordable Housing Fund , by [author name scrubbed], and CRS Report RS22307, Limiting Fannie Mae ' s and Freddie Mac ' s Portfolio Size , by [author name scrubbed]. For information on the FHLBs, see CRS Report RL32815, Federal Home Loan Bank System: Policy Issues , by [author name scrubbed]. The Federal Housing Administration (FHA) The FHA administers a variety of mortgage insurance programs that insure lenders against loss from loan defaults by borrowers. Through FHA insurance, lenders make loans that otherwise may not be available, and enable borrowers to obtain loans for home purchase and home improvement, as well as for the purchase, repair, or construction of apartments, hospitals, and nursing homes. The programs are administered through two program accounts—the Mutual Mortgage Insurance/Cooperative Management Housing Insurance fund account (MMI/CMHI) and the General Insurance/Special Risk Insurance fund account (GI/SRI). The MMI/CMHI fund provides insurance for home mortgages. The GI/SRI fund provides insurance for more risky home mortgages, for multifamily rental housing, and for an assortment of special-purpose loans such as hospitals and nursing homes. The FY2007 HUD budget proposed comprehensive reform of the FHA single family insurance program to enable FHA to be more flexible in responding to changes in the mortgage market, and to provide a lower cost alternative to borrowers who might otherwise choose subprime mortgage products or even become the victims of predatory lending. Many of the Administration's reform proposals were included in H.R. 5121 , as passed by the House. An administrative provision in the House-passed version of the HUD spending bill ( H.R. 5576 ) included language from H.R. 5121 . It would have amended the National Housing Act (12 U.S.C. 1709(b)(2)) to limit FHA-insured home loans to the lesser of the median price for the area or the Federal Home Loan Mortgage Corporation (Freddie Mac) conforming loan limit. The bill would have raised loan limits for low-cost areas from 48% to 65% of the Freddie Mac limit and given FHA authority to insure 100% mortgages, with HUD determining what, if any, down payment would be required based upon the likelihood of borrower default. The borrower's mortgage insurance premium would have been based upon the risk that the borrower posed to the mortgage insurance fund. The Senate Appropriations Committee did not include these provisions in its version of H.R. 5576 because the committee did not believe that the proposal included the necessary reforms to allow HUD to compete on the private market without increased financial risk to the FHA insurance fund and without subjecting the program to significant fraud and abuse. The Committee was concerned that the proposals would move FHA closer to becoming the lender of last resort. Congress did not enact either H.R. 5121 or H.R. 5576 by the end of 109 th Congress. Predatory Lending Since the early 1990s, lenders have developed better methods of estimating the risks of certain mortgage loans, with the result that lenders are now making home loans to persons who ordinarily would not qualify for loans, given their income, savings, and credit profiles. The loans are often referred to as subprime loans. There are many subprime loans that are the result of lenders making legitimate pricing decisions based on the higher risks of loans because of some characteristics of the borrowers. Problems occur when lenders deliberately market the loans to populations such as low-income elderly and minority homeowners who may have little understanding of complex financial products and who may have the tendency to put too much trust in the assumption that the lender is trying to help them. These lenders are often predators who take advantage of the ignorance of borrowers and commit them to loans that are not in the borrowers' financial interests. The Home Owner Equity Protection Act (HOEPA) provides federal prohibitions on certain predatory lending practices. Twenty-five states and several municipalities have enacted similar statutes that sometimes offer much broader protections than those afforded under HOEPA. (See CRS Report RL32784 Predatory Lending: A Comparison of State Laws to the Federal Home Ownership and Equity Protection Act , by [author name scrubbed].) Varying requirements among state and local statutes that seek to limit predatory lending have led many in the lending community to call for a uniform federal statute. The difficulty, from a public policy standpoint, is how to limit predatory lending without at the same time restricting the ability of lenders to make loans that are legitimately priced according to the risk of the borrowers. Predatory lending issues were addressed in H.R. 200 , H.R. 1182 , H.R. 1643 , and H.R. 4471 in the 109 th Congress. The bills included provisions related to counseling and financial literacy programs to give consumers the tools to recognize and avoid becoming victims of predatory lending practices, amendments to the Truth in Lending Act to add restrictions on high-cost mortgages and prohibit certain practices, amendments to additional banking laws to combat predatory lending practices that affect low- and moderate-income individuals, and a provision that would have preempted state and local laws that address predatory lending. The 109 th Congress did not enact any of these predatory lending bills. Some groups argue that the state and local laws result in a reduction of the availability of credit to those who need the loans. A recent report by the Center for Responsible Lending suggests that state and local laws work to reduce predatory lending, and that such laws increase the availability of credit to those in need of it. Real Estate Settlement Procedures Act Regulation The Real Estate Settlement Procedures Act (RESPA) was enacted in 1974 to effect certain changes in the settlement process for residential real estate. These changes were expected to result in (1) more advance disclosure of settlement costs to home buyers and sellers, (2) the elimination of kickbacks or referral fees that tended to cause unnecessary increases in the costs of certain settlement services, (3) a reduction in the amounts that buyers are required to place in escrow accounts for the payment of property taxes and hazard insurance, and (4) reform and modernization of local record keeping of land title information. The HUD regulation administering RESPA was issued on June 4, 1976. The regulation is referred to as Regulation X and is found in the Code of Federal Regulations at 24 C.F.R. Part 3500. The only major revision to Regulation X occurred on November 2, 1992. RESPA requires lenders to provide consumers with estimates of settlement costs, but no federal or state law requires the lenders to actually deliver settlement costs in the amounts stated in the estimates. As a result, consumers often get hit with unexpected fees at closing, and these unexpected fees can sometimes be hundreds and even thousands of dollars more than expected. In addition, consumers generally find the real estate settlement process confusing, and lenders find it cumbersome. To date, reform of RESPA has not been a priority of Congress, but in recent years HUD has sought to reform the rules under the existing law. Several changes in Regulation X have been proposed since 1995, but none of them have resulted in a final rule. The most recent proposal was made on July 29, 2002, in a proposed rule entitled "Simplifying and Improving the Process of Obtaining Mortgages to Reduce Settlement Costs to Consumers." After strong opposition by some Members of Congress and various industry groups, the proposal was withdrawn in March 2004 for further review and analysis. At the Mortgage Bankers Association annual policy conference in Washington, D.C. on April 19, 2005, HUD Secretary Alphonso Jackson pledged to work with Congress, consumer groups, and the housing industry to reach a consensus on RESPA reform. During a series of meetings with these groups over the summer, the Secretary said the Department will take as much time as is necessary to develop a meaningful RESPA reform proposal, and that the proposal will be introduced as a proposed rule enabling comments by interested parties. Low-Income Housing Tax Credit Modifications The Low Income Housing Tax Credit (LIHTC) was created by the Tax Reform Act of 1986 ( P.L. 99-514 ) to provide an incentive for the acquisition and development or rehabilitation of commercial property for affordable housing for renters. These federal housing tax credits are awarded to developers of qualified projects. Sponsors, or developers, of real estate projects apply to the corresponding state housing finance authority for LIHTC allocations for their projects. Developers either use the credits or sell them to investors to raise capital (or equity) for real estate projects. The tax benefit reduces the debt and/or equity that the developer would otherwise have to incur. With lower financing costs, tax credit properties can potentially offer lower, more affordable rents. In December 2005, the Gulf Opportunity Zone Act of 2005 ( P.L. 109-135 ) was enacted to provide tax relief to communities adversely affected by Hurricanes Katrina, Wilma, and Rita. The new law temporarily added to existing LIHTC allocation authority for Alabama, Louisiana, and Mississippi. There are now two authorized allocations of tax credits for these states. The first allocation, which existed prior to the Gulf Opportunity (GO) Zone enactment, is the nationwide statutory allocation of $1.90 per capita per state. According to this formula, for calendar year 2006, LIHTC authority was approximately $5,515,635 for Mississippi, $8,579,963 for Louisiana, and $8,607,346 for Alabama. The per capita rate is indexed for inflation and is adjusted annually. The second allocation of tax credit authority, which is temporary, is in addition to the amounts listed above. The second allocation is an amount equal to the lesser of either $18.00 multiplied by the portion of the state's population in the GO Zone as determined prior to August 28, 2005, or the amount of tax credits that had been allocated by each state to buildings in the GO Zone as determined prior to August 28, 2005. These provisions apply for 2006, 2007, and 2008. The second allocation will yield an annual amount of approximately $12,000,000 for Mississippi, $23,000,000 for Louisiana, and $5,600,000 for Alabama for each of the three years. The new law also made an additional $3.5 million in LIHTC authority available to both Texas and Florida in 2006. Legislation introduced in the 109 th Congress, but not enacted, also proposed increases in the allocation amounts of the LIHTC. H.R. 2681 , the Affordable Housing Tax Credit Enhancement Act of 2005, proposed to double LIHTC authority nationwide. Two other bills, H.R. 659 and H.R. 3159 , each entitled the Community Restoration and Revitalization Act of 2005, proposed increases in, and administrative modifications to, the tax credit in order to target it more directly to low-income communities. Other Issues Community and Economic Development Consolidation Proposals In FY2007, for the second consecutive year, the Administration included in its budget request a proposal that would eliminate a number of federal economic and community development programs. In its first proposal, the Administration's FY2006 budget recommendations would have consolidated the activities of at least 18 existing community and economic development programs into a two-part grant proposal called the "Strengthening America's Communities Initiative" (SACI). Responsibility for the 18 programs that were carried out by five federal agencies (the Department of Housing and Urban Development, the Economic Development Administration in the Department of Commerce, the Department of the Treasury, the Department of Health and Human Services, and the Department of Agriculture) would have been transferred to the Commerce Department, which currently administers the programs of the Economic Development Administration. Under the Administration's FY2006 proposal, the Department of Commerce would have administered a core program and a bonus program. The bonus program would have awarded additional funds to communities that demonstrated efforts to improve economic conditions. The FY2006 SACI proposal would have reduced total funding for the 18 programs from $5.6 billion in FY2005 to $3.7 billion in FY2006. Congress rejected the Administration's budget proposal and funded all 18 programs at a total level of $5.3 billion. Although an outline of the proposal was included in the Administration's FY2006 budget documents, the Administration did not submit a legislative proposal during the 1 st session of the 109 th Congress. Instead, after facing significant opposition, an advisory group was established within the Department of Commerce to help the Secretary develop a detailed legislative proposal. The Administration's FY2007 budget request outlined a revamped SACI proposal. Under the FY2007 version, two of the 18 programs would have been funded—HUD's Community Development Block Grant program, and a new Regional Development Account within the Economic Development Administration (EDA). The FY2007 budget proposed a SACI funding level of $3.4 billion—nearly $2 billion less than the aggregate appropriation for the 18 programs in FY2006. The House version of the HUD spending bill ( H.R. 5576 ) would have appropriated $4.2 billion for the Community Development Fund (CDF), including $3.873 billion for CDBG formula assistance, $57 million for Indian CDBG assistance, $250 million for Economic Development Initiative (EDI) grants, and $20 million for Neighborhood Initiative (NI) grants. The Senate Appropriations Committee provided for similar funding levels, including $4.2 billion for CDF, $3.877 billion for CDBG, $58 million for Indian CDBG assistance, $250 million for EDI, and $30 million for NI. The House version of H.R. 5576 also included language requiring EDI and NI earmarked projects identified in the accompanying report to provide a 40% match of local funds. This new matching fund requirement was part of a House effort to reform the earmarking of funds. The Administration's FY2007 budget identified some general elements of the new SACI proposal, including development of a common set of goals and performance measures for federal community and economic development programs by HUD and the Department of Commerce. In HUD, the Administration plans called for a new CDBG allocation formula targeted to the neediest communities, a bonus fund component, and reforms that address the program's shortcoming outlined in the Program Assessment Rating Tool. The Administration's budget proposal called for the creation of a new Regional Development Account (RDA) in EDA that would have been funded at $257 million and would have replaced the agency's current budget categories of public works, economic adjustment assistance, technical assistance and research and evaluation. The Community Development Block Grant Program Formula On May 25, 2006, HUD unveiled its legislative proposal to reform the CDBG. The draft proposal, which had no congressional sponsor in the 109 th Congress, would eliminate the program's dual formula and the 70%/30% appropriations split between entitlement communities and states. Instead, funds would be allocated among all eligible communities and states using a single weighted formula consisting of the following factors: the number of households living in poverty; the number of overcrowded housing units; the number of female headed households with minor children; the number of housing units 50 years or older occupied by low income households; and the per capital income. The proposed formula is heavily weighted in favor of communities with significant concentrations of persons living in poverty. Under the proposed formula 50% of the funds allocated are to be based on the poverty factor. Communities that fail to meet a minimum grant threshold could seek assistance from the state or be included in the grant application for an urban county. The proposal would also include a $200 million challenge grant program that would award additional funds to entitlement communities that target assistance to areas of concentrated need. The House Appropriations Committee report accompanying H.R. 5576 ( H.Rept. 109-495 ), included a statement criticizing the Administration for failing to deliver a reform proposal in time to be considered and acted on by the relevant committees of jurisdiction. Rural Housing Funding In recent years, the Administration has proposed zero funding for the Rural Housing and Economic Development program (RHED) in HUD. The argument in favor of de-funding RHED is that rural housing needs can be addressed through the housing programs administered by the Rural Housing Service (RHS) of the U.S. Department of Agriculture (USDA). Despite the President's requests to de-fund the program, Congress has continued to provide funding. For FY2006, the Administration proposed the consolidation of RHED into a new program within the Department of Commerce. Congress did not accept the proposal and funded RHED at $17 million for FY2006. (See discussion of Community Development Block Grant Program above.) For FY2007, the Administration again proposed zero funding for RHED. The House version of the HUD spending bill ( H.R. 5576 ), like the President's proposal, had no funding for RHED, while the Senate Appropriations Committee version provided $20 million for the program. Congress did not enact H.R. 5576 by the end of the 109 th Congress. The FY2007 Budget for RHS rural housing programs within the USDA proposed zero funding for Section 515 direct loans for multifamily housing and a doubling of funding for the Section 538 guaranteed multifamily housing loans. An issue for rural housing advocates is how to preserve affordable rental housing by preventing or reducing the prepayment of Section 515 loans, or ensuring that the housing continues to be available as affordable housing after prepayment. The FY2006 Department of Agriculture Appropriations Act ( P.L. 109-97 ) included $9 million for the cost of a demonstration program for the preservation and revitalization of Section 515 housing. The President's Budget did not provide funding for the program in FY2007, and would have transferred any remaining balances from FY2006 to the multifamily housing rural voucher program. However, the President's budget provided that Section 515 rural voucher funds could also be used for preservation and revitalization of Section 515 multifamily rental housing properties. In their versions of the USDA Appropriations spending bill ( H.R. 5384 ), both the House and Senate Appropriations Committee followed the President's recommendation to transfer funds from the demonstration program to the multifamily housing rural voucher program. On March 6, 2006, the USDA published a proposed rule that would require borrowers who will be first-time homebuyers to provide documentation that they have passed a publicly available homeowner education course. Unlike the housing finance programs of the Department of Veterans Affairs (VA) and the Federal Housing Administration (FHA), the Section 502 program is a means-tested program. As such it is not surprising that the Section 502 program would have higher delinquency rates than VA or FHA. The intent of the proposal is to help the borrowers become successful homeowners and thereby decrease the delinquency rate. For more information, see CRS Report RL33421, USDA Rural Housing Programs: An Overview , by [author name scrubbed]. CRS Reports on Housing In General CRS Report RL33344, The Department of Housing and Urban Development: FY2007 Budget , by [author name scrubbed] et al. CRS Report RL32869, The Department of Housing and Urban Development (HUD): FY2006 Budget , by [author name scrubbed] et al. CRS Report RL31918, U.S. Housing Prices: Is There a Bubble? , by [author name scrubbed]. CRS Report RL33421, USDA Rural Housing Programs: An Overview , by [author name scrubbed]. Disaster Relief CRS Report RL33761, Rebuilding Housing After Hurricane Katrina: Lessons Learned and Unresolved Issues , by [author name scrubbed]. CRS Report RS22358, The Role of HUD Housing Programs in Response to Hurricane Katrina , coordinated by [author name scrubbed] et al. CRS Report RL33078, The Role of HUD Housing Programs in Response to Past Disasters , by [author name scrubbed], [author name scrubbed], and [author name scrubbed]. CRS Report RL33173, Hurricane Katrina: Questions Regarding the Section 8 Housing Voucher Program , by [author name scrubbed]. CRS Report RL33330, Community Development Block Grant Funds in Disaster Relief and Recovery , by [author name scrubbed] and [author name scrubbed]. CRS Report RS22301, Rural Housing: USDA Disaster Relief Provisions , by [author name scrubbed]. Section 8 Rental Assistance CRS Report RL32284, An Overview of the Section 8 Housing Programs , by [author name scrubbed]. CRS Report RL33270, The Section 8 Housing Voucher Program: Reform Proposals in the 108 th and 109 th Congresses , by [author name scrubbed]. CRS Report RS22376, Changes to Section 8 Housing Voucher Renewal Funding, FY2003-FY2006 , by [author name scrubbed]. Public Housing CRS Report RS22557, Public Housing: Fact Sheet on the New Operating Fund Formula , by [author name scrubbed]. CRS Report RS21591, Community Service Requirement for Residents of Public Housing , by [author name scrubbed]. CRS Report RL32236, HOPE VI Public Housing Revitalization Program: Background, Funding, and Issues , by [author name scrubbed]. CRS Report RS21199, No-fault Eviction of Public Housing Tenants for Illegal Drug Use: A Legal Analysis of Department of Housing and Urban Development v. Rucker , by [author name scrubbed] (pdf). Special Populations CRS Report RL33764, The HUD Homeless Assistance Grants: Distribution of Funds , by [author name scrubbed]. CRS Report RL30442, Homelessness: Targeted Federal Programs and Recent Legislation , coordinated by [author name scrubbed]. CRS Report RS22328, The Homeless Management Information System , by [author name scrubbed]. CRS Report RS22286, The Emergency Food and Shelter Program , by [author name scrubbed]. CRS Report RL33508, Section 202 and Other HUD Rental Housing Programs for Low-Income Elderly Residents , by [author name scrubbed]. CRS Report RL34318, Housing for Persons Living with HIV/AIDS , by [author name scrubbed]. CRS Report RL32104, Housing Assistance and Welfare: Background and Issues , by [author name scrubbed]. CRS Report RL31753, Immigration: Noncitizen Eligibility for Needs-Based Housing Programs , by [author name scrubbed] and [author name scrubbed]. Community Development CRS Report RL32823, An Overview of the Administration ' s Strengthening America ' s Communities Initiative , by [author name scrubbed] et al. CRS Report RL33330, Community Development Block Grant Funds in Disaster Relief and Recovery , by [author name scrubbed] and [author name scrubbed]. CRS Report RL34049, Community Reinvestment Act: Regulation and Legislation , by [author name scrubbed]. Housing Finance CRS Report RL33775, Alternative Mortgages: Causes and Policy Implications of Troubled Mortgage Resets in the Subprime and Alt-A Markets , by [author name scrubbed]. CRS Report RS20530, FHA-Insured Home Loans: An Overview , by [author name scrubbed] and [author name scrubbed]. CRS Report RL32784, Predatory Lending: A Comparison of State Laws to the Federal Home Ownership and Equity Protection Act , by [author name scrubbed]. CRS Report RS20533, VA-Home Loan Guaranty Program: An Overview , by [author name scrubbed]. CRS Report RS22389, An Introduction to the Design of the Low-Income Housing Tax Credit , by [author name scrubbed]. CRS Report RS21104, Should Banking Powers Expand into Real Estate Brokerage and Management? , by [author name scrubbed]. Housing Government-Sponsored Enterprises (GSEs) CRS Report RL33756, Fannie Mae and Freddie Mac: A Legal and Policy Overview , by [author name scrubbed] and [author name scrubbed]. CRS Report RS22336, GSE Reform: A New Affordable Housing Fund , by [author name scrubbed]. CRS Report RS22307, Limiting Fannie Mae ' s and Freddie Mac ' s Portfolio Size , by [author name scrubbed]. CRS Report RS21567, Accounting and Management Problems at Freddie Mac , by [author name scrubbed]. CRS Report RS21949, Accounting Problems at Fannie Mae , by [author name scrubbed]. CRS Report RL32815, Federal Home Loan Bank System: Policy Issues , by [author name scrubbed]. CRS Report RL32795, Government-Sponsored Enterprises (GSEs): Reform Legislation in the 109 th Congress , by [author name scrubbed]. CRS Report RS21724, GSE Regulatory Reform: Frequently Asked Questions , by [author name scrubbed]. CRS Report RL32230, Regulation of Fannie Mae and Freddie Mac Under the Federal Housing Enterprises Financial Safety and Soundness Act: A Legal Analysis , by [author name scrubbed]. CRS Report RS21896, The Department of the Treasury ' s Authority to Regulate GSE Debt: A Legal Analysis , by [author name scrubbed]. Housing Tax Policy CRS Report RS22389, An Introduction to the Design of the Low-Income Housing Tax Credit , by [author name scrubbed]. CRS Report RL33025, Fundamental Tax Reform: Options for the Mortgage Interest Deduction , by [author name scrubbed]. CRS Report RL32978, The Exclusion of Capital Gains for Owner-Occupied Housing , by [author name scrubbed] and [author name scrubbed]. CRS Report RS22052, Tax Treatment of Short Term Residential Rentals: Reform Proposal , by [author name scrubbed]. Housing Discrimination CRS Report 95-710, The Fair Housing Act: A Legal Overview , by [author name scrubbed].

The 109 th Congress considered a number of housing-related issues in its two sessions. These included appropriations for the Department of Housing and Urban Development (HUD); assistance for families and communities affected by Hurricanes Katrina, Rita, and Wilma; reform of the Government Sponsored Enterprises—Fannie Mae and Freddie Mac—and Federal Home Loan Banks (GSEs and FHLBs); revisions to the FHA loan insurance program; and changes to existing housing programs such as the Section 8 Housing Choice Voucher and the Low-Income Housing Tax Credit program. However, the 109 th Congress adjourned without completing action in many of these areas. During the appropriations process for both FY2006 and FY2007, Congress faced possible cuts in various HUD programs. In FY2006, the President proposed to reduce the HUD budget by 9%, which included removing the Community Development Block Grant (CDBG) program from HUD. Congress did not make the majority of the reductions requested by the President. In FY2007, the President proposed to reduce funding to at least 13 HUD programs, while increasing funding for 11 others. In its proposed spending bills, the House and Senate Appropriations Committees restored many of the proposed cuts. However, at the end of calendar year 2006, Congress had not passed a budget bill for FY2007. Instead, it provided funding for HUD, among other agencies, through three continuing resolutions, the third of which expires on February 15, 2007. For most HUD programs, this means that funding continues at the FY2006 level. Congress twice appropriated funds to HUD after the 2005 hurricanes. First, Congress provided $11.5 billion for the CDBG program to be used in affected areas ( P.L. 109-148 ). This amount was divided among the states of Louisiana, Mississippi, Alabama, Florida, and Texas. The second appropriation ( P.L. 109-234 ) provided $5.2 billion more to the CDBG program for hurricane recovery. In addition to these two allocations of CDBG funds, in P.L. 109-148 Congress provided $390 million in supplemental funding for Section 8 vouchers for families that had received HUD assistance before being displaced by Hurricane Katrina. Other activities in the 109 th Congress included consideration of two bills to strengthen oversight of the GSEs and FHLBs under one regulator ( S. 190 and H.R. 1461 ). The House passed H.R. 1461 on October 26, 2005, while the Senate Banking and Urban Affairs Committee reported S. 190 to the Senate on July 28, 2005. Another bill ( H.R. 5121 ) would have raised the FHA one-family mortgage limit, and allowed mortgage premiums based on the borrower's risk. In the area of affordable housing, the House Financial Services Committee considered and passed a number of housing bills, including H.R. 5443 to reform the Section 8 voucher program and H.R. 5347 , a bill to reauthorize the HOPE VI program. Legislation was also introduced in the first session that would have increased Low-Income Housing Tax Credits available to develop affordable housing ( H.R. 2681 , H.R. 659 , and H.R. 3159 ). However, none of the aforementioned bills was enacted before the close of the 109 th Congress.

Introduction The Environmental Protection Agency (EPA) Administrator signed a proposal to strengthen the National Ambient Air Quality Standard (NAAQS) for particulate matter (PM) on June 14, 2012, intended to address potential health effects (including chronic respiratory disease and premature mortality) associated with short- and long-term exposure to particulate matter. The date of the proposal was per a June 6, 2012, order issued by the U.S. Court of Appeals for the District of Columbia Circuit in response to petitions filed by advocacy groups and 11 states. EPA's most recent statutorily required review and proposal has generated controversy and national debate among stakeholders, health and environmental advocacy groups, and states, as well as oversight in Congress, as did the previous changes leading up to the existing PM NAAQS promulgated October 2006, and those established in 1997. The proposed rule subsequently published in the Federal Register June 29, 2012, started a nine-week public comment period through August 31, 2012. EPA also held two public hearings for the proposal on July 17, 2012, in Philadelphia, PA, and July 19, 2012, in Sacramento, CA. Per the D.C. Circuit decision and as agreed to in a September 4, 2012, consent decree, EPA is to finalize its decision regarding the PM NAAQS by December 14, 2012. The June 2012 PM NAAQS proposal is the culmination of EPA's statutorily required review of the NAAQS under the Clean Air Act (CAA) based on studies available through mid-2009 and recommendations of EPA staff and a scientific advisory panel (Clean Air Scientific Advisory Committee, or CASAC ) established by the CAA. The agency initiated the review not long after the 2006 promulgation of the PM NAAQS. EPA staff reassessed scientific studies considered in setting the 2006 PM NAAQS revisions, reviewed and analyzed extensive subsequent research, and considered public comments and recommendations of the CASAC. Based on the scientific evidence considered, EPA Administrator Lisa P. Jackson signed the proposal that would tighten the current standard primarily by lowering the annual health-based ("primary") standard for fine particles smaller than 2.5 microns (PM 2.5 ). The proposal includes options for new secondary standards to address visibility impacts in urban areas associated with PM 2.5 , but would not modify the standards for inhalable coarse particles smaller than 10 microns or PM 10 . Because some farming and livestock practices contribute to particulate matter emissions, the agricultural community and some Members have maintained a particular interest in EPA's consideration of PM 10 and the potential impacts on agricultural operations. As per statutory scheduling requirements under the CAA, the final designation of areas (primarily counties) as nonattainment for any revised PM standards would not be determined until the end of 2014, and states would have until at least 2020 to achieve compliance. In its Regulatory Impact Analysis (RIA) accompanying the proposed rule assessing the costs and benefits of proposed revisions to the PM NAAQS, EPA estimated that strengthening the PM 2. 5 annual standard would add further similar health benefits anticipated with the promulgation of the 2006 PM NAAQS. Others have suggested that potential health benefits of tightening the PM NAAQS might be higher than EPA's estimates. On the other hand, tighter standards could impose additional compliance requirements on communities, states, industry, and others, at what some stakeholders and Members contend will be a substantial economic cost. EPA expects that requirements and emission reductions associated with existing and recently promulgated federal regulations under the CAA will significantly allay impacts of complying with the proposed revised PM standards, and anticipates that virtually all counties will meet the standards as proposed in 2020. Several recent and pending EPA regulations implementing the various pollution control statutes enacted by Congress have garnered vigorous oversight during the 112 th Congress. Members have expressed concerns, in hearings, through bipartisan letters commenting on proposed regulations, and through introduced legislation that would delay, limit, or prevent certain EPA actions. Particular attention is being paid to the CAA, under which EPA has moved forward with the first federal controls on emissions of greenhouse gases and also addressed emissions of conventional pollutants from a number of industries. Because of health and cost implications, NAAQS decisions historically have been the source of significant concern to some in Congress. The evolution and development of the PM NAAQS, in particular, have been the subject of extensive oversight. During the 112 th Congress, some Members expressed concerns in hearings, letters to the administrator, and proposed legislation in anticipation of potential changes to the PM NAAQS, and the June 2012 proposal is expected to generate further oversight. This CRS report summarizes EPA's June 2012 proposed changes to the PM NAAQS and includes comparisons with previous (1997) and current (2006) promulgated and proposed standards. Key actions leading up to the June 2012 proposal, and potential issues and concerns associated with the proposal to strengthen the PM 2.5 annual standard, are also highlighted. For more information regarding issues and implementation of the current PM 2.5 NAAQS promulgated in 2006, see CRS Report RL34762, The National Ambient Air Quality Standards (NAAQS) for Particulate Matter (PM): EPA's 2006 Revisions and Associated Issues , by [author name scrubbed], and CRS Report R40096, 2006 National Ambient Air Quality Standards (NAAQS) for Fine Particulate Matter (PM2.5): Designating Nonattainment Areas , by [author name scrubbed]. Background Particulate matter is one of six principal pollutants, commonly referred to as "criteria pollutants," for which EPA has promulgated NAAQS under the CAA. The others are ozone (O 3 , a key measure of smog), nitrogen dioxide (NO 2 , or, inclusively, nitrogen oxides, NOx), sulfur oxides (SOx, or, specifically, SO 2 ), carbon monoxide (CO), and lead (Pb). PM 2.5 can be emitted directly from vehicles, smokestacks, and fires but can also form in reactions in the atmosphere from gaseous precursors, including sulfur oxides, nitrogen oxides, and volatile organics occurring naturally or as emissions typically associated with gasoline and diesel engine exhaust, and from utility and other industrial processes. PM 10 (or coarse PM) is an indicator used in the NAAQS to provide protection from slightly larger (in the range of 2.5 to 10 microns or thoracic coarse particles), but still inhalable particles that penetrate into the trachea, bronchi, and deep lungs. These particles are generally associated with dust from paved and unpaved roads, certain industrial processes and agriculture, construction and demolition operations (including mining), and biomass burning. Establishing 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 ." Under Sections 108-109 of the CAA, Congress mandated that EPA set national ambient (outdoor) air quality standards for pollutants whose emissions "may reasonably be anticipated to endanger public health (primary standards) or welfare (secondary standards)" and "the presence of which in the ambient air results from numerous or diverse mobile or stationary sources." The process for setting and revising NAAQS consists of the statutory steps incorporated in the CAA over a series of amendments. Several other steps have also been added by the EPA, by executive orders, and by subsequent regulatory reform enactments by the Congress. Section 109(d)(1)) of the CAA requires EPA to review the criteria that serve as the basis for the NAAQS for each covered pollutant every five years, to either reaffirm or modify previously established NAAQS. EPA has revised the PM NAAQS three times, in 1987, 1997, and most recently, October 2006, to ensure that the standards continue to provide adequate protection for public health and welfare. A February 24, 2009, decision by the U.S. Court of Appeals for the District of Columbia Circuit had remanded elements of EPA's decisions as promulgated in October 2006, in particular the decision not to tighten the primary annual NAAQS for PM 2.5 , to the agency for further consideration but did not vacate the revised standard nor set a specific timeline. The decision was in response to petitions filed in the D.C. Circuit by 13 states, industry, agriculture, business, and environmental and public health advocacy groups, challenging certain aspects of EPA's revisions for both PM 2.5 and PM 10 . The D.C. Circuit granted the petitions in part with regard to the PM 2.5 annual standard and the secondary standards for PM 2.5 and PM 10 (including visibility impairment), denying other challenges. Concerned with delays in EPA's schedule for proposing revisions to the 2006 PM NAAQS, the American Lung Association and the National Parks Conservation Association, and nine states separately filed petitions with the D.C. Circuit in November 2011 urging the court to order EPA's immediate compliance with the February 2009 remand. Subsequently, in February 2012 the two organizations sued EPA in the D.C. Circuit for failing to fulfill their statutory duty to review the October 2006 PM NAAQS within five years, and a coalition of 11 states filed a similar suit with the U.S. District Court Southern District of New York. In response, the D.C. Circuit initially directed EPA to complete its review of the PM NAAQS by June 7, 2012, and following a motion filed by the agency, amended the deadline to June 14, 2012. Promulgation of revised PM NAAQS will initiate a series of statutorily required actions, starting with EPA/States coordinated effort to designate areas (counties or portions of counties) with respect to attainment or nonattainment of any new primary standards three years following the effective date of published final revisions. Within three years of EPA's final designations of areas, states are required to submit plans (state implementations plans or SIPs) outlining how they will achieve or maintain compliance with the revised primary PM NAAQS. The CAA is not specific with respect to dates regarding when states must meet secondary PM standards. Relevant milestones are determined by EPA and states through the implementation planning process. EPA's June 2012 Proposed Changes to the PM NAAQS EPA's 1997 revisions to the PM NAAQS revised the standards focused on particles smaller than 10 microns (PM 10 or coarse particles) established in 1987, and introduced standards for "fine" particles smaller than 2.5 microns (PM 2.5 ) for the first time. The current primary (health protection) PM NAAQS as revised in 2006 include an annual and a daily (24-hour) limit for PM 2.5 , but only a daily limit for PM 10 . To attain the PM 2.5 annual standard, the three-year average of the weighted annual arithmetic mean PM 2.5 concentration at each monitor within an area must not exceed the maximum limit set by the agency. The 24-hour standards are a concentration-based percentile form, indicating the percent of the time that a monitoring station can exceed the standard. For instance, a 98 th percentile 24-hour standard indicates that a monitoring station can exceed the standard 2% of the time during the year. For PM 2.5 and PM 10 , the secondary NAAQS, which are set at a level "requisite to protect the public welfare," are the same as the primary standards. As proposed June 2012, the PM 2.5 and PM 10 standards and other implementation changes would be as follows: Primary (Public Health) PM Standards PM 2.5 : strengthen the annual standard, which currently is 15 micrograms per cubic meter (µg/m 3 ), by setting a new limit of 12 µg/m 3 or 13 µg/m 3 ; retain the daily (24-hour) standard at 35 µg/m 3 based on the current three-year average of the 98 th percentile of 24-hour PM 2.5 concentrations as established in 2006. PM 10 : retain the current daily standard of no more than one exceedance of concentrations of 150 µg/m 3 per year on average over three years; there is no current annual standard for PM 10 (the previous annual maximum concentration standard of 50 µg/m 3 was eliminated by EPA in 2006). Secondary (Welfare) PM Standards PM 2.5 and PM 10 : secondary (welfare) NAAQS would be the same as the primary standards, the same correlations as the 2006 PM NAAQS, with the exception of visibility impairment associated with PM 2.5 . PM 2.5 Visibility Impairment : add a distinct secondary standard defined in terms of a PM 2.5 visibility index based on speciated PM 2.5 mass concentrations and relative humidity data to calculate light extinction on a deciview (dv) scale similar the current Regional Haze Program. Specifically, set a 24-hour averaging time of 30 or 28 deciviews (dv) based on a 90 th percentile form over three years. EPA is also seeking comment on alternative levels (down to 25 dv) and averaging times (e.g., 4 hours). Implementation Changes Monitoring : update several aspects of monitoring regulations including requiring relocating a small number of PM 2.5 monitors to be collocated with measurements of other criteria pollutants (e.g., nitrogen dioxide (NO 2 ) and carbon monoxide (CO)) near-roadway monitoring so to ensure these monitors are at one location in each urban area with a population of 1 million or more, and operational by January 1, 2015. Use data from existing Chemical Speciation Network or the EPA/National Park Service IMPROVE monitoring network to determine whether an area meets the proposed secondary visibility index standard PM 2.5 . No changes to PM 10 monitoring. Air Quality Index (AQI) : update the AQI (EPA's color-coded tool for informing the public how clean or polluted the air is and associated measures for reducing risks of exposure) for PM 2.5 by changing the upper end range for "Good" category (an index value of 50) on the overall scale (0 to 500 based on conversion of PM 2.5 concentrations) to the level of the proposed revised annual PM 2.5 standard. EPA would also set the 100 value of the index scale ("Moderate") at the level of the current 24-hour PM 2.5 standard, which is 35 µg/m, 3 and the AQI of 150 ("Unhealthy Sensitive Groups") would be set at 55 µg/m. 3 The current upper end for the "Hazardous" (500), "Unhealthy" (200) and "Very Unhealthy" (300) AQIs would be retained. Prevention of Significant Deterioration (PSD) : revise the PSD permitting program (rules) with respect to the proposed revised PM NAAQS so as not to "unreasonably delay" pending permits and establish a "grandfather" provision for permit applications if a draft permit or preliminary determination has been issued for public comment no later than the effective date of final revised PM NAAQS. This provision would not apply to NAAQS for other criteria pollutants and permits not meeting these criteria would have to demonstrate compliance with the revised standards once they are finalized. Comparison of the June 2012 PM2.5 Annual Standard with Previous Promulgated and Proposed Alternative PM Standards The final PM 2.5 daily standard established in 2006 was among the less stringent within the range of alternative levels recommended by EPA staff, and the annual standard is not as stringent as the standard recommended by the CASAC. The decision to retain the annual PM 2.5 standard was also less than recommended. Table 1 below shows the June 2012 proposed changes to the PM 2.5 annual standard in comparison to the annual and daily standards for 1997 and 2006 promulgated standards, and alternative levels recommended prior to the 2006 final revisions. Review Process Leading up to the June 2012 Proposed PM NAAQS The CAA as enacted, includes specific requirements for a multistage process to ensure the scientific integrity under which NAAQS are set, laying the groundwork for the Administrator's determination of the standard, and the procedural process for promulgating the standard. Primary NAAQS, as described in Section 109(b)(1), were to be "ambient air quality standards the attainment and maintenance of which in the judgment of the Administrator, based on such criteria and allowing an adequate margin of safety, are requisite to protect the public health." Based on this premise, the CAA specifies the criterion to be used by the Administrator in deciding on the final standard, including preparation of a "criteria document" that summarizes scientific information assessed. The act also requires the establishment and role of an independent advisory committee (CASAC ) to review EPA's supporting scientific documents, and the timeline for completing specific actions. EPA administratively added the preparation of a "staff paper" that summarizes the criteria document and lays out policy options. In addition, Executive Order 12866 requires a Regulatory Impact Analysis (RIA), although the economic impact analysis is essentially only for informational purposes and cannot be directly considered as part of the decision in determining the NAAQS. Beginning June 2007 with its general call for information, EPA initiated the current PM NAAQS review, which culminated in assessments of the scientific research and risk analyses, and ultimately the April 2011 publication of the staff's final Policy Assessment for the Review of the Particulate Matter National Ambient Air Quality Standards (or PM Policy Assessment) . The staff paper presented the staff conclusions and recommendations on the elements of the PM standard based on evaluation of the policy implications of the scientific evidence contained in the criteria document and the results of quantitative analyses (e.g., air quality analyses, human health risk assessments, and visibility analyses) of that evidence. Table B -1 in Appendix B provides a chronological listing of EPA's supporting documents leading up to the June 2012 proposed PM NAAQS. Supplemental to public comments solicited in the Federal Register , the CASAC reviewed EPA's drafts and final documents supporting the science and policy behind the Administrator's decisions in the June 2012 PM NAAQS proposal. The CASAC conducted meetings and consultations, and submitted written overviews, providing their views of the validity and completeness of the agency's assessments and findings, and recommending improvements. CASAC's final product, its review of EPA's second external review draft of the "PM Policy Assessment," was completed June 2010. Table B -2 in Appendix B provides a chronological summary of CASAC consultations and reviews of the supporting documents for the June 2012 proposal. Until discontinued by the CASAC Chairman in 2005, CASAC historically had signed off in the form of a "closure letter" only when the panel of members was convinced that each document accurately reflected the status of the science. The CASAC closure letter was an indication that the majority of the CASAC panel members had generally reached consensus that the criteria documents and the staff paper provided an adequate scientific basis for regulatory decision-making. The discontinuance of the closure letter was the subject of considerable debate, particularly within the science community. EPA revised certain aspects (not including reinstating the closure letter) of the CASAC review process most recently in May 2009. The April 2011 EPA staff paper concluded, and the CASAC panel concurred, that the scientific evidence supported modifying the PM 2.5 primary standard and considering options for revising the secondary standard for reducing visibility impairment associated with PM. Recognizing certain limitations of the data, a range of alternatives were presented for consideration by the Administrator for modifying the current PM NAAQS. These recommendations were the basis for the Administrator's decision, taking into account other factors including public comments received, for proposing to strengthen the annual PM 2.5 primary standard. The staff paper included possible modifications to strengthen certain aspects of the PM 10 standard. However, staff and CASAC placed considerable emphasis on continuing uncertainties and lack of sufficient data to initiate relevant quantitative risk assessment to support such modifications to the standard. As presented in the June 2012 Federal Register , the Administrator provisionally concluded that the growing evidence continues to support the appropriateness of the existing primary 24-hour PM 10 standard's protection of short-term health effects, and proposed to retain the existing PM 10 standard. A perennial issue in conducting NAAQS reviews is whether the agency is basing its decisions on those studies that reflect the latest science. In reviewing thousands of studies, the agency staff ultimately need to establish a cut-off date, or be faced with the need for a continuous review. The current review is based on studies completed by mid-2009, but in the June 29, 2012, Federal Register notice the EPA indicated that it is aware that a number of new scientific studies on the health effects of PM have been published since the mid-2009 cutoff date for inclusion in the Integrated Science Assessment. As in the last PM NAAQS review, the EPA intends to conduct a provisional review and assessment of any significant new studies published since the close of the Integrated Science Assessment, including studies that may be submitted during the public comment period on this proposed rule in order to ensure that, before making a final decision, the Administrator is fully aware of the new science that has developed since 2009. In this provisional assessment, the EPA will examine these new studies in light of the literature evaluated in the Integrated Science Assessment. This provisional assessment and a summary of the key conclusions will be placed in the rulemaking docket. Implementing the Proposed Revised PM2.5 NAAQS Promulgation of NAAQS sets in motion a process under which the states and EPA first identify geographic nonattainment areas, those areas failing to comply with the NAAQS based on monitoring and analysis of relevant air quality data. The CAA is specific with regard to the timelines for determining areas in noncompliance, submission of plans for achieving (or maintaining) compliance, and when noncompliant areas must achieve the established or revised NAAQS. Within three years of issuance of a NAAQS, states are required to submit "infrastructure" plans demonstrating that they have the basic air quality management components necessary to implement the NAAQS. Following EPA's final designations of attainment and nonattainment areas, states (and tribes if they choose to do so) must submit their plans (State Implementation Plans, or SIPs) for how they will achieve and/or maintain attainment of the standards. These may include new or amended state regulations and new or modified permitting requirements. If new, or revised, SIPs for attainment establish or revise a transportation-related emissions allowance ("budget"), or add or delete transportation control measures (TCMs), they will trigger "conformity" determinations. Transportation conformity is required by the CAA, Section 176(c) (42 U.S.C. 7506(c)), to prohibit federal funding and approval for highway and transit projects unless they are consistent with ("conform to") the air quality goals established by a SIP, and will not cause new air quality violations, worsen existing violations, or delay timely attainment of the national ambient air quality standards. Areas designated nonattainment for the NAAQS also are subject to new source review (NSR) requirements. Enacted as part of the 1977 CAA Amendments and modified in the 1990 CAA Amendments, NSR is designed to ensure that newly constructed facilities, or substantially modified existing facilities, do not result in violation of applicable air quality standards. NSR provisions outline permitting requirements both for construction of new major pollution sources and for modifications to existing major pollution sources. The specific NSR requirements for affected sources depend on whether the sources are subject to "Prevention of Significant Deterioration" (PSD) or nonattainment provisions. As discussed earlier (see " EPA's June 2012 Proposed Changes to the PM NAAQS "), the June 2012 PM NAAQS proposal would revise the PSD permitting program (rules) with respect to the proposed revised PM NAAQS so as not to "unreasonably delay" pending permits and establish a "grandfather" provision for permit applications if a draft permit or preliminary determination has been issued for public comment by the date the revised PM NAAQS go into effect. In addition to requiring states to submit implementation plans, EPA acts to control NAAQS pollutants through national regulatory programs. These may be in the form of regulations of products and activities that might emit the pollutants (particularly fuels and combustion engines, such as automobiles and trucks) and in the form of emission standards for new stationary sources (e.g., utilities, refineries). EPA anticipates that recent CAA rules, including rules to reduce pollution from power plants, clean diesel rules for vehicles, and rules to reduce pollution from stationary diesel engines, would help states meet the proposed revised PM NAAQS. NAAQS Designation Process The NAAQS designation process is intended as a cooperative federal-state-tribal process in which states and tribes provide initial designation recommendations to EPA for consideration. In Section 107(d)(1)(A) (42 U.S.C. 7407), the statute states that the governor of each state shall submit a list to EPA of all areas in the state, "designating as ... nonattainment, any area that does not meet ( or that contributes to ambient air quality in a nearby area that does not meet ) an air quality standard" (emphasis added). Areas are identified as "attainment/unclassified" when they meet the standard or when the data are insufficient for determining compliance with the NAAQS. Following state and tribal recommended designation submissions, the EPA Administrator has discretion to make modifications, including to the area boundaries. As required by statute (Section 107(d)1(B)(ii)), the agency must notify the states and tribes regarding any modifications, allowing them sufficient opportunity to demonstrate why a proposed modification is inappropriate, but the final determination rests with EPA. Measuring and analyzing air quality to determine where NAAQS are not being met is a key step in determining an area's designation. Attainment or nonattainment designations are made primarily on the basis of three years of federally referenced monitoring data. EPA began developing methods for monitoring fine particles at the time the PM 2.5 NAAQS were being finalized in 1997, and operation of the network of monitors for PM 2.5 was phased in from 1999 through 2000. The network of monitors and their locations have been modified over time. Most recently, in a separate action in conjunction with the October 2006 publication of the revised particulates NAAQS, EPA amended its national air quality monitoring requirements, including those for monitoring particle pollution. The amended monitoring requirements were intended to help federal, state, and local air quality agencies by adopting improvements in monitoring technology. EPA is proposing additional modifications to the PM NAAQS monitoring network as discussed earlier in this report. In addition to air emission and air quality data, EPA considers a number of other relevant factors in designating nonattainment area, and recommends that states apply these factors in their determinations in conjunction with other technical guidance. Examples of these factors include population density and degree of urbanization (including commercial development), growth rates, traffic and commuting patterns, weather and transport patterns, and geography/topography. States and tribes may submit additional information on factors they believe are relevant for EPA to consider. Nonattainment areas include those counties where pollutant concentrations exceed the standard as well as those that contribute to exceedance of the standard in adjoining counties. Entire metropolitan areas tend to be designated nonattainment, even if only one county in the area has readings worse than the standard. In addition to identifying whether monitored violations are occurring, states' or tribes' boundary recommendations for an area are to also show that violations are not occurring in those portions of the recommended area that have been excluded, and that they do not contain emission sources that contribute to the observed violations. June 2012 Proposed PM2.5 Annual NAAQS Potential Area Designations The June 2012 proposal to tighten the PM 2.5 annual standard is expected to result in an increase in the number of areas (typically defined by counties or portions of counties) designated nonattainment. Similar to the strengthening of the PM 2.5 daily (24-hour) standard in 2006, the June 2012 proposed range of concentrations for the PM 2.5 annual standard is expected to affect primarily areas currently in nonattainment for the existing (2006) standards, but would also likely include a few counties that have not been previously designated as nonattainment. EPA would not require new nonattainment designations for PM 10 primary NAAQS since the June 2012 proposal would retain the existing (2006) standards. Assuming EPA promulgates final PM NAAQS revisions by December 14, 2012, as indicated earlier in this report, state and tribal area designation recommendations would be required under the CAA to be submitted to EPA by December 2013 (within one year of the final rule). The CAA requires EPA to make its final area designations within one year of the state and tribal recommendations, projected to be December 2014. EPA is required to notify states and tribes of its intended modifications to their recommendations 120 days (projected to be August 2014) prior to promulgating final designations which are expected to become effective sometime in early 2015. The actual area designations of nonattainment are more than two years away and will be based on more current monitoring data (likely 2011-2013) and other factors. However, EPA identified counties with monitors that show concentrations of PM 2.5 that would exceed the proposed revised range of the primary annual standard of 12 µg/m 3 to 13 µg/m 3 based on 2008-2010 monitoring data. The map in Figure 1 below depicts these areas for the two proposed revised PM 2.5 annual standards. The areas are depicted in the map for illustration purposes as a rough approximation of the potential areas that may be designated nonattainment for the June 2012 proposed standards. The specific counties based on the 2008-2010 data are shown in Appendix C . The map below shows the overlap of those nonattainment areas for the existing (2006) PM 2.5 annual and/or daily (24-hour), as well as additional areas not previously designated nonattainment. Although a direct comparison of areas expected to be designated nonattainment for the June 2012 proposed PM 2.5 standards with those areas designated nonattainment for the existing (2006) PM NAAQS is not available, overlaying those counties with monitors based on 2008-2010 monitoring provides some indication of potential areas. The 2006 revised PM NAAQS, which are currently being implemented, primarily affect urban areas. EPA published its final designations of 31 areas in 18 states, comprising 120 counties (89 counties and portions of 31 additional counties) for nonattainment of the revised 2006 24-hour PM 2.5 standard, on November 13, 2009. The designations, based on 2006 through 2008 air quality monitoring data, included a few counties that were designated nonattainment for PM 2.5 for the first time, but the majority of the counties identified overlapped with EPA's final nonattainment designations for the 1997 PM 2.5 NAAQS. It is important to note that most of the 1997 PM 2.5 nonattainment areas were only exceeding the annual standard; thus, tightening the 24-hour standard resulted in an increased number of areas being designated nonattainment based on exceedances of both the 24 - hour and the annual standard. The majority of the roughly 3,000 counties throughout the United States (including tribal lands) were designated attainment/unclassifiable, and are not required to impose additional emission control measures to reduce PM 2.5 . Based on anticipated reductions associated with several other existing national air pollution control regulations and programs (see discussion in " National Regulations " section), EPA predicted that only a few counties would not be in compliance with the proposed primary standards by 2020: two counties in California are projected to not meet the proposed annual standard of 13 µg/m; 3 an additional four counties in Alabama, Arizona, Michigan, and Montana would not meet the proposed option of 12 µg/m 3 for the annual standard. State Implementation Plans (SIPs) Under the CAA, within three years of issuance of a NAAQS, all states are required to submit "infrastructure" plans demonstrating that they have the basic air quality management components necessary to implement the NAAQS. Areas designated attainment/unclassifiable will not have to take steps to improve air quality, but under the statute they must take steps to prevent air quality from deteriorating to unhealthy levels. For those areas ultimately designated nonattainment, state, local, and tribal governments must outline detailed control requirements in plans demonstrating how they will meet the revised primary annual PM 2.5 NAAQS. These plans, defined as state implementation plans and referred to as SIPs (TIPs for tribal implementation plans), must be submitted to EPA three years after the effective date of the agency's final designations. EPA projects final area designations will be effective early 2015 for the June 2012 proposed revisions, thus SIPs and TIPs would be required by early 2018. If states fail to develop an adequate implementation plan, EPA can impose one. Under the CAA, states are required to meet any established or revised PM 2.5 standard "as expeditiously as practicable," but no later than five years from the effective date of designation—December 2020 according to EPA's timeline—unless an extension (up to five additional years) allowed under the CAA is granted. National Regulations EPA anticipates that in many cases, stationary and mobile source controls and additional reductions currently being adopted to attain existing (2006) PM 2.5 standards in conjunction with expected emission reductions from implementing national regulations and strategies will help states meet the proposed standards. These national actions include the Cross-State Air Pollution Rule (CSAPR); Mercury and Air Toxics Standards (MATS); Light-Duty Vehicle Tier 2 Rule; Heavy Duty Diesel Rule; Clean Air Nonroad Diesel Rule; Regional Haze Regulations and Guidelines for Best Available Retrofit Technology Determinations; NOx Emission Standard for New Commercial Aircraft Engines; Emissions Standards for Locomotives and Marine Compression-Ignition Engines; Emission Standards Ignition Engines, Control of Emissions for Nonroad Spark Ignition Engines and Equipment; Category 3 Oceangoing Vessels; Reciprocating Internal Combustion Engines (RICE) National Emissions Standards for Hazardous Air Pollutants (NESHAPS); and New Source Performance Standards and Emissions Guidelines for Hospital/Medical/Infectious Waste Incinerators Final Rule Amendments. Stakeholders and some Members of Congress are skeptical about EPA's expectations with respect to the corollary benefits associated with some of these regulations, and raise concerns about pending efforts to delay some of the more recent programs and historical delays of others. Of particular concern are the Cross-State Air Pollution Rule ("Cross-State Rule" or CSAPR), which was to have gone into effect in 2012 but was stayed in December 2011, then vacated on August 21, 2012, by the D.C. Circuit Court of Appeals, and the Mercury and Air Toxics Standards (MATS), which EPA itself has stayed pending reconsideration. On October 5, 2012, the U.S. Department of Justice filed a petition seeking en banc rehearing of the D.C. Circuit's August 21, 2012, decision regarding the CSAPR. Other remanded rules include the hazardous air pollutant ("MACT") standards for boilers and cement kilns. EPA has delayed implementation of the boiler MACT rules for more than a year and a half while considering changes to the requirements. The agency has also extended the compliance deadline for the cement kiln MACT by two years. Potential Impacts of More Stringent PM Standards Estimates of health and welfare risk reductions and control strategies for areas potentially not in compliance provide some insights into potential impacts of the June 2012 proposed PM NAAQS. The Clean Air Act requires that NAAQS be set solely on the basis of public health and welfare protection, while costs and feasibility are generally taken into account in implementation of the NAAQS (a process that is primarily a state responsibility). As discussed previously, in setting and revising the NAAQS, the CAA directs the EPA Administrator to protect public health with an adequate margin of safety . This language has been interpreted, both by the agency and by the courts, as requiring standards be based on a review of the health impacts, without consideration of the costs, technological feasibility, or other non-health criteria. Nevertheless, coinciding with the PM NAAQS proposed rule in the June 29, 2012, Federal Register , EPA released a regulatory impact analysis (RIA) assessing the costs and benefits of setting the standard at the proposed and other alternative levels, to meet its obligations under Executive Order 12866 and in compliance with guidance from the White House Office of Management and Budget. EPA emphasized that the RIA is for informational purposes and that the proposed decisions regarding revisions to the PM NAAQS presented in the June 2012 proposed rulemaking are not based on consideration of the analyses in the RIA in any way. Table 2 below presents a range of EPA's estimated economic costs, monetized benefits, and net benefits (subtracting total costs from the monetized benefits) associated with achieving the June 2012 proposal, and other alternatives considered. As shown in the table, estimated benefits are expected to be at least 30 times greater than the costs of $69 million for the most stringent option included in the June 2012 proposal. EPA also notes that a full accounting of benefits would include additional environmental and societal benefits that were not quantified in the analysis. The basis for the benefits calculations are health and welfare impacts attributable to reductions in ambient concentration emissions of PM 2.5 resulting from a reasonable, but "speculative," array of known state implementation emission control strategies selected by EPA for purposes of analysis. The analysis does not model the specific actions that each state will undertake or emerging technologies in implementing the alternative PM 2.5 NAAQS. EPA notes that mortality co-benefits represent a substantial proportion of total monetized benefits (over 98%). The EPA estimated total costs under partial and full attainment of several alternative PM standards. The engineering costs generally include the costs of purchasing, installing, and operating the referenced control technologies. The technologies and control strategies selected for analysis are illustrative of one way in which nonattainment areas could meet a revised standard. EPA anticipates that in actual SIPS, state and local governments will consider programs that are best suited for local conditions as there are various options for potential control programs that would bring areas into attainment with alternative standards. EPA includes a detailed discussion of the limitations and uncertainties associated with the benefits assumptions and analyses. While recognizing the need to adequately protect against potential health concerns associated with PM, some Members and stakeholders are also apprehensive that EPA has underestimated potential costs and are concerned with the potential monetary consequences associated given the current economic environment. In particular, some stakeholders question the validity of EPA's reliance on the associated impacts of other national regulations in reducing the potential burdens. Critics are concerned that this results in underestimating the number of areas (counties) likely to be affected in terms of their ability to attain the proposed alternative PM NAAQS and the expected associated costs of necessary measures that will be required to in the form of SIPs. Reaction to the Proposed PM NAAQS Prior to the EPA's June 2012 proposed rule to revise the PM NAAQS, stakeholders were providing evidence and arguments in letters, press releases, at public hearings and other forums for their preferred recommendations, and EPA received numerous comments during various stages of development of the criteria and policy documents. In general, business and industry opposed more stringent standards particularly in light of the current national and global economic environment; and public health and environmental advocacy groups advocated support for more stringent standards based on the continuing evidence of health effects from ongoing scientific research. As mentioned earlier, several states petitioned EPA, and subsequently filed suit in the D.C. Circuit Court urging timely completion of its review of the PM NAAQS in response to the February 2009 remand. Other state air quality regulators recognized the need to ensure adequate health protection from PM, but expressed concerns about the impacts of more stringent PM NAAQS on already strained state budgets. Proponents of more stringent standards generally assert— the PM 2.5 standards should be at least as stringent as the more stringent combined daily and annual levels recommended in the 2006 EPA staff paper, and those recommended by the CASAC; scientific evidence of adverse health effects is more compelling than when the standards were revised in 2006; more stringent standards ensure continued progress toward protection of public health with an adequate margin of safety as required by the CAA; welfare effects, particularly visibility, should be enhanced. Critics of more stringent PM NAAQS contend— more stringent (and in some cases the existing) standards are not justified by the scientific evidence; the proposal does not take into account studies completed since the 2009 cut-off; requiring the same level of stringency for all fine particles without distinguishing sources is unfounded; costs and adverse impacts on regions and sectors of the economy are excessive; revising the standards could impede implementation of the existing (2006) PM NAAQS and the process of bringing areas into compliance, given the current status of this process; the benefits (and costs) associated with implementation of the 2006 PM NAAQS, as well as compliance with other relatively recent EPA air quality regulations, have not yet been realized, pointing out that based on EPA's trends data that annual and 24-hour measured PM national concentrations have declined 24% and 28% respectively from 2001 to 2010. EPA has responded to both sides by emphasizing that the agency's conclusions and Administrator's decisions are provisional in nature, and the agency is soliciting comment (60-day comment period from the date of publication in the Federal Register ) regarding its supporting analysis and a variety of alternative PM NAAQS. In addition to written comments, EPA will also compile information presented at the July 2012 public hearings held in Philadelphia and Sacramento. EPA also declared its intention to review and evaluate significant new studies developed and published since the close of the criteria document. Congressional Activity Not long after EPA's release of its PM NAAQS proposal, the House Committee on Energy and Commerce Subcommittee on Energy and Power held a hearing on June 28, 2012, on the potential impacts of tightening the PM 2.5 NAAQS. The focus of the debate was the regulatory costs and burdens associated with the implementation of the revised standards, and potential impacts on economic growth, employment and consumers. Just prior to EPA's release of the proposal, several Members urged the Administrator to include retaining the PM 2.5 standard as an option for consideration in the agency's proposal. During the second session of the 111 th and during the first session of the 112 th Congress, some Members raised concerns in letters to the EPA Administrator and during oversight hearings, about EPA's staff draft reports, and CASAC recommendations leading up to the June 2012 proposal, and the potential impacts that tightening the PM 10 NAAQS standards could have on the agricultural industry. Many Members encouraged EPA to retain the current PM 10 NAAQS standards. A general provision was also included in FY2012 House-reported EPA appropriations language ( H.R. 2584 , Title IV, Section 454) that would have restricted the use of FY2012 appropriations "to modify the national primary ambient air quality standard or the national secondary ambient air quality standard applicable to coarse particulate matter (generally referred to as "PM 10 ")." No comparable provision was retained in the Consolidated Appropriations Act, 2012 ( P.L. 112-74 ), enacted December 23, 2011, which ultimately included EPA's FY2012 appropriation. Although EPA proposed to retain the PM 10 , some stakeholders and Members remain skeptical that the final revised NAAQS could be changed from the proposal. Congress continues to consider legislation that would delay EPA regulatory action with respect to revising the PM 10 NAAQS, including the House-passed Farm Dust Regulation Prevention Act of 2011 ( H.R. 1633 ), which awaits action in the Senate. NAAQS decisions have often been a source of significant concern to many in Congress. The evolution and development of the PM (and ozone) NAAQS, in particular, have been the subject of extensive oversight. For example, following promulgations of the 1997 NAAQS Congress held 28 days of hearings on the EPA rule. Congress enacted legislation specifying deadlines for implementation of the 1997 standard, funding for monitoring and research of potential health effects, and the coordination of the PM (and ozone) standard with other air quality regulations. During the 109 th Congress, hearings were held regarding implementation and review of the PM NAAQS leading up to promulgations of the 2006 PM NAAQS. Because of the potential impacts PM NAAQS could have on both public health and the economy, EPA's current reassessment and June 2012 proposed modifications of these standards will likely be of continued interest to Congress. Conclusions EPA's proposal to modify the existing PM NAAQS published June 29, 2012, following completion of its statutorily required review, has sparked interest and conflicting concerns among a diverse array of stakeholders, and in Congress. As evidenced by the history of the PM NAAQS, the level of scrutiny and oversight will likely increase as the agency proceeds toward its final decision regarding the PM NAAQS by December 2012. Because both the health and economic consequences of particulate matter standards are so potentially significant, the PM NAAQS are likely to remain a prominent issue of interest during the remainder of the 112 th Congress. While analyses indicate more stringent PM NAAQS could result in fewer adverse health effects for the general population and particularly sensitive populations such as children, asthmatics, and the elderly, as well as improved welfare effects, concerns remain with regard to the associated costs. In its assessment of the impacts of tightening the PM NAAQS as proposed, EPA expects few additional areas will be in nonattainment and require more stringent pollution controls to achieve compliance. Industry, some Members and some state representatives anticipate that the proposed tighter PM NAAQS will likely result in more areas classified as nonattainment and needing to implement new controls on particulate matter. Further, they are concerned that stricter standards may mean more costs for the transportation and industrial sectors, including utilities, refineries, and the trucking industry, impacted by particulate matter controls. The EPA's review and establishment of the 1997 PM NAAQS was the subject of litigation and challenges, including a Supreme Court decision in 2001. EPA's 1997 promulgation of standards for both coarse and fine particulate matter prompted critics to charge EPA with over-regulation and spurred environmental groups to claim that EPA had not gone far enough. Not only was the science behind the PM NAAQS challenged, but EPA was also accused of unconstitutional behavior. More than 100 plaintiffs sued to overturn the standard. Although EPA's decision to issue the standards was upheld unanimously by the Supreme Court, for the most part, stakeholders on both sides of the issue continued to advocate their recommendations for more stringent and less stringent (in some cases no) PM standard. Several states and industry, agriculture, business, and environmental and public health advocacy groups petitioned the U.S. Court of Appeals for the District of Columbia Circuit, challenging certain aspects of EPA's revisions of the PM NAAQS as promulgated December 2006. A February 24, 2009, decision by the D.C. Circuit granted the petitions in part, denying other challenges, and remanded the standards to EPA for further consideration. The court did not specifically vacate the 2006 PM NAAQS and implementation is currently underway. The final form of the current efforts to revise PM NAAQS may not be known for some time. EPA will likely receive considerable comments in response to the June 2012 proposal. It would not be surprising if interested stakeholders return to the courts or initiate challenges after the agency completes its review and promulgates final standards in December 2012, thus potentially furthering delays in designating nonattainment areas, and states' development and implementation of SIPs. Appendix A. Chronological Summary of Key Milestones Subsequent to the June 2012 PM NAAQS Proposal As part of the D.C. Circuit's decision and a related Consent Agreement, EPA has agreed to issue final revised PM NAAQS by December 14, 2012. The timeline presented in Table A -1 below reflects the most recent projected milestone dates subsequent to the PM NAAQS proposed rule published June 29, 2012. These milestones are driven primarily by statutory requirements under the CAA, and are based on milestones identified in the June 29, 2012, Federal Register and accompanying EPA fact sheets. The CAA does not specify a timeframe with regard to when states must meet secondary PM standards; relevant milestones are determined by EPA and states through the implementation planning process. Appendix B. Supporting EPA Scientific and Policy Documents, and CASAC Review Appendix C. Comparison of Potential Nonattainment Areas for the June 2012 Proposed PM 2.5 Annual Standard with the Final Designations for the 2006 and 1997 PM 2.5 NAAQS

On June 29, 2012, the Environmental Protection Agency (EPA) published a proposal to revise the National Ambient Air Quality Standard (NAAQS) under the Clean Air Act (CAA) for particulate matter (PM), in response to a June 6, 2012, order issued by the U.S. Court of Appeals for the District of Columbia Circuit. Environmental and public health advocacy groups and 11 states had petitioned the agency, and subsequently filed suit in the D.C. Circuit alleging that EPA failed to perform its mandated duty to complete the review of the PM NAAQS within the statutory deadline. EPA has agreed to issue final revised PM NAAQS by December 14, 2012. EPA's review of the PM NAAQS has generated considerable debate and oversight in Congress. The June 2012 proposal would strengthen the existing (2006) annual health-based ("primary") standard for "fine" particulate matter 2.5 micrometers or less in diameter (or PM2.5), lowering the allowable average concentration of PM2.5 in the air from the current level of 15 micrograms per cubic meter (µg/m3), to a range of 12 to 13 µg/m.3 The annual PM2.5 NAAQS is set so as to address human health effects from chronic exposures to the pollutants. The existing 24-hour primary standard for PM2.5 that was reduced from 65 µg/m3 to 35 µg/m3 in 2006 would be retained, as would the existing standards for larger, but still inhalable "coarse" particles less than 10 micrometers in diameter or PM10. "Secondary" standards that provide protection against "welfare" (non-health) effects, such as ecological effects and material deterioration, would be identical to the primary standards the same as in 2006, but the June 2012 proposal included two options for a 24-hour PM2.5 standard to improve visibility. In developing the June 2012 proposal, EPA reviewed scientific studies available since the agency's previous review in 2006. EPA determined, and the independent scientific advisory committee mandated under the CAA (Clean Air Scientific Advisory Committee, or CASAC) concurred, that evidence continues to show associations between particulates in ambient air and numerous significant health problems, including aggravated asthma, chronic bronchitis, non-fatal heart attacks, and premature death. Populations shown to be most at risk include children, older adults, and those with heart and lung disease, and those of lower socioeconomic status. EPA expects that the potential benefits of the proposed revisions would range from an estimated low of $88.0 million to a high of $5.9 billion dependent on the concentration level and other factors, and estimated costs would range from $2.9 million to $69.0 million. Some stakeholders and some Members express concerns that the cost impacts will be more significant than EPA estimated in those areas unable to comply with the new standards. EPA's establishment of or revisions to the PM NAAQS do not directly regulate emissions from specific sources, or compel installation of any pollution control equipment or measures, but indirectly could affect operations at industrial facilities and other sources throughout the United States. Final revised PM NAAQS will start a process that includes a determination of areas in each state that exceed the standard and must, therefore, reduce pollutant concentrations to achieve it. Following the determination of "nonattainment" areas (primarily counties) based on multiple years of monitoring data and other factors submitted by the states, state and local governments must develop (or revise) State Implementation Plans (SIPs) outlining measures to attain the standard. These often involve promulgation of new regulations by states, leading to the issuance of revised air permits. The process typically takes several years. Based on statutory scheduling requirements, designation of areas as nonattainment for any revised PM NAAQS would not be determined until the end of 2014, and states would have until at least 2020 to achieve compliance.

Requirements for Notifications of Sensitive Covert Actions to Congress Under current statute, the President generally is required keep the congressional intelligence committees fully and currently informed of all covert actions and that any covert action "finding" shall be reported to the committees as soon as possible after such approval and before the initiation of the covert action authorized by the finding. If, however, the President determines that it is essential to limit access to a covert action finding in order to "meet extraordinary circumstances affecting vital interests of the United States," then rather than providing advanced notification to the full congressional intelligence committees, as is generally required, the President may limit such notification to the "Gang of Eight," and any other congressional leaders he may choose to inform. The statute defines the "Gang of Eight" as being comprised of the chairmen and ranking Members of the two congressional intelligence committees and the House and Senate majority and minority leadership. In addition to having to determine that vital interests are implicated, the President must comply with four additional statutory conditions in notifying the Gang of Eight. First, the President is required to provide a statement setting out the reasons for limiting notification to the Gang of Eight, rather than the full intelligence committees. The two intelligence committee chairmen, both Gang of Eight Members, also must be provided signed copies of the covert action finding in question. Third, the President is required to provide the Gang of Eight advance notice of the covert action in question. And, lastly, Gang of Eight Members must be notified of any significant changes in a previously approved covert action, or any significant undertaking pursuant to a previously approved finding. In report language accompanying the 1980 enactment, Congress established its intent to preserve the secrecy necessary for very sensitive covert actions, while providing the President with a process for consulting in advance with congressional leaders, including the intelligence committee chairmen and ranking minority Members, "who have special expertise and responsibility in intelligence matters." Such consultation, according to Congress, would ensure strong oversight, while at the same time, "share the President's burden on difficult decisions concerning significant activities." In 1991, following the Iran-Contra Affair, Intelligence Conference Committee Conferees more specifically stated that Gang of Eight notifications should be used only when "the President is faced with a covert action of such extraordinary sensitivity or risk to life that knowledge of the covert action should be restricted to as few individuals as possible." Congressional Conferees also indicated that they expected the executive branch to hold itself to the same standard by similarly limiting knowledge of such sensitive covert actions within the executive. Changes to Gang of Eight Provisions Congress approved several changes to the Gang of Eight notification procedures as part of the FY2010 Intelligence Authorization Act ( P.L. 111-259 ). First, it required that a written statement now be provided outlining the reasons for a presidential decision to limit notification of a covert action or significant change or undertaking in a previously approved finding. Previously, such a statement was required, but there was no explicit requirement that it be written. Second, the President is now required no later than 180 days after such a statement of reasons for limiting access is submitted, to ensure that all members of the congressional intelligence committees are provided access to the finding or notification, or a statement of reasons, submitted to all committee members, as to why it remains essential to continue to limited notification. Finally, Congress required that the President now ensure that the Gang of Eight be notified in writing of any significant change in a previously approved covert action, and stipulated further that the president, in determining whether an activity constitutes a significant undertaking, shall consider whether the activity: involved significant risk of loss of life; requires an expansion of existing authorities, including authorities relating to research, development, or operations; results in the expenditure of significant funds or other resources; requires notification under Section 504 [50 USCS §414]; gives rise to a significant risk of disclosing intelligence sources or methods; presents a reasonably foreseeable risk of serious damage to the diplomatic relations of the United States if such activity were disclosed without authorization. The unclassified version of the FY2011 Intelligence Authorization Act ( P.L. 112-72 ), enacted June 8, 2011, contained no further changes to the Gang of Eight notification procedure. When Prior Notice to the Gang of Eight is Withheld Although the statute requires that the President provide the Gang of Eight advance notice of certain covert actions, it also recognizes the President's constitutional authority to withhold such prior notice altogether by imposing certain additional conditions on the President should the decision be made to withhold. If prior notice is withheld, the President must "fully inform" the congressional intelligence committees in a "timely fashion" after the commencement of the covert action. The President also is required to provide a statement of the reasons for withholding prior notice to the Gang of Eight. In other words, a decision by the executive branch to withhold prior notice from the Gang of Eight would appear to effectively prevent the executive branch from limiting an-after-the-fact notification to the Gang of Eight, even if the President had determined initially that the covert action in question warranted Gang of Eight treatment. Rather, barring prior notice to the Gang of Eight, the executive branch would then be required to inform the full intelligence committees of the covert action in "timely fashion." In doing so, Congress appeared to envision a covert action, the initiation of which would require a short-term period of heightened operational security. Congress Signaled Its Intent That the Gang of Eight Would Decide When To Inform the Intelligence Committees During the Senate's 1980 debate of the Gang of Eight provision, congressional sponsors said their intent was that the Gang of Eight would reserve the right to determine the appropriate time to inform the full intelligence committees of the covert action of which they had been notified. The position of sponsors that the Gang of Eight would determine when to notify the full intelligence committees underscores the point that while the statute provides the President this limited notification option, it appears to be largely silent on what happens after the President exercises this particular option. Sponsors thus made it clear that they expected the intelligence committees to establish certain procedures to govern how the Gang of Eight was to notify the full intelligence committees. Senator Walter Huddleston, Senate floor manager for the legislation, said "the intent is that the full oversight committees will be fully informed at such time the eight leaders determine is appropriate. The committees will establish the procedures for the discharge of this responsibility." Senator Huddleston's comments referred to Section 501(c) of Title V of the National Security Act which stipulates that "The President and the congressional intelligence committees shall each establish such procedures as may be necessary to carry out the provisions of this title." With regard to Section 501(c), Senate report language stated: The authority for procedures established by the Select Committees is based on the current practices of the committees in establishing their own rules. One or both committees may, for example, adopt procedures under which designated members are assigned responsibility on behalf of the committee to receive information in particular types of circumstances, such as when all members cannot attend a meeting or when certain highly sensitive information is involved. Congressional intent thus appeared to be that the collective membership of each intelligence committee, rather than the committee leadership, would develop such procedures. Moreover, the rules that each committee have subsequently adopted, while they deal in detail as to how the committees are to conduct their business, do not appear to address any procedures that might guide Gang of Eight notifications generally. Rather, to the extent that any such procedures have been adopted, those procedures appear to have been put into place at the executive branch's insistence, according to congressional participants. Congress Approved Gang of Eight Notifications in 1980, Following the Iran Hostage Rescue Attempt Congress approved the Gang of Eight notification provision in 1980 as part of a broader package of statutory intelligence oversight measures generally aimed at tightening intelligence oversight while also providing the Central Intelligence Agency (CIA) greater leeway to carry out covert operations, following a failed covert operation to rescue American embassy hostages in Iran. Congressional approval came after President Jimmy Carter decided not to notify the intelligence committees of the operation in advance because of concerns over operational security and the risk of disclosure. Director of Central Intelligence Stansfield Turner briefed the congressional intelligence committees only after the operations had been conducted. Although most members reportedly expressed their understanding of the demands for secrecy and thus the Administration's decision to withhold prior notification, Senate Intelligence Committee Chairman Birch Bayh expressed concern that the executive branch's action reflected a distrust of the committees. He suggested that future administrations could address disclosure concerns by notifying a more limited number of Members "so that at least somebody in the oversight mechanism would know.... If oversight is to function better, you first need it to function [at all]." Such sentiments appear to have contributed to the subsequent decision by Congress to permit the executive branch to notify the Gang of Eight in such cases. Authority of Gang of Eight to Affect Covert Action Even with statutory arrangements governing covert action, including Gang of Eight covert actions, Congress does not have the authority under statute to veto outright a covert action. Indeed, former Senator Howard Baker successfully pushed the inclusion in the 1980 legislative package of a provision making clear that Congress did not have approval authority over the initiation of any particular covert action. Nonetheless, the Gang of Eight Members, as do the intelligence committees, arguably have the authority to influence whether and how such covert actions are conducted over time. For example, Members could express opposition to the initiation of a particular covert action. Some observers assert that in the absence of Members' agreement to the initiation of the covert action involved, barring such agreement, an administration would have to think carefully before proceeding with such a covert action as planned. The Gang of Eight over time could also influence funding for such operations. Initial funding for a covert action generally comes from the CIA's Reserve for Contingency Fund, for which Congress provides an annual appropriation. Once appropriated, the CIA can fund a covert action using money from this fund, without having to seek congressional approval. But the executive branch generally must seek additional funds to replenish the reserve on an annual basis. If the Gang of Eight, including the two committee chairmen and ranking Members, were to agree not to continue funding for a certain covert action, they arguably could impress on the membership of the two committees not to replenish the reserve fund, providing they informed the committees of the covert action, a decision which the congressional sponsors said they intended to be left to the discretion of the Gang of Eight in any case. Thus, the Gang of Eight could influence the intelligence committees to increase, decrease or eliminate authorized funding of a particular covert action. Some observers point out, however, that the leaders' overall effectiveness in influencing a particular covert action turns at least as much on their capability to conduct effective oversight of covert action as it does on their legal authority. Impact on Congressional Intelligence Oversight The impact of Gang of Eight notifications on the effectiveness of congressional intelligence oversight continues to be debated. Supporters of the Gang of Eight process contend that such notifications continue to serve their original purpose, which, they assert, is to protect operational security of particularly sensitive covert actions that involve vital U.S. interests while still involving Congress in oversight. Further, they point out that although Members receiving these notifications may be constrained in sharing detailed information about the notifications with other intelligence committee members and staff, these same Members can raise concerns directly with the President and the congressional leadership and thereby seek to have any concerns addressed. Supporters also argue that Members receiving these restricted briefings have at their disposal a number of legislative remedies if they decide to oppose a particular covert action program, including the capability to use the appropriations process to withhold funding until the executive branch behaves according to Congress's will. Critics counter with the following points. First, they say, Gang of Eight notifications do not provide for effective congressional oversight because participating Members "cannot take notes, seek the advice of their counsel, or even discuss the issues raised with their committee colleagues." Second, they contend that Gang of Eight notifications have been "overused." Third, they assert that, in certain instances, the executive branch did not provide an opportunity to Gang of Eight Members to approve or disapprove of the program being briefed to them. And fourth, they contend that the "limited information provided Congress was so overly restricted that it prevented members of Congress from conducting meaningful oversight." Gang of Eight Notifications: The Historic Record Notwithstanding the continuing debate over the merits of such notifications, what remains less clear is the historic record of compliance with Gang of Eight provisions set out in statute. Questions include: have such notifications generally been limited to covert actions, ones that conform to congressional intent that such covert actions be highly sensitive and involve the risk to life? When prior notification is limited to the Gang of Eight, has the executive branch provided an explanatory statement as to why it limited notification to the Gang of Eight? If the Gang of Eight is not provided prior notice, has the executive branch then informed the intelligence committees at a later date and provided a reason why prior notification was not provided? Has the Gang of Eight, once notified, ever then made a determination to notify the intelligence committees, a prerogative envisioned by its congressional sponsors? Have the congressional intelligence committees, at any time since they were established, attempted to develop procedures to guide Gang of Eight notifications, as envisioned by the sponsors of the Gang of Eight provision? Conclusion: Striking a Balance Striking the proper balance between effective oversight and security remains a challenge to Congress and the executive. Doing so in cases involving particularly sensitive covert actions presents a special challenge. Success turns on a number of factors, not the least of which is the degree of comity and trust that defines the relationship between the legislative and executive branches. More trust can lead to greater flexibility in notification procedures. When trust in the relationship is lacking, however, the legislative branch may see a need to tighten and make more precise the notification architecture, so as to assure what it views as being an appropriate flow of information, thus enabling effective oversight.

Legislation enacted in 1980 gave the executive branch authority to limit advance notification of especially sensitive covert actions to eight Members of Congress—the "Gang of Eight"—when the President determines that it is essential to limit prior notice in order to meet extraordinary circumstances affecting U.S. vital interests. In such cases, the executive branch is permitted by statute to limit notification to the chairmen and ranking minority Members of the two congressional intelligence committees, the Speaker and minority leader of the House, and Senate majority and minority leaders, rather than to notify the full intelligence committees, as is required in cases involving covert actions determined to be less sensitive. Congress, in approving this new procedure in 1980, during the Iran hostage crisis, said it intended to preserve operational secrecy in those "rare" cases involving especially sensitive covert actions while providing the President with advance consultation with the leaders in Congress and the leadership of the intelligence committees who have special expertise and responsibility in intelligence matters. The intent appeared to some to be to provide the President, on a short-term basis, a greater degree of operational security as long as sensitive operations were underway. In 1991, in a further elaboration of congressional intent following the Iran-Contra Affair, congressional report language stated that limiting notification to the Gang of Eight should occur only in situations involving covert actions of such extraordinary sensitivity or risk to life that knowledge of such activity should be restricted to as few individuals as possible. In its mark-up of H.R. 2701, the FY2010 Intelligence Authorization Act, the House Permanent Select Committee on Intelligence (HPSCI) replaced the Gang of Eight statutory provision, adopting in its place a statutory requirement that each of the intelligence committees establish written procedures as may be necessary to govern such notifications. According to committee report language, the adopted provision vests the authority to limit such briefings with the committees, rather than the President. On July 8, 2009, the executive branch issued a Statement of Administration Policy (SAP) in which it stated that it strongly objected to the House Committee's action to replace the Gang of Eight statutory provision, and that the President's senior advisors would recommend that the President veto the FY2010 Intelligence Authorization Act if the committee's language was retained in the final bill. The Senate Intelligence Committee, in its version of the FY2010 Intelligence Authorization Act, left unchanged the Gang of Eight statutory structure, but approved several changes that would tighten certain aspects of current covert action reporting requirements. Ultimately, the House accepted the Senate's proposals, which the President signed into law as part of the FY2010 Intelligence Authorization Act (P.L. 111-259). Both the House and Senate Intelligence Committees did not make any further changes to the Gang of Eight notification procedure when both committees approved respective versions of the 2011 Intelligence Authorization Act (P.L. 112-72) enacted on June 8, 2011. This report describes the statutory provision authorizing Gang of Eight notifications, reviews the legislative history of the provision, and examines the impact of such notifications on congressional oversight. Contents

Introduction This report focuses on FY2018 appropriations and FY2019 advance appropriations for the Department of Veterans Affairs (VA). Generally, the VA is funded through the Military Construction, Veterans Affairs, and Related Agencies (MILCON-VA) Appropriations Act. This report begins by providing a brief overview of the VA. Then it describes the VA budget and advance appropriations. Although not part of annual appropriations, the report also discusses recent funding developments regarding the Veterans Choice Program (VCP), as that program plays an integral role in the delivery of health care to veterans through private community providers. The report then describes the President's budget request for FY2018 appropriations and advance appropriations for FY2019, along with congressional action. The report provides funding levels for the accounts as passed by the House and recommended by the Senate Appropriations Committee; it does not provide funding levels at the subaccount, program, or activity levels. Department of Veterans Affairs Overview The history of the present-day Department of Veterans Affairs (VA) can be traced back to July 21, 1930, when President Hoover issued Executive Order 5398, creating an independent federal agency known as the Veterans Administration by consolidating many separate veterans programs. On October 25, 1988, President Reagan signed legislation ( P.L. 100-527 ) creating a new federal cabinet-level Department of Veterans Affairs to replace the Veterans Administration, effective March 15, 1989. The VA provides a range of benefits and services to veterans and eligible dependents who meet certain criteria as authorized by law. These benefits include medical care, disability compensation and pensions, education, vocational rehabilitation and employment services, assistance to homeless veterans, home loan guarantees, administration of life insurance and traumatic injury protection insurance for servicemembers, and death benefits that cover burial expenses. The VA carries out its programs nationwide through three administrations and the Board of Veterans Appeals (BVA). The Veterans Benefits Administration (VBA) is responsible for, among other things, providing compensation, pensions, education assistance, and vocational rehabilitation and employment services. The National Cemetery Administration (NCA) is responsible for maintaining national veterans cemeteries; providing grants to states for establishing, expanding, or improving state veterans cemeteries; and providing headstones and markers for the graves of eligible persons, among other things. The Veterans Health Administration (VHA) is responsible for providing health care and social support services to eligible veterans; conducting medical and prosthetic research; training health care professionals; serving as a contingency backup to the Department of Defense (DOD) medical system during a national security emergency; and providing support to the National Disaster Medical System and the Department of Health and Human Services (HHS), as necessary. The VHA is primarily a direct service provider of primary care, specialized care, and related medical services to veterans through the nation's largest integrated health care system. When needed, VHA pays for veterans' care delivered in the private sector (care in the community). Inpatient and outpatient care are also provided in the private sector to eligible dependents of veterans under the Civilian Health and Medical Program of the Department of Veterans Affairs (CHAMPVA). The VA Budget The VA budget includes both mandatory and discretionary funding. Mandatory accounts fund disability compensation for veterans, the survivor's Dependency and Indemnity Compensation (DIC) program, pensions, vocational rehabilitation and employment, education, life insurance, housing, clothing allowances, and burial benefits (such as burial allowances, grave liners, outer burial receptacles, and headstones and markers), among other benefits and services. Discretionary accounts fund medical care, medical research, construction programs, information technology, the Office of Inspector General, BVA, and general operating expenses, among other things. These accounts are further supplemented by revolving funds, such as the Canteen Service Revolving Fund and the Pershing Hall Revolving Fund; trust funds, such as the Department of Veterans Affairs Cemetery Gift Fund and the General Post Fund; and special funds, such as the Medical Care Collections Fund; and the Capital Asset Fund. Figure 1 shows a breakdown of the FY2017-enacted amounts for major programs by mandatory and discretionary spending. Approximately 58% of VA's annual appropriations for FY2017 funded mandatory veterans benefits, and approximately 37% funded health care programs. Advance Appropriations12 In 2009, Congress enacted the Veterans Health Care Budget Reform and Transparency Act of 2009 ( P.L. 111-81 ), authorizing advance appropriations for three of the four VHA accounts: medical services, medical support and compliance, and medical facilities. In 2014, Congress passed the Consolidated and Further Continuing Appropriations Act, 2015 ( H.R. 83 ; P.L. 113-235 ), which amended 38 U.S.C §117 and included three more accounts to the advance appropriations list of accounts. This act authorizes advance appropriations for three mandatory VA benefits programs within the Veterans Benefits Administration: compensation and pensions, readjustment benefits, and veterans insurance and indemnities. Beginning with the FY2016 Military Construction and Veterans Affairs, and Related Agencies Appropriations Act (MILCON- VA; P.L. 114-113 ), those accounts received advance appropriations for the first time in FY2017, in addition to the three VHA accounts already authorized to receive advance appropriations. Section 4003 of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 ( P.L. 114-41 ) required the establishment of a separate new account for medical community care, beginning with the FY2017 appropriations cycle. The Jeff Miller and Richard Blumenthal Veterans Health Care and Benefits Improvement Act of 2016 ( P.L. 114-315 ) authorized advanced appropriations for the medical community care account. The FY2017 MILCON-VA Act (Division A of P.L. 114-223 ) funded the FY2017 requirements for the new medical community care account by rescinding from the 2017 advance appropriation amounts in the medical services account enacted in the Consolidated Appropriations Act, 2016 ( P.L. 114-113 ), and reappropriating those funds. The act also provides advance appropriations for FY2018 to the new medical community care account. Congress has authorized ( P.L. 111-81 ; P.L. 113-235 ; and P.L. 114-315 ) advance appropriations of new budget authority for these VBA and VHA accounts to prevent potential delays in the delivery of care and benefits to veterans that may arise in the event of a funding lapse. Under present budget scoring guidelines, advance appropriations are scored as new budget authority in the fiscal year in which they become available for obligation, not in the fiscal year the appropriations are enacted and required to be accommodated within the statutory spending caps for that year. Therefore, throughout the funding tables in this report, advance appropriations numbers are shown under the label "memorandum" and in the corresponding fiscal year column. For example, FY2018 advance appropriations provided in the Continuing Appropriations and Military Construction, Veterans Affairs, and Related Agencies Appropriations Act, 2017, and Zika Response and Preparedness Act ( P.L. 114-223 ) are not shown under the FY2017 column but appear in the FY2018 column under the label "memorandum." Similarly, FY2019 advance appropriations provided in the House-passed FY2018 MILCON-VA bill (Division K of H.R. 3354 —Make America Secure and Prosperous Appropriations Act, 2018) and the Senate-reported FY2018 MILCON-VA bill ( S. 1557 ; S.Rept. 115-130 ) are not shown in the FY2018 column but appear in the FY2019 column under the label "memorandum." The Veterans Access, Choice, and Accountability Act of 2014 (Choice Act) In response to the crisis of access to medical care at many VA hospitals and clinics across the country reported in 2014, Congress passed the Veterans Access, Choice, and Accountability Act of 2014 ( P.L. 113-146 , as amended by P.L. 113-175 , P.L. 113-235 , P.L. 114-19 , P.L. 114-41 , and P.L. 115-26 ). On August 7, 2014, President Obama signed the bill into law. The act, as amended, makes a number of changes to programs and policies of the VHA that aim to increase access and lower wait times for veterans who seek care at VA facilities. Among other things, the act established a new program (the Veterans Choice Program) to allow the VA to authorize care for veterans outside the VA health care system if they meet certain criteria. The act also provided mandatory funding for the Veterans Choice Program (VCP), by establishing the Veterans Choice Fund (Section 802 (a) of P.L. 113-146 as amended) and appropriating a total of $10 billion over three years. The original sunset date for the VCP was August 7, 2017. In addition, Section 801(a) of the Choice Act ( P.L. 113-146 ; 38 U.S.C. §1701 note) provided an additional mandatory funding of $5 billion to increase veterans' access to health care by hiring more physicians and staff, and to improve VA's capital infrastructure and support information technology (IT) infrastructure. These Section 801(a) funds would remain available until expended. Two subsequent laws have affected the duration of the VCP, as well as the availability and amount of the appropriations in the Veterans Choice Fund. First, it was estimated around January 2017 that not all the funds in the Veterans Choice Fund would be exhausted by August 7, 2017. In response, on April 19, 2017, President Trump signed into law P.L. 115-26 (an act to amend the Veterans Access, Choice, and Accountability Act of 2014 to modify the termination date for the Veterans Choice Program, and for other purposes; unofficially known as the as the Veterans Choice Program Improvement Act). The act eliminated the sunset date of the VCP and allowed any unobligated funds in the Veterans Choice Fund to be used until expended. However, in mid-June 2017, the VA notified Congress that due to an increased authorization of appointments, there had been a higher rate of usage of VCP funds such that all funds would likely be obligated by August 15, 2017, and the VCP would not be able to continue past that time. According to the VA, at least $3.5 billion in new mandatory budget authority would be needed to continue the VCP through FY2018. As a result, on August 12, 2017, the VA Choice and Quality Employment Act of 2017 ( P.L. 115-46 ) was signed into law. This act authorized and appropriated $2.1 billion for the Veterans Choice Fund (§802 (a), P.L. 113-146 ; 38 U.S.C. §1701 note). These funds were to remain available until expended. On December 20, 2017, the VA published a notice in the Federal Register stating that funds for the Veterans Choice Fund would be exhausted between January 2, 2018, and January 16, 2018. In response, Congress appropriated (§4001 of P.L. 115-96 ) another $2.1 billion to remain available until expended. In February, the Secretary of Veterans Affairs stated that these funds would remain available for obligation until May 2018. Table 1 provides current funding levels for the Veterans Choice Fund. The Choice Act mandatory funds are not part of the regular annual appropriations provided in the House-passed FY2018 MILCON-VA bill (Division K of H.R. 3354 , Make America Secure and Prosperous Appropriations Act, 2018) and the Senate-reported FY2018 MILCON-VA bill ( S. 1557 ; S.Rept. 115-130 ). Therefore, those funds are not shown in Table 3 and Table 4 of this report. Currently, congressional veterans' affairs committees are considering several legislative proposals to replace VCP with a streamlined community care program. The President's Budget Request for FY2018 and Advance Appropriations for FY2019 and Congressional Action The President's Request On May 23, 2017, the President submitted his budget request to Congress for FY2018 and for the advance appropriations accounts for FY2019. The President's FY2018 budget request for the VA is $182.66 billion. Compared with the FY2017-enacted amount of $176.94 billion, this is a 3.23% (or $5.72 billion) increase. The FY2018-requested amount includes $103.95 billion in mandatory budget authority and $78.71 billion in discretionary budget authority (see Table 3 ). For the Veterans Benefits Administration (VBA), the President's budget request includes $106.97 billion for FY2018. This amount includes funding for veterans entitlement programs such as compensation and pensions, readjustment benefits, insurance and indemnities, veterans housing programs, and vocational rehabilitation programs. In addition, this amount includes $2.84 billion in general operating expenses needed to administer the entitlement programs. The Administration's budget request of $106.97 billion for FY2018 also includes $12.44 million for veterans insurance and indemnities over the FY2018 advance appropriations of $107.90 million provided in the Continuing Appropriations and Military Construction, Veterans Affairs, and Related Agencies Appropriations Act, 2017, and Zika Response and Preparedness Act ( P.L. 114-223 ) (see Table 4 ). For the Veterans Health Administration (VHA), the President is requesting $69.68 billion for FY2018, without collections (see Table 4 ). Compared with the FY2017-enacted amount of $65.32 billion, this is a 6.66% increase, and it includes additional funding of $2.65 billion over the FY2018 advance appropriations of $66.39 billion provided in P.L. 114-223 for the four medical care accounts (medical services, medical community care, medical support and compliance, and medical facilities). The President is also requesting $2.9 billion in mandatory funding for FY2018 and $3.5 billion for FY2019 to continue the VCP (not reflected in the tables below). These amounts are in addition to the discretionary funding for veterans' medical care accounts. The President is proposing to offset the cost of the VCP extension by terminating Individual Unemployment (IU) benefits when a veteran first becomes eligible for Social Security benefits. Veterans would, however, continue to receive their basic disability compensation benefits. IU benefits would continue for veterans who are ineligible for Social Security retirement benefits. In addition, the Administration is proposing a cost of living adjustment (COLA) round-down (rounding down to the nearest dollar) for service-connected disability compensation, dependency, and indemnity compensation (DIC) for 10 years. The Administration is also requesting $4.06 billion for VA's information and technology programs. This is a 5.21% decrease over the FY2017-enacted amount of $4.28 billion. Furthermore, the FY2018 budget request for construction programs, including construction of major and minor projects, and grants for state veterans homes and state veterans cemeteries, is $990 million, a 4.36% decrease compared with the FY2017 amount of $1.04 billion. Lastly, as required by P.L. 111-81 , P.L. 113-235 , and P.L. 114-315 , the President's budget requests advance appropriations for VA in an amount of $178.41 billion. Of this amount, $107.7 billion would be for mandatory veterans benefits accounts, and $70.69 billion would be for discretionary health care accounts (see Table 3 and Table 4 ). House and Senate Action This section of the report provides an overview of the House and Senate Action on the FY2018 Military Construction, Veterans Affairs, and Related Agencies (MILCON-VA) Appropriations bill. It begins with House Appropriations Committee consideration in June 2017, followed by the House passage of the measure on September 14, 2017. It then discusses Senate Appropriations Committee consideration in July 2017 and concludes with a discussion of the Continuing Appropriations for FY2018. House Action On June 22, 2017, the House Appropriations Committee reported its version of the FY2018 MILCON-VA Appropriations bill ( H.R. 2998 ; H.Rept. 115-188 ). For the purposes of House floor consideration, provisions from this bill were then added to H.R. 3219 , which also included three other full-year FY2018 appropriations bills (Defense, Energy and Water, and Legislative Branch) and was titled Make America Secure Appropriations Act for FY2018. The House passed H.R. 3219 as amended on July 27, 2017. Following this, the text of H.R. 3219 was added to the text of H.R. 3354 , which included eight other full-year FY2018 appropriations bills, and was titled Make America Secure and Prosperous Appropriations Act, 2018. The discussion below reflects the appropriations in Division K—Military Construction, Veterans Affairs, and Related Agencies Appropriations bill, 2018 contained in H.R. 3354 and which was passed by the House on September 14, 2017. The House-passed measure (Division K of H.R. 3354 ) provides $182.28 billion for the VA. This includes $103.95 billion in mandatory funding and $78.33 billion in discretionary funding (see Table 3 ). Compared with the FY2017-enacted amount for VA of $176.94 billion, Division K of H.R. 3354 provides a 3.02% increase for VA for FY2018. When compared with the President's request of $182.66 billion for FY2018, the House-passed measure is a 0.21% decrease. Some of this decrease could be attributed to the administrative rescissions included in the bill ($471.16 million). Veterans Benefits Administration (VBA) For the VBA, the House-passed measure provides $107.03 billion. A majority of this funding will be for mandatory benefits such as disability compensation, readjustment benefits, and veterans insurance programs. Compared with the FY2017-enacted amount of $105.59 billion, Division K of H.R. 3354 provides a 1.36% increase; compared with the President's budget request of $106.97 billion, the House-passed version provides $55 million above the request. This funding increase could be attributed to increased funding for the general operating expenses related to the administration of veterans entitlement programs. According to the committee report accompanying the FY2018 MILCON-VA Appropriations bill ( H.Rept. 115-188 ), the additional funds are provided to "restore some of the decrease proposed in the budget for the Veterans Claims Intake Program (VCIP) to scan paper claims and convert them into digital format ... [and] use a portion of the additional funding to finance overtime payments if that becomes necessary to manage disability claims and appeals backlogs." The House-passed bill also provides advance appropriations for FY2019 totaling $107.71 billion for disability compensation, readjustment benefits, and veterans insurance programs. National Cemetery Administration (NCA) For the NCA, the House-passed FY2018 MILCON-VA Appropriations bill (Division K of H.R. 3354 ) provides $306.19 million, which is the same as the Administration's request and a 6.99% increase over the FY2017-enacted amount of $286.19 million (see Table 4 ). Veterans Health Administration (VHA) The House-passed bill provides $69.74 billion (without collections) for the VHA for FY2018 (see Table 4 ). This amount includes $66.39 billion provided as advance appropriations in P.L. 114-223 for FY2018 for the four accounts—medical services, medical community care, medical support and compliance, and medical facilities—and $2.65 billion in additional funding for FY2018 for those same four accounts. The total VHA amount also includes $698.23 million for the medical and prosthetic research account. Funding for the medical and prosthetic research account is $22.86 million above the FY2017-enacted amount of $675.37 million and $58.23 million above the President's request of $640.00 million. The House-passed FY2018 MILCON-VA Appropriations bill (Division K of H.R. 3354 ) provides $70.70 billion in advance appropriations for FY2019 for the four VHA accounts—medical services, medical community care, medical support and compliance, and medical facilities. The House Appropriations Committee does not address the President's proposal of $2.9 billion in mandatory funding for the continuation of the VCP in FY2018 and $3.5 billion in mandatory funding for VCP in FY2019. According to the committee report ( H.Rept. 115-188 ): As the Choice program reaches the end of its mandatory funding in 2018, the authorizing committees are considering legislation to consolidate VA's traditional community care programs with a successor program to the original Choice program. The Administration has proposed to finance the successor Choice program as a mandatory program, funded with policy changes that would reduce mandatory VA benefits. Regardless of whether or not the mandatory successor program is established, the efforts to consolidate VA's multiple community care programs are important. Furthermore, the committee report highlights various issues with the current VCP, including issues with third-party network administrators (e.g., poor performance), delays in referrals, travel burdens for aging veterans, and delays in paying private providers. Fertility Treatment and Adoption Reimbursement Section 239 of the House-passed FY2018 MILCON-VA Appropriations bill (Division K of H.R. 3354 ) would allow the VHA to use FY2018 funds and FY2019 advance appropriations to provide fertility counseling and treatment, using assisted reproductive technology, and to provide adoption reimbursement to certain veterans and their spouses. Generally, eligible veterans would have a service-connected disability that results in their inability to procreate without the use of fertility treatment. Information Technology For VA information technology systems, the House-passed FY2018 MILCON-VA Appropriations bill (Division K of H.R. 3354 ) provides $4.13 billion (see Table 4 ). Compared with the Administration's request of $4.06 billion, this is a $77.5 million increase above the President's request. The committee report accompanying the FY2018 MILCON-VA Appropriations bill ( H.Rept. 115-188 ) continues to highlight issues with VA's electronic health record modernization and sharing of health information with the Department of Defense (DOD). In addition, the committee has expressed concerns with the VA's June 2017 decision to abandon its Veterans Information Systems and Technology Architecture (VistA) electronic health record and to adopt the same commercial electronic health record that DOD is currently deploying in phases at its military treatment facilities, Military Health System (MHS) Genesis, developed by Cerner Corporation. Furthermore, the FY2018 MILCON-VA Appropriations bill ( H.R. 3354 ) includes both bill language and administrative provisions restricting funding until the department provides detailed project information to the appropriations committees: After multiple false starts with plans for a unified DOD–VA system and then a stand-alone VA VistA record modernization, VA has now decided to acquire by sole source contract the same EHR [Electronic Health Record] being developed for DOD—the Military Health System (MHS) Genesis record. VA will need to add functionality specific to the VA mission. The Committee is pleased with the decision to pursue a single EHR, which its Members have advocated for years. However, the Committee is concerned about the implications of this detour on the completion time for the project (previously promised for 2018), its cost, the ability to meet the growing need for interoperability with non-VA community providers, and the usability of the VistA modernization products already completed. Given the substantial uncertainty at the time of Committee markup about the design of the new EHR, the Committee feels it is necessary to include bill language fencing 75 percent of funding provided for the development of the record until VA provides requested information listed in the bill language. The language requires VA to provide: a detailed explanation of the solicitation; an explanation of how the new record will replicate the DOD record with enhanced functionality for interoperability with DOD and private community providers; a strategic plan with timelines and performance milestones, a master schedule and annual and lifecycle cost estimates; and information on the plan for transition from VistA to MHS Genesis, including how current EHR functionality and interoperability with DOD will be maintained. An administrative provision similarly restricts 75 percent of the funding for development of the EHR that is provided by the Veterans Health Administration from either the Medical Services or the Medical Support and Compliance account until similar information is provided to the Committee. Construction Programs For the VA's construction programs—construction, major projects; construction, minor projects; grants for construction of state extended care facilities; and grants for construction of state veterans cemeteries—the FY2018 MILCON-VA Appropriations bill ( H.R. 3354 ) provides $888.10 million (see Table 4 ). This amount is a 10.29% decrease from the President's request of $990.00 million and a 14.2% decrease from the FY2017-enacted amount of $1.04 billion. The committee continues to emphasize public-private partnerships to address VA's construction funding requirements: Committee is pleased that VA has begun a program of pilot projects to construct needed VA facilities by developing partnerships with private funders who may contribute land, facilities or financing. The Committee hopes that the track record of the pilot projects currently underway will provide strong proof of concept so that VA is granted more general authority to address its facility needs through cost-sharing with the private sector. Senate Appropriations Committee Action On July 13, 2017, the Senate Appropriations Committee reported its version of the FY2018 MILCON-VA Appropriations bill ( S. 1557 ; S.Rept. 115-130 ). The committee-reported version would provide $182.37 billion for the VA for FY2018 (see Table 3 ). This amount includes $103.95 billion in mandatory benefits and $78.42 billion in discretionary funding. Compared with the FY2017-enacted amount of $176.94 billion, the committee-approved amount is a 3.07% increase. Compared with the President's request for FY2018 of $182.66 billion, this amount is a 0.16% decrease. Some of this decrease could be attributed to the administrative rescissions included in the committee-reported bill ($796 million). Veterans Benefits Administration (VBA) For the VBA, the Senate committee-reported bill would provide $107.04 billion. A majority of this funding will be for mandatory benefits such as disability compensation, readjustment benefits, and veterans insurance programs. Compared with the FY2017-enacted amount of $105.59 billion, the total funding amount recommended for VBA for FY2018 is a 1.37% increase; compared with the President's request of $106.97 billion, it is a 0.06% increase. Additionally, the amount provided by the committee includes $2.91 billion in general operating expenses for VBA, which is $66 million above the President's request. This additional amount is provided for hiring additional claims processing staff, as well as increasing staff for the Vocational Rehabilitation and Employment Program. Furthermore, it is provided to fund overtime pay and to fund the Veterans Claims Intake Program (VCIP), which scans and converts paper files into digital records. The FY2018 MILCON-VA Appropriations bill ( S. 1557 ; S.Rept. 115-130 ) also provides advance appropriations for FY2019 totaling $107.71 billion for disability compensation, readjustment benefits, and veterans insurance programs. National Cemetery Administration (NCA) For the NCA, the Senate committee-reported version of the FY2018 MILCON-VA Appropriations bill recommends $306.19 million for FY2018 (see Table 4 ). This amount is an increase of 6.99% over the FY2017-enacted amount of $2816.19 million and same as the Administration's request. Veterans Health Administration (VHA) The FY2018 MILCON-VA Appropriations bill ( S. 1557 ; S.Rept. 115-130 ), as reported, recommends $70.09 billion (without collections) for the VHA for FY2018 (see Table 4 ). This amount includes $66.39 billion provided as advance appropriations in P.L. 114-223 for FY2018 for the four accounts—medical services, medical community care, medical support and compliance, and medical facilities—and $2.98 billion in additional funding for FY2018 for those same four accounts. The total VHA amount also includes $722.26 million for the medical and prosthetic research account. The Senate committee-reported funding for the medical and prosthetic research account is 6.94% above the FY2017-enacted amount of $675.37 million, and 12.85% above the President's request of $640.00 million. The Senate Appropriations Committee-reported FY2018 MILCON-VA Appropriations bill recommends $70.70 billion in advance appropriations for FY2019 for the four VHA accounts—medical services, medical community care, medical support and compliance, and medical facilities (see Table 4 ). The Senate Appropriations Committee does not address the President's proposal of $2.9 billion in mandatory funding for the continuation of the VCP in FY2018 and $3.5 billion in mandatory funding for VCP in FY2019. The committee report ( S.Rept. 115-130 ) states the following: The Department is directed to continue efforts to consolidate all types of community care available to veterans within one program in the Medical Community Care account. The Committee recognizes that the Committees on Veterans Affairs of both Houses of Congress have jurisdiction over the authorization of the consolidation, as well as the current Choice Program, which has been funded with mandatory appropriations. Once the latest round of funding available for the Choice Program has been expended, the functions of the Choice Program should be merged with the functions that are currently funded by and provided for under the Medical Community Care account, and that the consolidated program should be funded by this Committee. The Committee is aware that this would significantly increase discretionary spending for community care. The Committee would like to work with all interested parties within the Congress and the Administration to increase the discretionary spending limits to accommodate such increased future costs for a consolidated community care program. At the same time, the Committee directs the Department to maintain intense focus on responsibly providing care under the Choice Program, while working diligently to build the successor program and enable the consolidation of all community care under one account that would be funded by annual appropriations. Fertility Treatment and Adoption Reimbursement Section 249 of S. 1557 , as reported, includes an administrative provision that would allow VHA to use FY2018 funds and FY2019 advance appropriations to provide fertility counseling and treatment, using assisted reproductive technology, and to provide adoption reimbursement to certain veterans and their spouses. Generally, eligible veterans would have a service-connected disability that results in their inability to procreate without the use of fertility treatment. Mental and Behavioral Services for Veterans with Other than Honorable Discharges Section 264 of the committee-reported FY2018 MILCON-VA Appropriations bill ( S. 1557 ; S.Rept. 115-130 ) would amend Title 38 U.S.C. and include a new provision that would make certain veterans with other than honorable discharges eligible for VA mental and behavioral health care. To be eligible, a veteran is required to meet two general criteria: A veteran must have served on active duty in the military for a period of more than 180 days, and deployed to a theater of combat operations, in support of a contingency operation, or in an area at a time during which hostilities were occurring, and the deployment must be for a period of more than 30 days; and the veteran must have been diagnosed with a mental health condition by a licensed mental health care provider before committing an offense that would have resulted in a discharge or separation that would be categorized as "conditions other than honorable." Those with a dishonorable discharge or a discharge by court-martial would not be eligible for mental health care services from the VA. A veteran must have served on active duty in the military for a period of more than 180 days, and deployed to a theater of combat operations, in support of a contingency operation, or in an area at a time during which hostilities were occurring, and the deployment must be for a period of more than 30 days; and the veteran must also have been diagnosed with a mental health condition by a licensed mental health care provider after committing an offense that would result in a discharge or separation that would be categorized as "conditions other than honorable" but before the expiration of a five-year period beginning on the date of enactment or the date on which the veteran was discharged (whichever occurs later). Those with a dishonorable discharge or a discharge by court-martial would not be eligible for mental health care services from the VA. Medical Marijuana Section 265 of the Senate committee-reported FY2018 MILCON-VA Appropriations bill ( S. 1557 ; S.Rept. 115-130 ) includes a provision that would allow VA physicians to discuss therapeutic use of marijuana with veteran patients in states where medical marijuana use is legal, and would prohibit the denial of VA health care services to veterans participating in such state medical marijuana programs. Information Technology The Senate committee reported bill recommends $4.06 billion for VA information technology systems for FY2018. Compared to the FY2017 enacted amount of $4.28 billion, this is a 5.21% decrease and the same as the Administration's request (see Table 4 ). The Senate Appropriations Committee, while acknowledging that a seamless transmission of health information between DOD and VA is vital, expresses concerns about the current status of health record interoperability between DOD and the VA health care system. The committee report ( S.Rept. 115-130 ) states the following: Although VA and [DOD] have certified interoperability, there are more developed goals that can be realized. While several applications exist to facilitate health data access for clinicians, more must be done to ensure that the most relevant data is accessible in a user friendly format to facilitate efficient clinical encounters. Both Departments must remain committed to working towards assuring continued VA and [DOD] interoperability as each Department adopts its new electronic health record system. The Committee directs VA and [DOD] to establish clear and agreed-upon metrics and goals for interoperability, to establish clear timeframes for meeting those goals, to ensure clinician feedback is sought and considered as the respective electronic medical record systems are modernized, and to update the VA/[DOD] Interagency Program Office guidance to reflect agreed-upon metrics and goals. The need for well-functioning, up-to-date electronic health record technology is absolutely critical as VA plans for a shift to a model of care that greatly expands its use of care in the community. Construction Programs For the VA's construction programs, the FY2018 committee-reported MILCON-VA Appropriations bill ( S. 1557 ; S.Rept. 115-130 ) recommends $1.01 billion (see Table 4 ). This amount includes funding for the construction of major and minor projects, grants for the construction of state extended care facilities, and grants for the construction of state veterans cemeteries. Compared with the FY2017-enacted amount of $1.04 billion, this is a 2.43% decrease. Compared with the President's request of $990.0 million, it is a 2.02% increase. The committee directs the VA to align more of its construction planning, practices, and procedures with DOD processes. Continuing Appropriations for FY201831 Since none of the 12 regular appropriations bills were enacted prior to the start of FY2018 (October 1, 2017), Congress passed and the President signed several continuing resolutions (CRs) into law ( P.L. 115-56 , P.L. 115-90 , P.L. 115-96 , and P.L. 115-120 ). The recent Bipartisan Budget Act (Division B of P.L. 115-123 ) would fund some accounts of the VA for FY2018, through March 23, 2018, through a formula based on the FY2017 level of appropriations provided in the Military Construction, Veterans Affairs, and Related Agencies Appropriations Act, 2017 minus an across-the-board reduction of 0.6791%. Both the FY2017 funding in the Medical Community Care account, and the additional $50 million provided for the Medical Services account in FY2017, funding which is available until September 30, 2018, would not be included in the funding rate of operations under the CR for FY2018. Those accounts that receive (included in P.L. 114-223 ) discretionary advance appropriations for FY2018—(1) medical services, (2) medical community care, (3) medical support and compliance, and (4) medical facilities—are subjected to the across-the-board reduction in the CR. The other mandatory accounts that receive advance appropriations for FY2018—(1) compensation and pensions, (2) readjustment benefits, and (3) insurance and indemnities—are not subject to the across-the-board reduction in the CR. Bipartisan Budget Act of 2018 (P.L. 115-123) On February 9, 2018, President Trump signed into law the Bipartisan Budget Act of 2018. Division B of this act contained supplemental appropriations for disaster relief related to the consequences of hurricanes Harvey, Irma, and Maria. The VA received a total of $93.48 million for costs related to travel of VHA employees; "contracts that were necessary to maintain operations (for example, lodging for volunteers, prescription medications, transportation for home-based primary care patients); and various supplies that were purchased for operations (e.g., medications, medical supplies; food, water, fuel, cots, generators)"; repairs and replacement of VA buildings; and clean-up related to hurricane damage, among other things. Table 2 provides funding levels for VA accounts that received supplemental appropriations for disaster relief. It should be noted that these amounts are not reflected in Table 3 and Table 4 . Once final FY2018 appropriations are enacted, these amounts will be incorporated and reflected in the final totals for the accounts in those tables.

The Department of Veterans Affairs (VA) provides a range of benefits and services to veterans and eligible dependents who meet certain criteria as authorized by law. These benefits include medical care, disability compensation and pensions, education, vocational rehabilitation and employment services, assistance to homeless veterans, home loan guarantees, administration of life insurance and traumatic injury protection insurance for servicemembers, and death benefits that cover burial expenses. The VA is funded through the Military Construction, Veterans Affairs, and Related Agencies (MILCON-VA) appropriations bill. On May 23, 2017, the President submitted his budget request to Congress for FY2018 and for the advance appropriations accounts for FY2019. The President's FY2018 budget request for the VA is $182.66 billion. Compared with the FY2017-enacted amount of $176.94 billion, this would be a 3.23% (or $5.72 billion) increase. The FY2018-requested amount includes $103.95 billion in mandatory budget authority and $78.71 billion in discretionary budget authority. For the Veterans Benefits Administration (VBA), the President's budget request includes $106.97 billion for FY2018. For the Veterans Health Administration (VHA) the President's budget request includes $69.67 billion for FY2018, without collections. Compared with the FY2017-enacted amount of $65.32 billion, this would be a 6.66% increase, and the amount includes additional funding of $2.65 billion over the FY2018 advance appropriations of $66.39 billion provided in P.L. 114-223. Although the Veterans Choice Program (VCP) is not part of the annual appropriations for the VA health care programs, the President is requesting $2.9 billion in mandatory funding for FY2018 and $3.5 billion for FY2019 to continue the program. In the meantime, P.L. 115-46 provided $2.1 billion in mandatory appropriations in 2017 for the Veterans Choice Fund (which funds VCP), and in 2018, P.L. 115-96 provided another $2.1 billion in mandatory appropriations. In total, Congress has provided $14.2 billion in mandatory appropriations for VCP since the program was established on August 7, 2014, including the initial $10 billion in mandatory funding provided through 2017 in P.L. 113-146, as amended. On September 14, 2017, the House passed its version of the FY2018 MILCON-VA appropriations bill (Division K—Military Construction, Veterans Affairs, and Related Agencies Appropriations, bill, 2018 in H.R. 3354). The House-passed measure (H.R. 3354) provides $182.28 billion for the VA. This amount includes $103.95 billion in mandatory funding and $78.33 billion in discretionary funding. For the VBA, the House-passed measure provides $107.03 billion. A majority of this funding is for mandatory benefits such as disability compensation, readjustment benefits, and veterans insurance programs. For VHA, the House-passed bill provides $69.74 billion (without collections) for FY2018. This amount includes $66.39 billion provided as advance appropriations in P.L. 114-223 for FY2018 for the four accounts—medical services, medical community care, medical support and compliance, and medical facilities—and $2.65 billion in additional funding for FY2018 for those same four accounts. The total VHA amount also includes $698.23 million for the medical and prosthetic research account. On July 13, 2017, the Senate Appropriations Committee reported its version of the FY2018 MILCON-VA Appropriations bill (S. 1557; S.Rept. 115-130). The committee-reported version would provide $182.37 billion for the VA for FY2018. This amount includes $103.95 billion in mandatory funding and $78.42 billion in discretionary funding. For the VBA, the Senate-reported bill recommends $107.04 billion for FY2018. For VHA, the committee recommends $70.09 billion (without collections) for FY2018. This amount includes $66.39 billion provided as advance appropriations in P.L. 114-223 for FY2018 for the four accounts—medical services, medical community care, medical support and compliance, and medical facilities—and $2.98 billion in additional funding for FY2018 for those same four accounts. The total VHA amount also includes $722.26 million for the medical and prosthetic research account. Since none of the 12 regular appropriations bills were enacted prior to the start of FY2018 (October 1, 2017), Congress passed and the President signed into law several continuing resolutions (CRs) (P.L. 115-56, P.L. 115-90, P.L. 115-96, and P.L. 115-120). The Bipartisan Budget Act of 2018 (P.L. 115-123) funds some VA accounts for FY2018 through March 23, 2018, at the FY2017 level and provides $93.5 million in supplemental appropriations for the VA for expenses related to the consequences of Hurricanes Harvey, Irma, and Maria, among other things.

Political Background Since the 1980s, Guatemala has been consolidating its transition from a centuries-long traditionof mostly autocratic rule toward representative government. A democratic constitution was adoptedin 1985, and a democratically-elected civilian government inaugurated in 1986. Eighteen years later,democratic institutions remain fragile. Of all the conflicts that ravaged Central America in the lastdecades of the 20th century, Guatemala's conflict lasted the longest. Guatemala ended its 36-yearcivil war in 1996, with the signing of the Peace Accords between the government and theGuatemalan National Revolutionary Unity (Unidad Revolucionaria Nacional Guatemalteca, URNG),a group created in 1982 from the merger of four left-wing guerrilla groups. Some of these groupswere inspired by the ideologies of the Cuban and Nicaraguan revolutions and by liberation theology. Some had bases in the highlands with a mostly indigenous population and incorporated the historicalgrievances of the Mayans into their agendas for social and economic reform. The accords not only ended the civil conflict, but constituted a blueprint for profound political, economic, and social change to address the conflict's root causes. Embracing 10 other agreementssigned from 1994 to 1996, the accords call for a one-third reduction in the size and budget of themilitary; major investments in health, education, and other basic services to reach the rural andindigenous poor; and the full participation of the indigenous population in local and national decisionmaking. They require fundamental changes in tax collection and government expenditures, andimproved financial management. The accords also outline a profound restructuring of stateinstitutions, especially of the military, police, and judicial system, with the goal of endinggovernment security forces' impunity from prosecution and consolidating the rule of law. Former President Alfonso Portillo, of the Guatemalan Republican Front (FRG), whose four-year term just expired, took office in January 2000 following elections generally regarded asfree and fair. Upon taking office, President Portillo embraced the Peace Accords and declared themto be state policy for his Administration. Portillo survived the revelation made by the Guatemalanpress during the presidential campaign that he had fatally shot two men in Mexico in 1982, and hadbeen a fugitive from justice until a Mexican judge declared the case inactive in 1995. Portilloadmitted to having committed the murders, and said they were in self-defense. (1) He went on to winby a large margin in runoff elections, with some analysts concluding that voters had "overlookedPortillo's personal background in exchange for his promises to rule in favor of rural peasants andworking-class Guatemalans." (2) Portillo was widelycriticized for inadequate implementation of thepeace process, and increases in human rights violations, drug trafficking, and common crime. Hewas also criticized for allegedly extensive corruption in his Administration. TransparencyInternational said Guatemala was perceived as the 33rd most corrupt country out of 133 countries in2003. (3) In the economic realm, growth slowed duringhis Administration, and unemployment rose.Although Portillo initially reduced the government's deficit spending, reducing the budget by anaverage of 10%, he then resumed deficit spending. Oscar Berger (pronounced ber-SHAY), of the Great National Alliance (Gran Alianza Nacional, GANA), a recently formed and fractious coalition of center-right parties, was inaugurated Presidenton January 14, 2004. Berger's election ends the dual-party dominance of the PAN and FRG that hascharacterized Guatemalan national politics in recent years. Berger has promised to make fulfillingthe Peace Accords a central theme of his administration. He says signing a free-trade agreement withthe United States is a top priority and that he plans to stimulate the economy by encouraging privateinvestment. While noting that insufficient enactment of peace accord reforms are mainly the responsibility of the government, the United Nations Verification Mission in Guatemala (MINUGUA) states thatcivil society also bears responsibility for fulfilling the accords. [Guatemala requested a U.N. missionin 1994 in the Guatemalan Comprehensive Agreement on Human Rights, the first of the PeaceAccords, to verify human rights and compliance with the commitments of that agreement.] In itsMay 2003 report, MINUGUA criticized the organized private sector for systematically opposingefforts to increase taxes, preventing Guatemala from reaching the minimum target set in the PeaceAccords of a tax base equal to 12% of Gross Domestic Product, and thereby limiting fundingavailable for key social ministries and institutions of justice. November 2003 Elections Guatemalans elected a new president, legislature, and other officials in 2003. Elections were held on November 9, but because no presidential candidate received over 50% of the vote, a run-offelection between the top two candidates was held on December 28. A second-round election hasbeen required in every presidential election since 1985. Oscar Berger won with 54% of the vote.Berger was mayor of Guatemala City from 1990 to 1999; a lawyer, rancher, and owner of travelagencies, he is considered pro-business. Alvaro Colom of the left-of-center National Unity of Hope(Unidad Nacional de la Esperanza, UNE), lost with 46%. Colom, who once ran as a candidate forthe party associated with Guatemala's leftist guerrillas, had moved toward more centrist politics withUNE. The Guatemalan constitution prohibited President Portillo from running for re-election. Thenew president was inaugurated in January 2004 for a four-year term. Voters elected all 158 members of the unicameral Congress, 20 members of the Central American Parliament, and 331 mayors and municipal councils. In the Congressional elections,GANA won just under one-fourth of the seats, with 49; FRG won 42 seats; UNE won 33; and theNational Advancement Party (Partido de Avanzada Nacional, PAN) won 16 seats. 80 seats constitutethe majority needed to pass legislation. Berger negotiated a governing coalition with Colom's partyand his former party, PAN, which creates a 96-seat majority in the legislature. Some observers believe that of equal or greater importance is who did not run in the second round: retired General Efrain Rios Montt, of the FRG, whose nomination generated muchcontroversy, received only 19% in the first round presidential election. Rios Montt's candidacycaused great concern among the international community, much of Guatemalan society, and humanrights organizations. Rios Montt, age 77, took power through a coup and was military dictator from1982-1983, while the army carried out a counter-insurgency campaign resulting in what theGuatemalan Truth Commission has now characterized as genocide of the Mayan population. Hefounded the FRG, and was president of the Guatemalan Congress until he stepped down in August2003 to focus on his election campaign. The FRG named Rios Montt its presidential candidatedespite a provision in the constitution that bans participants in military coups from running forpresident and that prevented his running twice before. After the Supreme Court temporarilysuspended Rios Montt's candidacy, FRG-hired gangs launched violent protests. Guatemala's highestcourt, the Constitutional Court, decided in late July to allow Rios Montt's candidacy, supporting hisargument that he carried out his coup before the Constitution was written, and therefore theprohibition against running should not apply to him. The decision was criticized as illegal by someSupreme Court justices, and further polarized the electorate. Two appeals by opposition partieswere dismissed on September 12. Although Rios Montt was far behind in polls prior to the election, some analysts believed that an electoral victory by Rios Montt could not be ruled out because of targeted spending by the FRGgovernment, strong rural support, and concerns that the FRG would use fraud to guaranteere-election. Then-President Portillo, who is also Rios Montt's son-in-law, was said to be putting the"full weight of the government machine behind his party's contender." (4) According to AmnestyInternational, prior to the first-round elections, the electoral process had already been "manipulatedvia pressure, threats, violence, terror, intimidation, and improper use of state and municipalresources," and more manipulation, along with "falsification or alteration of electoral rolls andelection results" was likely to occur. (5) Press reports indicate that election-related violence between July and October led to the deaths of 21 candidates and activists, most of whom were members of opposition parties. (6) Anelection-monitoring umbrella group, Mirador Electoral 2003, called the electoral process leading upto the November elections the most violent in Guatemala since electoral rule was restored in 1986. (7) A coalition of grassroots organizations and advocacy groups formed a "civic front for democracy" in August to guard against fraud during the remaining election process. An OASelection observation mission began operating in Guatemala months before the November election,with other groups joining in the observation efforts closer to the polling date. Observers reportedthe second round elections to be relatively peaceful and free of fraud. Although Rios Montt lost, analysts are concerned that he will continue to be a destabilizing element. He resigned from Congress to run and thereby lost the parliamentary immunity thatprotected him from indictment proceedings in Guatemala. Rios Montt also has indictments againsthim in Spain and Belgium. He now faces possible prosecution on charges of genocide and otheroffenses allegedly committed during his de facto regime. Opposition to such prosecution couldcome from his network of supporters in the military, judiciary, and legislature -- which includes hisson, the former army chief of staff, and his daughter, who was vice president of the Congress. President Berger has been unclear on whether he will allow genocide charges against the formergeneral to proceed. Nonetheless, some observers believe that the repudiation of Rios Montt in the November polls, in which almost three-fourths of eligible voters cast ballots, represents a significant step forward inGuatemala's efforts to strengthen democracy and respect for human rights. Socio-Economic Background (8) Guatemala has the largest population in Central America: 12 million people. Approximatelyhalf the population is indigenous, with about 23 different ethno-linguistic groups. The indigenouspopulation is economically and socially marginalized and subject to significant ethnic discrimination. Distribution of income and wealth remains highly skewed in Guatemala. According to a recentWorld Bank report, Guatemala ranks among the more unequal countries of the world, with the top20% of the population accounting for 54% of total consumption. Indigenous people -- constitutingabout 50% of the population -- account for less than 25% of total income and consumption. According to the World Bank's recent Poverty Assessment of Guatemala, past policies seeking to promote economic growth have resulted in the exclusion and impoverishment of the indigenouspopulation. Massive land expropriations, forced labor, and exclusion of the indigenous from theeducational system all served to develop coffee as Guatemala's primary export crop yet inhibitdevelopment among the indigenous rural population. By 1960, Guatemala had double the per capitaGross Domestic Product (GDP) of neighboring Honduras and Nicaragua, but lower social indicators. This remains the case today. Guatemala's per capita GDP is $3,630, in the mid-range internationally. Its total GDP, $20.5 billion, is the largest in Central America. Yet the World Banksays data suggest that poverty is higher in Guatemala than in other Central American countries. Estimates of the portion of Guatemala's population living in poverty vary: the U.S. StateDepartment reports that 80% of Guatemalans live in poverty, with two-thirds of that number livingin extreme poverty. The World Bank reports that 54% of the population lives in poverty, withindications that poverty has increased slightly in 2001-2002. (9) Poverty is highest in rural areas andamong the indigenous: 75% of all people living in the countryside live in poverty, and 25% in thiscategory live in extreme poverty. Poverty is significantly higher among indigenous people, 76% ofwhom are poor, in contrast to 41% of non-indigenous people. Guatemala's GDP for 2001 was $22 billion. GDP growth rate was 3.3% in 2000, 2.1% in 2001, and 2.3% in 2002. Low worldwide coffee prices contributed to Guatemala's slowed growth over thelast couple of years. Despite the downturn in commodity prices, traditional exports such as coffeeand sugar continue to lead Guatemala's economic growth. Over the last decade, non-traditionalexports, such as assembled clothing, winter fruits and vegetables, furniture, and cut flowers, havegrown dramatically. Tourism also has grown, though continued growth may depend on thegovernment's ability to address security issues. Problems limiting growth include illiteracy and lowlevels of education, high crime rates, and an inadequate capital market. The 36-year civil war generated social and economic costs. Economic growth rates did not fall until the height of the conflict in the 1980s. But cumulatively, from 1960 to 1996, the war entailedsignificant loss of life, jobs, and productivity, and caused disruption, especially in the hard-hit ruralareas. Guatemala's social indicators continue to be among the worst in the hemisphere; itsmalnutrition rates are among the worst in the world. Its infant mortality rate is 43 per 1,000 livebirths, and its under-5 mortality rate is 58 per 1,000 children. (10) Guatemala's illiteracy rate isextremely high: at 31%, only Nicaragua and Haiti have worse levels in Latin America and theCaribbean. The average level of schooling is an extremely low, 4.3 years; among the poor it is lessthan two years. Schooling is lowest among women, indigenous people, and the rural poor. As aresult of malnutrition, 44% of children under five years of age have stunted growth. Drought andlow coffee prices triggered a rural economic crisis beginning in 2001, which has caused severemalnutrition among the rural poor. Throughout the Peace Accords, there are provisions seeking to reverse the historical exclusion of indigenous peoples and women. In signing them, the Guatemalan government agreed toimplement a more inclusive development strategy. It also agreed to increase investment of thenational budget in education, health, and other social sectors in order to create more equitabledistribution of wealth, reduce poverty, improve living conditions of the poor, and increase access toeducation, health, and other social services. Implementation of the elements of the Peace Accords relating to improving the living conditions and the rights of indigenous people and women are far behind schedule, however. Accessto education, according to the Inter-American Commission on Human Rights, is "still far frombecoming a reality." The Portillo Administration outlined a poverty reduction strategy in 2002addressing most of those issues. MINUGUA reported in 2003 that there were slight improvementsin social spending in the national budget over the previous year but that the amounts allocated to keysocial ministries "remained extremely low in relation to the needs of the country." The indigenouspopulation and women continue to face limited opportunities and discrimination in the labor market. According to the World Bank's Poverty Assessment, "The indigenous appear limited tolower-paying jobs, primarily in agriculture," which, the report says, is "unlikely to serve as a majorvehicle for poverty reduction." Other obstacles hindering social and economic advancement amongthe indigenous poor, which the report says the government still must address, are higher malnutritionrates, less coverage by basic utility services, wage discrimination, and discriminatory treatment bypublic officials and other service providers. International donors and others have criticized Guatemala for not increasing the tax base to the minimum target of 12% of Gross Domestic Product (GDP) agreed upon in the Peace Accords. Ata May 2003 meeting of the Consultative Group for Guatemala, donors told the Guatemalangovernment it needed to increase its tax revenue, decrease spending on the armed forces, andincrease social spending as mandated in the accords. The Consultative Group is made up of over20 donor countries and international organizations, including the U.S., Canadian, and Japanesegovernments, the World Bank, and the IDB. In its report prepared for that meeting, MINUGUA saidthe organized private sector shares the responsibility for inadequate social budgets because itsystematically opposes efforts to increase taxes, thereby limiting funding available for key socialministries and institutions of justice. President Berger says signing a free-trade agreement with the United States is a top priority and that he plans to stimulate the economy by encouraging private investment. His campaign wassupported by coffee and sugar producers, and several members of his cabinet are from the businesssector. Human Rights Guatemala endured a 36-year civil war which ended in 1996 with the signing of the "Accordfor a Firm and Lasting Peace," signed by then-President Alvaro Arzu (1996-2000) (11) , and theGuatemalan National Revolutionary Unity (Unidad Revolucionaria Nacional Guatemalteca, URNG). The Peace Accords incorporated 10 other previously negotiated agreements, the first of which wasthe Comprehensive Agreement on Human Rights. The latter was signed and became effective in1994. The Peace Accords established a Historical Clarification Commission, commonly referred to as The Truth Commission, to investigate human rights violations and acts of violence that occurredduring the armed conflict from 1960 to 1996. In its 1999 report, "Guatemala: Memory of Silence,"the Commission reported that more than 200,000 people died or disappeared because of the armedconflict, and that over 80 % of the victims were indigenous Mayans. The Commission concludedthat the systematic direction of criminal acts and human rights violations at the civilian Mayanpopulation amounted to genocide. The Commission attributed responsibility for 93 % of theviolations to agents of the state, principally members of the army, and said that, "The majority ofhuman rights violations occurred with the knowledge or by order of the highest authorities of theState." The Commission concluded that, although much of the state's actions were taken in thename of counterinsurgency efforts, "The magnitude of the State's repressive response" was "totallydisproportionate to the military force of the insurgency...," and that the vast majority of the state'svictims were not guerrilla combatants, but civilians. (12) Through that first Peace Accord in 1994, the Comprehensive Agreement on Human Rights, Guatemala requested a U.N. mission to verify human rights and compliance with the commitmentsof that agreement. The United Nations Verification Mission in Guatemala (MINUGUA) wasestablished in the country soon after, and regularly issues reports and recommendations based onits findings. In the fall of 2003, MINUGUA was extended for another year. It will now be supportedby a U.N. Human Rights Commission, which the Guatemalan government approved in December2003. On January 7, 2004, Guatemala and the U.N. agreed to establish an "Investigating Committeeon Illegal Security Corps and Clandestine Organizations," an agreement endorsed bythen-President-elect Berger. Guatemala's Legal Obligations Regarding Human Rights Guatemala's commitment to respect human rights is spelled out in various internal laws and international accords to which it is a party. The 1996 Peace Accords included the ComprehensiveAgreement on Human Rights, which was the only agreement to go into effect when it was signed,in 1994, rather than when the final Peace Accord was signed. In the Human Rights Agreement, thegovernment of Guatemala committed to protect the "full observance of human rights;" to strengtheninstitutions for the protection of human rights; to take firm action against impunity in respect tohuman rights violations; to ensure there are no illegal security forces or clandestine securityapparatus, and to regulate the bearing of arms. (13) In the Guatemalan national constitution, adopted in 1985, Title I states that it is the state's duty to guarantee to its inhabitants "life, liberty, justice, security, peace, and the integral development ofthe person." Title II covers "Human Rights." This section establishes basic civil and political rights,including the right to life, "liberty and equality," and due process of the law. It also establishes theprinciple that, in the area of human rights, international treaties and conventions ratified byGuatemala "have precedence over municipal law." (14) The law of Amparo, Habeus Corpus, andConstitutionality seeks to ensure "adequate protection of human rights and the effective functioningof the guarantees and protections of the constitutional order." (15) Guatemala is a member state of the Organization of American States. Within that system, Guatemala's obligations to respect human rights stem from the OAS Charter, the AmericanDeclaration of the Rights and Duties of Man, and the American Convention on Human Rights, whichGuatemala ratified in 1978. Guatemala accepted the jurisdiction of the Inter-American Court in1987. Guatemala is also a party to other regional human rights agreements, such as theInter-American Convention to Prevent and Punish Torture, and the Inter-American Convention onthe Prevention, Punishment and Eradication of Violence against Women. International obligationsstem from the Universal Declaration of Human Rights, and conventions such as the Covenant onEconomic, Social and Cultural Rights. Guatemalan Government Actions to Promote Respect for Human Rights Analysts agree that from the signing of the Human Rights Agreement in 1994 through mid-1998, respect for human rights improved steadily. Since then, however, the U.N. and othergroups have reported a deterioration in human rights conditions, with a sharp increase in humanrights violations as the November 2003 elections approached. On the positive side, observers pointout that the armed conflict is definitively ended; and the state policy of human rights abuses duringthat conflict has been terminated. Sectors of society previously excluded from political processeshave been able to participate. Institutional reforms have been initiated. On the other hand, all ofthese processes remain to be deepened and consolidated, in the view of many. Strengthening ofcivilian power over military forces is progressing slowly or not at all; security forces reportedlycontinue to commit gross violations of human rights with impunity; and Civilian Defense Patrols(PACs), which were responsible for many human rights violations during the civil conflict, havere-emerged. An important policy change made first by President Arzu, and continued by President Portillo, was to acknowledge the human rights violations committed by the state, and the deficiencies in thestate allowing those violations to occur. Both Administrations also committed to taking action tocorrect those deficiencies in order to improve human rights conditions. Upon taking office inJanuary 2000, President Portillo embraced the Peace Accords and declared them to be state policyfor his Administration. He has also acknowledged the state role in prominent human rights cases thathave come up since he took office. According to the Inter-American Commission on Human Rights, The [Guatemalan] State acknowledges that the systems for public security and the administration of justice are gravely deficient. Among the problemsidentified by the State itself are abusive and arbitrary action by the police forces; the lack ofinstitutional capacity to investigate and prosecute crime, especially when committed by State agents;and serious deficiencies in due process and the administration ofjustice. (16) The Portillo Administration ratified international human rights instruments, such as the Additional Protocol to the American Convention on Human Rights in the Area of Economic, Socialand Cultural Rights, known as the "Protocol of San Salvador," in October 2000. The PortilloAdministration was praised by both the Inter-American Commission on Human Rights (IACHR) andthe U.N. Verification Mission in Guatemala for its positive approach in dealing with human rightscases before the IACHR. In cases addressed during his term, Portillo's Administration recognizedthe state's "institutional responsibility" for the specified human rights violations, said it wouldundertake to comply with the IACHR's recommendations, and that it would pursue the friendlysettlement of these and other cases. Nonetheless, MINUGUA qualified its praise with theobservation that "these significant initiatives have not had any substantive impact on the overallenjoyment of human rights in the population's daily life." (17) Upon taking office in January 2004, President Berger said he would adhere strictly to the Peace Accords and appointed several people who have played important roles in negotiating or promotingthe Accords. His Vice-President, Eduardo Stein, was the government's lead negotiator in 1996. Histop advisor on security policy is retired General Otto Perez, who signed the Peace Accords on behalfof the army. Berger appointed indigenous leader Rigoberta Menchu, winner of the 1992 NobelPeace Prize, as a "goodwill ambassador to the accords" to help oversee their implementation. Current Human Rights Conditions The United Nations Verification Mission in Guatemala, the OAS Inter-American Commission on Human Rights, and the U.S. Department of State all have expressed concern that governmentactions have not matched its repeated pledges, and that the government of Guatemala has taken onlylimited steps to improve respect for human rights within the country. Human rights conditionsimproved for the first year and a half following the signing of the Peace Accords, but several humanrights organizations have reported a worsening of conditions since then. An evaluation of the overall human rights situation in Guatemala must take account of the end of the internal armed conflict and the end of institutionalpolicies that violate human rights, which have brought a qualitative and quantitative improvement. However, it should also be borne in mind that there has been a significant polarization in the internalpolitical debate under the [Portillo] Government and at the same time there have been isolated,specific cases of limited duration of constitutional rights being suspended, although they did notresult in any irreversible deterioration in the enjoyment of civil rights....[T]he steady progression ofsignificant improvements in the human rights situation from [1994] until mid-1998 has given wayto stagnation and signs of deterioration... (18) In their discussion of worsening human rights conditions, human rights groups have pointed out several areas of concern: (19) Failure To Adhere To Implementation Timetable. According to the timetable originally agreed upon to implement the Peace Accords, manygovernment actions were to have taken place by 2000. These pending commitments wererescheduled to occur between 2001 and 2004. The Consultative Group for Guatemala, whichcomprises foreign donor countries and international institutions that have supported Guatemala'speace process, called on the Portillo Administration to reinvigorate the peace process in February2002. A year later, however, the U.N. characterized implementation of the accords as"disappointing" in a report to the Consultative Group, noting that advances made were modest incomparison to the "vast backlog" in the accords' implementation, and that the "very breadth andcomplexity of the peace commitments demands high levels of political will and managementcapacity" on the part of the government. Demilitarization and the Strengthening of Civilian Power. Some progress in demilitarizing the country and strengthening civilianpower has been made, such as disbanding the Estado Mayor Presidencial, or Presidential Guard unit,known for its human rights abuses, and closing outdated military installations. Failure todemilitarize the state remains a serious problem, however. MINUGUA reported in 2003 thatthen-President Portillo violated the spirit of the Peace Accords, which call for demilitarization of thepolice, by expanding the role of the army in law enforcement functions and other areas ofgovernment, rather than separating the functions of the army and of the National Civil Police. TheNational Civilian Police Academy's budget was reduced, further weakening the force. Excesses in the military budget and the lack of budget transparency are reported as persistent problems. Under the accords, funds were to be directed away from the military and into theunderfunded health, education and police sectors. The government met the target for reduction ofthe military budget in 1997 and 1998, but beginning in 1999, the military budget began to exceedthe ceiling of 0.66 % of GDP set by the Peace Accords. In 2001, the Portillo Administration carriedout extraordinary supplemental transfers to the Defense Ministry, raising the budget to 0.94% ofGDP, and increasing the allocation originally approved by the Guatemalan Congress by 85%. In2002, two supplemental transfers again increased the army's budget above the targets establishedin the Peace Accords. MINUGUA warned that this increased military spending was siphoning fundsthat should be used for social spending. In the 1994 Human Rights Agreement, the government committed to ensuring that there are no illegal security forces or clandestine security apparati. President Portillo promised to dismantle thesestructures, which interfere with the administration of justice, within six months of taking office, butfailed to do so by the end of his term. He cooperated in mid-2003, however, with the U.N. informing a commission to investigate these parallel, clandestine structures. Although the PortilloAdministration complied with another part of the accords by presenting a new defense policy,important elements of it have not yet been implemented. For example, no tangible progress has beenmade in creating a civilian intelligence system to regulate or supervise intelligence agencies. Other observers expressed concern about the renewed prominence of retired General Efrain Rios Montt as a reflection of the ongoing difficulty in asserting civilian power over the military andin addressing military impunity for past human rights violations. (See discussion of Rios Montt in"November 2003 Elections" above.) Rios Montt exerted considerable influence in gaining the rightto run for President but was soundly defeated in the 2003 elections. President Berger has avoidedsaying whether he will allow legal proceedings for crimes against humanity to proceed against RiosMontt. Two of the people appointed to his administration, Frank LaRue as head of the PresidentialHuman Rights Commission, and Rigoberta Menchu, have sought prosecution of Rios Montt. Continued Impunity for Human Rights Violations. MINUGUA has identified impunity, or failure to prosecute abusers,as the main obstacle to the effective enjoyment of human rights since it began reporting in 1994, and,in its report issued in January 2002, "notes with profound concern that it is an entrenchedphenomenon." The main factors said to contribute to this continued impunity are an ineffectiveadministration of justice, and failure of the government to investigate and punish human rightsoffenders. Although the government attained convictions in a few important human rights cases,most human rights cases were not investigated for long periods of time, or experienced lengthydelays in the ineffective judicial process. High level officials have allegedly covered up or obstructedefforts to investigate human rights violations. Advances made in addressing impunity were oftenreversed. For example, three military officers were convicted in 2001 of the murder of Bishop JuanJose Gerardi, who headed the Archbishop's Human Rights Office, and was murdered in 1998, twodays after the Church's critical Recuperation of the Historical Memory report on past human rightsviolations was issued. Their 30-year, noncommutable sentences were annulled, however, and aretrial ordered, by an Appeals Court in 2002. The judicial process used to reach that decision waschallenged, and the Supreme Court ruled in 2003 that the Appeals Court must re-examine theappeals. Continued Gross Violations of Human Rights by Security Forces. Guatemalan security forces continued to commit serious human rightsviolations in 2002, including extrajudicial killings and torture, according to the State Departmenthuman rights report for that year. From 2001 to 2002, there was a reported increase in attemptedlynchings, some with the participation of local leaders, former Civil Defense Patrol members, or, atan increased rate, municipal officials. The number of deaths from lynchings decreased, accordingto the State Department, due to the improved efforts of the police to intervene. Continued Existence of Clandestine Security Units. Both the IACHR and MINUGUA express concern over consistent reportsthat clandestine and illegal security units and structures continue to exist and have participated inacts of intimidation and lynchings. A United Nations team began helping Guatemala create aCommission of Investigation into Illegal Groups and Clandestine Security Apparatuses (CICIACS)in July 2003. The commission has been endorsed by the government, the human rights ombudsman,and civil society groups in Guatemala. Under an agreement signed in January 2004, the U.N. willappoint the commission, which will investigate, arrest, and prosecute people linked to illegal andclandestine security organizations and suspected of human rights violations. (20) Climate of Intimidation. Various human rights observers have reported an increased climate of intimidation over the past two years. Human rightsactivists have been threatened and attacked. Although many of the threats have been against humanrights activists, judicial officials, trial witnesses, journalists, and labor organizers have also beentargets of intimidation. According to the State Department, parallel investigations, the obstructionof justice, threats and intimidation were traced to groups related to the Guatemalan government. Revival of Civilian Defense Patrols. According to the Guatemalan Truth Commission, the Civilian Defense Patrols (PACs) were responsible formany human rights violations during the civil conflict. According to the Inter-American Commissionon Human Rights, the reorganization of these groups has become a "new cause for insecurity andinstability in rural areas and is seriously threatening the Peace Accords, the reconciliation process,and the rule of law." The Portillo administration decided to provide compensation to former PACmembers in 2002, in what many saw as an effort to garner votes. Guatemala's highest court ruledin December 2003 that the payments, authorized by presidential decree, were unconstitutional. Portillo agreed to pay 455,000 ex-combatants about $660 each in three installments. The firstpayment was made, but the court's decision blocks disbursement of the other two paymentsscheduled for 2004. Inequitable Distribution of Wealth and Social Spending. (21) Distribution of incomeand wealth remains highly skewed inGuatemala. According to a recent World Bank report, Guatemala ranks among the more unequalcountries of the world, with the top fifth of the population accounting for 54% of total consumption. Indigenous people constitute close to half the population, but account for less than one-fourth oftotal income and consumption. The Peace Accords call for investment of the national budget intoeducation, health and other social sectors in order to create more equitable distribution of wealth,reduce poverty and improve socioeconomic conditions. Estimates of the portion of Guatemala'spopulation living in poverty vary: the U.S. State Department reports that 80% of Guatemalans livein poverty, with two-thirds of that number living in extreme poverty. The World Bank reports that54% of the population lives in poverty, with indications that poverty has increased slightly in2001-2002. (22) Poverty is highest in rural areas andamong the indigenous: 75% of all people livingin the countryside live in poverty, 25% in extreme poverty, according to the World Bank. Social indicators such as infant mortality and illiteracy are among the worst in the hemisphere; malnutrition rates are among the worst in the world. MINUGUA reported in 2003 that there wereslight improvements for social programs in the national budget over the previous year, but that theamounts allocated to key social ministries "remained extremely low in relation to the needs of thecountry." Respect for Indigenous Rights. The indigenous Mayans, who represent at least half of Guatemala's population, are economically and sociallymarginalized and subject to significant ethnic discrimination. Poverty is significantly higher amongindigenous people, 76% of whom are poor, in contrast to 41% of non-indigenous people. Throughout the Peace Accords, there are provisions seeking to reverse the historical exclusion ofindigenous people, and of women. In signing them, the government agreed to implement a moreinclusive development strategy; reduce poverty; improve living conditions of the poor; and increaseaccess to education, health, and other social services. The Portillo Administration outlined a povertyreduction strategy in 2002 addressing most of those issues. Implementation of the elements of the Peace Accords relating to improving respect for the identity and rights of indigenous people are far behind schedule, however. Access to education,according to the Inter-American Commission on Human Rights, is "still far from becoming areality." The average level of schooling among the poor is less than two years; schooling is lowestamong women, indigenous people, and the rural poor. The indigenous and women continue to facelimited opportunities and discrimination in the labor market. According to the World Bank'sPoverty Assessment, "The indigenous appear limited to lower-paying jobs, primarily in agriculture,"which, the report says, is"unlikely to serve as a major vehicle for poverty reduction." Other obstacleshindering social and economic advancement among the indigenous poor, which the report says thegovernment still must address, are: higher malnutrition rates, less coverage by basic utility services,wage discrimination, and discriminatory treatment by public officials and other service providers. Relations With the United States U.S. policy objectives in Guatemala include strengthening democratic institutions andimplementation of the Peace Accords; encouraging respect for human rights and the rule of law;supporting broad-based economic growth, sustainable development, and mutually beneficial traderelations; combating drug trafficking; and supporting Central American integration throughresolution of territorial disputes. Relations between Guatemala and the United States havetraditionally been close, but strained at times by human rights and civil-military issues. The BushAdministration repeatedly expressed concerns over the failure of the Portillo Administration toimplement the Peace Accords, a perceived high level of government corruption, and lack ofcooperation in counter-narcotics efforts. (23) Arriving for the new President's inauguration, FloridaGovernor Jeb Bush remarked, " ... we have confidence that we will work very closely with theadministration of Oscar Berger to forge a better future for the people of the United States andGuatemala." U.S. Assistance From 1997 through 2003, U.S. assistance to Guatemala centered on support of the Peace Accords, providing almost $400 million to support their implementation. There is no longer aproject in direct support of the Implementation of the Peace Accords as of FY2004. Some activities,such as the development of justice centers, and efforts to support increased transparency ofGuatemalan government institutions, and to reduce corruption, will continue in USAID'sDemocracy, Conflict and Humanitarian assistance programs. U.S. assistance to Guatemala hasdeclined by over a third in the past three years, from almost $60 million in FY2002, to $38 millionrequested for FY2005. The request for FY2005 includes $9.7 million in Child Survival and HealthPrograms funds; $6.6 million in development assistance, $4 million in Economic Support funds, and$17.6 million in P.L. 480 Title II food assistance programs. In the conference report for the FY2004 omnibus appropriations bill ( H.Rept. 108-401 ), Congress criticized the Administration's strategy of reducing staffing and funding for Guatemala forFY2004, saying it would "limit the ability of the United States to be responsive at this criticaljuncture in Guatemala's history." (See "Legislation in the 108th Congress" below.) In recent yearsCongress has asked federal agencies to expedite the declassification and release of informationrelated to the murder of U.S. citizens in Guatemala. USAID's regional Central America Program, which provides from $20-$30 million per year, is based in Guatemala. This program works in conjunction with other U.S. embassies and USAIDmissions in the area to support four main goals: promotion of free trade; expansion of CentralAmerican natural resources management and conservation; advancement of regional HIV/AIDSservices and information; and rural diversification to enhance incomes. U.S. Prohibition on Military Assistance to Guatemala From the inauguration of a democratically-elected government in 1986 to 1990, Congress placed conditions related to democratization and improved respect for human rights on militaryassistance to Guatemala, and prohibited the purchase of weapons with U.S. funds. In 1990, theGeorge H. Bush Administration suspended military aid because of concerns over human rightsabuses allegedly committed by Guatemalan security forces, especially the murder of a U.S. citizen. Congress has continued to prohibit foreign military financing to Guatemala since then, although ithas allowed International Military Education and Training (IMET) assistance. Currently, Congressallows Guatemala only expanded IMET, which is training for civilian personnel in defense matters,and requires notification to the Appropriations Committees prior to allotment. The Berger Administration has lobbied Washington to ease the military aid prohibition, noting that within its first six months in office it had reduced the size of the military by half and developedproposals for other military reforms. The government says it needs funds to modernize the militaryand provide equipment for border protection and counternarcotics efforts. While applauding thereduction in forces, some human rights groups say that other reforms required by the Peace Accords,such as adopting a military doctrine limiting the military to external defense, have not yet beenenacted. They also express concern about continued human rights abuses, impunity for suchoffenses, and corruption among current and former military officials. Furthermore, the proposedU.N. Commission for the Investigation of Illegal Armed Groups and Clandestine SecurityOrganizations (CICIACS) has still not been formed. CICIACS, which would investigate andprosecute clandestine groups, through which many military officers allegedly engage in human rightsviolations, drug trafficking, and organized crime, was approved by the Portillo Administration, andhas yet to be approved by the Guatemalan Congress. Some human rights groups argue that the U.S.ban on military aid should not be lifted until these and other reforms are carried out, and others notuntil reparations are made to civilian victims of the armed conflict. (24) U.S. Trade and Investment Guatemala and the United States signed a framework agreement on trade and investment in 1991, through which they established a bilateral Trade and Investment Council. The signing of theGuatemalan Peace Accords in 1996 removed a major obstacle to foreign investment there.Guatemala was certified to receive export trade benefits in 2000 under the Caribbean Basin Tradeand Partnership Act ( P.L.106-200 , Title II), which gives preferential tariff treatment, and alsobenefits from access to the U.S. Generalized System of Preferences. The United States isGuatemala's top trade partner. Guatemala's primary exports are coffee, sugar, bananas, fruits andvegetables, cardamom, meat, apparel, petroleum, and electricity; 55.3% of Guatemalan exports goto the United States. Primary import commodities are fuels, machinery and transport equipment,construction materials, grain, fertilizers, and electricity; 32.8% of Guatemalan imports are from theUnited States. (25) The U.S. trade deficit withGuatemala was $758 million in 2002, with U.S. exportsto Guatemala at $2.0 billion, and U.S. imports from Guatemala at $2.8 billion. Guatemala is the 40thlargest export market for U.S. goods. U.S. foreign direct investment in Guatemala was $907 million in 2000 and dropped by almost half, to $477 million, in 2001; it is concentrated in the manufacturing and finance sectors. (26) President Berger has made attracting domestic and foreign investment, which his administrationbelieves will revive the economy and create jobs, a priority. The Central America Free Trade Agreement with the United States The Guatemalan government supports a Dominican Republic and Central America Free Trade Agreement (DR-CAFTA) with the United States as a further step toward economic revival andeconomic integration with its neighbors. It established a free trade area with El Salvador, Honduras,and Nicaragua in 1993, to which the Dominican Republic was later added. Negotiations to add Chileto the group are underway. Along with El Salvador and Honduras, Guatemala implemented a freetrade agreement with Mexico in 2001. Guatemala signed a customs agreement with El Salvador inMarch 2004 as part of a strategy to improve trade within the region. Some supporters of DR-CAFTA argue that the agreement will help farmers, especially those who grow non-traditional crops not grown in the United States. They also argue that it will helpslow migration to the United States of Central American farm laborers seeking work. Even theCentral American governments expressed fear, however, that small subsistence farmers will beunable to compete against subsidized, and therefore lower-priced, U.S. commodities. They wantedto negotiate the elimination of U.S. farm subsidies as part of CAFTA talks but acquiesced to the U.S.position that the issue should be addressed in the World Trade Organization. Others express concernthat if small farms producing basic foods fail due to competition from U.S. imports, already highmalnutrition and unemployment rates will rise even further. (27) They argue that staple crops such ascorn, rice, and beans should therefore be excluded from trade agreements. The Central Americangovernments agreed to include all of these staple food crops in the concluded agreement, however. The agreement establishes quotas on sensitive agricultural commodities imported from the U.S. thatwill increase over time; by the year 2020, most quotas and tariffs will be eliminated. White corn,however, will receive some protection in perpetuity. Although a quota on U.S. white corn importswill increase annually, the high tariffs on white corn imports above the quota level will remain inplace indefinitely. Some U.S. industries have also criticized the trade agreement. U.S. sugar growers argue that including sugar in DR-CAFTA will harm the domestic industry and say that they will work to defeatDR-CAFTA. (28) Guatemala wanted the quota forsugar to be expanded under CAFTA. As concluded,the agreement establishes an additional quota of 32,000 metric tons for Guatemala -- one-third ofthe additional access granted to the five Central American countries -- for sugar exported to theUnited States. Because certain benefits for the textile industry in Guatemala would becomepermanent under DR-CAFTA, some U.S. producers have objected to it, saying it will harm theirbusinesses. Supporters of DR-CAFTA say it will generate new jobs. Some Members of Congress have expressed concern, however, that labor rights are inadequately protected by the agreement. Legally,Guatemalans' right to freedom of association and to form and join trade unions are protected by theConstitution and the Labor Code. Practically, however, those rights are inadequately protected bythe government, according to the State Department's 2003 Human Rights report. Critics argue thatthe labor provisions under DR-CAFTA are less stringent than those currently in place under U.S.preferential trade arrangements. Under DR-CAFTA, argue critics such as the AFL-CIO,governments would only be required to enforce their existing, flawed laws, but not to reform lawsto meet international labor standards. Advocates of DR-CAFTA argue that accompanying technicalcooperation programs will help improve the enforcement of labor laws in the region. Whileacknowledging the importance of such technical assistance, the AFL-CIO maintains that it isinsufficient to "change deep-seated indifference and hostility towards workers' rights." In response to such criticism, Central American labor and trade ministers met in Washington in July 2004, to reaffirm their countries' commitment to strengthening labor rights. The ministersannounced the formation of a working group that will develop specific recommendations for eachcountry and the region to take to strengthen compliance with labor laws. The group, to be led bythe Vice Ministers, will also identify areas in need of reform, and consult with employer and laborgroups in the process. Stating that the "labor dimension is critical to passing CAFTA," GuatemalanTrade Minister Marcio Cuevas said, "we are fully committed to taking the actions now that arenecessary to strengthen our record of compliance and enforcement." (29) The ministers said they willmeet again in October to discuss implementation of the recommendations. The U.S. government, international organizations, and independent watchdog organizations have criticized Guatemala for extensive corruption, which allegedly increased under the PortilloAdministration. (30) The Bush Administration calledcorruption "the number-one obstacle to increasingthe effectiveness of all USG[ovt.] programs in Guatemala." A recent World Bank report listedGuatemala as one of nine countries that regulate businesses the most heavily. The report concludedthat those countries also had the weakest systems for enforcing the laws and were thereforesusceptible to bribery and corruption as well. (31) Transparency International said Guatemala wasperceived as the 33rd most corrupt country out of 133 countries in 2003. According to U.S.government reports, "corruption is a serious problem that companies may encounter at nearly anylevel," in Guatemala, and that has tended to be most pervasive in customs transactions. Asemi-autonomous Superintendency of Tax Administration was established in 1999 to improvecustoms operations, but apparently corruption has increased instead. In 2001, Guatemala ratified theInter-American Convention against Corruption. President Berger has made improving governanceand attacking corruption priorities. His administration introduced a code of ethics for cabinetmembers and is actively investigating corruption under the previous government. (For a more detailed discussion, see the section on Guatemala in CRS Report RL32322 , Central America and the Dominican Republic in the Context of the Free Trade Agreement (DR-CAFTA) withthe United States , [author name scrubbed], Coordinator.) Narcotics Guatemala is a major drug-transit country for both cocaine and heroin en route from South America to the United States and Europe. According to the State Department's 2003 InternationalNarcotics Control Strategy Report, up to half of all cocaine on its way to Mexico and the UnitedStates passes through Guatemala, the preferred country in Central America for the storage andconsolidation of northward bound cocaine. In its March 2004 report, the Bush Administrationreported that "In spite of improvements in the Government of Guatemala's counternarcotics effortsin 2003, large shipments of cocaine continue to move through Guatemala by air, road, and sea." InJanuary 2003, President Bush designated Guatemala as one of three countries in the world that"failed demonstrably" during the previous year to fulfill its international counter narcoticsobligations. He granted a national interest waiver to allow continued U.S. assistance to be providedto Guatemala, however. Eight months later, in September 2003, the President determined that Guatemala had made efforts to improve its counter narcotics practices and did not include it in the "failed demonstrably"list. Among the steps taken were passage by the Guatemalan Congress in August 2003 of a measureallowing U.S. security forces to enter Guatemalan airspace and waters during joint counter narcoticsoperations or when in pursuit of suspected drug traffickers. The Financial Action Task Force, aninternational organization dedicated to enhancing international cooperation in combatingmoney-laundering, removed Guatemala from its list of non-cooperative countries in July 2004. (32) Guatemala had been on the list of nine countries -- the only one in the Americas -- during thePortillo Administration. (33) The Task Forcewelcomed progress made by Guatemala in enacting andimplementing anti-money laundering legislation. Guatemala has a growing domestic drug abuse problem. According to the State Department, the Guatemalan government has an aggressive demand reduction program. Legislation in the 108th Congress P.L. 108-7 ( H.J.Res. 2 ) The Consolidated Appropriations Resolution for FY2003. In the Foreign OperationsAppropriations act (Division E), Title III restricts military education and training for Guatemala toexpanded international military education and training (IMET), meaning for civilian personnel only. Training funds for Guatemala may only be provided through regular notification procedures of theCommittees on Appropriations. Prohibits Foreign Military Financing for Guatemala. Title IV,Sec.586 suggests that information relevant to the murders of Sister Barbara Ann Ford and otherAmerican citizens in Guatemala since December 1999 should be investigated and made public. Itgives the president a deadline of 45 days after the bill's enactment to order all federal agencies anddepartments to "expeditiously declassify and release to the victims' families" such information, anddirects all federal agencies and departments to use the discretion contained within existingprocedures on classification in support of releasing, rather than withholding, such information. Signed into law February 20, 2003. P.L. 108-199 ( H.R. 2673 ) Foreign Operations Appropriations Act for FY2004 ( H.R. 2800 / S. 1426 ), incorporated into omnibus appropriations act. Prohibits Foreign Military Financing forGuatemala. Restricts military education and training for Guatemala to expanded internationalmilitary education and training (IMET), meaning for civilian personnel only. Training funds forGuatemala may only be provided through regular notification procedures of the Committees onAppropriations. Prohibits reducing the number of USAID foreign service employees at each missionin Latin America except as provided through notification to the Committees on Appropriations. Regarding USAID operations in Guatemala, the conference report ( H.Rept. 108-401 ) states thatMembers do not believe the strategy of substantial staffing reduction in Guatemala (and Hondurasand Nicaragua) reflects the priorities of U.S. economic, trade, humanitarian, and immigrationpolicies with these countries. The report states further that "Guatemala specifically is struggling ina state of post-conflict polarization, and with the new January 2004 government, the managersstrongly believe that reducing assistance and staffing would limit the ability of the United States tobe responsive at this critical juncture in Guatemala's history." Noting the success of a nutritional drink in reducing malnutrition among Guatemalan pre-schoolchildren, the report "encourages USAID to determine the feasibility of establishing a long-term childnutrition program targeted toward reducing severe malnutrition rates among Central Americanchildren." The conference report also notes that (1) the conference agreement does not include theSenate's earmark of $250,000 in Economic Support Funds to support the Commission to InvestigateIllegal Groups and Clandestine Security Apparatus in Guatemala, but Congress strongly supports thiseffort "to investigate those responsible for the political violence and organized criminal activity thatcontinues to hamper Guatemala's development and recommends that at least $250,000 be providedto the Commission" in FY2004; (2) the conference agreement does not include the Senate sectionthat would have directed all federal agencies and departments to use the discretion contained withinexisting procedures on classification in support of releasing, rather than withholding, informationon the murders of Sister Barbara Ann Ford and other American citizens in Guatemala sinceDecember 1999. But Congress notes that in April 2003 the U.S. Attorney General ordered heads ofU.S. agencies to set forth a written plan for the review of any relevant information they had regardingthose cases for possible release to the victims' families and directs the Attorney General to provideto the Committees on Appropriations, within 60 days of the bill's enactment, copies of the writtenplans and descriptions of the progress made in implementing them; (3) the conference agreementdoes not include the Senate section requiring the Administration to report on the status of its strategyto address the international coffee crisis, but Congress notes its concern about the report's delay andthat it expects it to be released in the near future. Conference agreement for omnibus vehicleapproved by House December 8, 2003, by Senate January 22, 2004. Signed into law January 23,2004. H.R. 1300 (Davis) The Central American Security Act would amend the Nicaraguan Adjustment and CentralAmerican Relief Act to extend permanent resident status adjustment provisions to qualifyingSalvadoran, Guatemalan, and Honduran nationals and revise the application filing deadline. Introduced March 17, 2003, referred to the House Subcommittee on Immigration, Border Security,and Claims May 5. H.R. 2534 (Lantos) The Human Rights Information Act would promote human rights, democracy, and the rule oflaw by providing a process for executive agencies for declassifying on an expedited basis anddisclosing certain documents relating to human rights abuses in countries other than the UnitedStates. Requires each federal agency to identify, review, and organize all human rights recordsregarding activities occurring in Guatemala and Honduras for declassification and public disclosure. Introduced June 19, 2003, Referred to the Subcommittee on Technology, Information Policy,Intergovernmental Relations and the Census July 2. S.Res. 289 (Dorgan) Would express the sense of the Senate that the President should renegotiate CAFTA provisionsrelating to access to the U.S. sugar market so that the Central American signatories would have nogreater access than they currently have and that sugar should not be included in any bilateral orregional free trade agreement. Introduced and referred to Senate Committee on Finance January 23,2004.

Since the 1980s, Guatemala has been consolidating its transition from a centuries-long tradition of mostly autocratic rule toward representative government. A democratic constitution was adoptedin 1985, and a democratically-elected government was inaugurated in 1986. Democratic institutionsremain fragile. A 36-year civil war ended in 1996 with the signing of the Peace Accords betweenthe government and the left-wing guerrilla movement. The accords not only ended the civil conflict,but constituted a blueprint for profound political, economic, and social change to address theconflict's root causes. They outline a profound restructuring of state institutions, with the goals ofending government security forces' impunity from prosecution, consolidating the rule of law;shifting government funding away from the military and into health, education, and other basicservices to reach the rural and indigenous poor; and the full participation of the indigenouspopulation in local and national decision making processes. From1997-2003, U.S. assistance toGuatemala focused on support of the peace process. Aid has declined from about $60 million inFY2002 to $38 million requested for FY2005. In the conference report for the FY2004 omnibusappropriations bill ( H.Rept. 108-401 ), Congress criticized the Administration's strategy of reducingstaffing and funding for Guatemala. Current conditions on aid are in P.L. 108-199 ; proposedlegislation related to Guatemala includes H.R. 1300 ; H.R. 2534 ; and S.Res. 289 . Former Guatemala City mayor Oscar Berger of the center-right coalition Great National Alliance was elected president with 54% of the vote and inaugurated on January 14, 2004, for afour-year term. Since taking office, he has pursued corruption charges against his predecessor,Alfonso Portillo, of the Guatemalan Republican Front (FRG), and other former FRG officials. Berger has also proposed military reforms including cutting troops by a third, slashing defensespending, and modernizing defense policy. His proposed economic reforms include new income taxrates and a temporary tax to fund programs related to the peace process. Despite his decisive loss in the first round presidential elections, retired General Efrain Rios Montt remains a divisive force. Berger's top defense official, General Otto Perez, resigned in Mayto protest negotiations between Berger officials and the FRG, of which Rios Montt is still leader. Rios Montt was military dictator from 1982-1983, while the army carried out a counter-insurgencycampaign resulting in what is now characterized as genocide of the Mayan population. Regarding respect for human rights, Guatemala has made enormous strides, but significant problems remain. The armed conflict is definitively ended, and the state policy of human rightsabuses has been ended. On the other hand, strengthening of civilian power over military forces isslow, and security forces reportedly continue to commit gross violations of human rights withimpunity. The U.N., the OAS, and the United States have all expressed concern that human rightsviolations have increased over the past several years, and that past Guatemalan governments havetaken insufficient steps to curb them or to implement the Peace Accords. This report may be updatedas events warrant.

Introduction The extent to which residents of the United States who are not U.S. citizens should be eligible for federally funded public aid has been a contentious issue since the 1990s. This issue meets at the intersection of two major policy areas: immigration policy and welfare policy. Over the past 20 years, Congress has enacted significant changes in both areas. Congress has also exercised oversight of revisions made by the 1996 welfare reform law (the Personal Responsibility and Work Opportunity Reconciliation Act, P.L. 104-193 ) concerning the rules governing noncitizen eligibility for public assistance, and of legislation covering programs with major restrictions on noncitizen eligibility (e.g., Medicaid). This report covers noncitizen eligibility in the four major federal means-tested benefit programs: the Supplemental Nutrition Assistance Program (SNAP, formerly food stamps), the Supplemental Security Income (SSI) program, Temporary Assistance for Needy Families (TANF) cash assistance, and Medicaid. It is organized into three main parts: an overview of existing eligibility law for the four programs and the policies that preceded the 1996 act; an overview of related immigrant policies affecting eligibility (specifically, the treatment of sponsored aliens); and a summary of the eligibility rules for aliens residing in the United States illegally. Appendices elaborate on the specifics of current eligibility rules for the four major programs. Among other things, Title IV of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA, P.L. 104-193 ) established comprehensive restrictions on the eligibility of noncitizens for means-tested public assistance—with significant exceptions for those with a substantial U.S. work history or military connection. For legal permanent residents (LPRs) who were resident as of enactment of the law (August 22, 1996), the act generally had barred eligibility (SNAP and SSI) or had allowed it at state option (Medicaid and TANF). For SNAP and SSI benefits, LPRs entering after August 22, 1996 (new entrants) also had been denied eligibility. Refugees and asylees, however, were allowed eligibility the first five years after entry/grant of status, then became ineligible after five years (unless they became citizens or qualified under another status). Nonimmigrants and unauthorized aliens were barred from almost all federal programs. Current Eligibility Policy Under current law, lawful permanent residents' eligibility for the major federal means-tested benefit programs depends on their immigration status; whether they arrived (or were on a program's rolls) before August 22, 1996 (the enactment date of P.L. 104-193 ); their work history and military connection; their length of legal residence; and how states have exercised their options to allow program participation by noncitizens. Following significant changes made by the 1997, 1998, and 2002 amendments, the basic rules are as follows: Refugees and asylees are eligible for food stamps/SNAP. Refugees and asylees are eligible for SSI benefits and Medicaid for seven years after arrival and are eligible for TANF for five years. After this term, they generally are ineligible for SSI, but may be eligible, at state option, for Medicaid and TANF. LPRs with a substantial work history—generally 10 years (40 quarters) of work documented by Social Security or other employment records—or a military connection (active duty military personnel, veterans, and their families) are eligible for the full range of programs. LPRs are not eligible for SSI during the first five years even if they had 40 credits of earnings (e.g., as a temporary worker prior to receiving LPR status). LPRs receiving SSI as of August 22, 1996, continue to be eligible for SSI. Noncitizen SSI recipients are eligible for (and required to be covered under) Medicaid. Disabled LPRs who were legal residents as of August 22, 1996, are eligible for SSI. Disabled LPRs are eligible for SNAP. LPRs who were elderly (65+) and legal residents as of August 22, 1996, are eligible for SNAP. LPRs who have been legal residents for five years or are children (under 18) are eligible for SNAP. LPRs entering after August 22, 1996, are barred from TANF and Medicaid for five years, after which their coverage becomes a state option. States have the option to cover LPRs who are children or who are pregnant during the first five years. Nonimmigrants and unauthorized aliens are ineligible for SNAP, SSI, and TANF. They are also ineligible for Medicaid with the exception of Medicaid for emergency conditions. States have the option to cover nonimmigrant and unauthorized aliens who are pregnant or who are children, and can meet the definition of "lawfully residing" in the United States. Appendix A lays out these rules in more detail, including special rules that apply to several limited noncitizen categories: certain "cross-border" American Indians, Hmong/Highland Laotians, parolees and conditional entrants, and cases of abuse. Citizens of the Freely Associated States Citizens of the Freely Associated States (FAS, which are the Marshall Islands, Micronesia, and Palau) are afforded certain immigration-related benefits that enable them to travel freely to and from the United States in a legal status akin to nonimmigrants. Citizens of the FAS who come from the Republic of the Marshall Islands (RMI) and the Federated States of Micronesia (FSM) are permitted to live, study, and work in the United States in accordance with the Compact of Free Association Amendments Act of 2003 (Compact, P.L. 108-188 ). FAS citizens are not considered LPRs under the Immigration and Nationality Act (INA), but they are permitted to acquire LPR status if otherwise eligible. While in the United States, FAS citizens from the RMI and FSM are able to document their legal status with their RMI or FSM passports and the I-94 arrival/departure card issued to them when they enter the United States. FAS citizens from the Republic of Palau do not benefit from the immigration provisions in the Compact that permit those from the RMI or FSM to seek employment, go to school, or establish a residence. Citizens of the Republic of Palau only need to present an appropriate travel document, such as a valid passport or a certified birth certificate, to enter the United States. Under current law, FAS citizens are not eligible for federal public benefits (except emergency services and programs expressly listed, such as Medicaid for emergency medical care or Federal Emergency Management Agency disaster services). Prior to 1996, FAS citizens residing in the United States were able to obtain federal assistance because they were considered "permanently residing under color of law" (PRUCOL), which is an eligibility standard that is not defined in statute. Historically, PRUCOL has been used to provide a benefit to certain foreign nationals who the government knows are present in the United States, but whom it has no plans to deport or remove. When Title IV of P.L. 104-193 established comprehensive limitations and requirements on the eligibility of all noncitizens for means-tested public assistance, it effectively ended access to federal benefits for foreign nationals who had been considered PRUCOL. As a consequence, citizens of the FAS residing in the United States are barred from receiving most federal public benefits. Related Immigrant Policies Affecting Eligibility Deeming Rules For many years, LPRs have been considered (deemed) to have a portion of their immigration sponsors' income and resources available to them for the purpose of determining whether the LPR meets the financial eligibility requirement of the means-tested benefit program. The current "deeming rules" (primarily set out in the 1996 welfare reform act) are designed to make it more difficult for sponsored aliens to meet financial tests for benefits—even if they pass the "categorical" eligibility test by being in an eligible class of noncitizen. In other words, the sponsor's and LPR's income and resources combined are used to determine whether the LPR meets the financial eligibility threshold for participation in the program, decreasing the likelihood that the LPR will qualify for the benefit. Deeming rules apply to aliens who enter after December 19, 1997, and who apply for TANF, Medicaid, SSI, or SNAP. Under these rules, all of the income and resources of a sponsor (and a sponsor's spouse) may be deemed available to the sponsored applicant for assistance until the noncitizen becomes naturalized or has 40 quarters of Social Security covered earnings. Previous law contained specific deeming requirements only for SSI, food stamps, and AFDC (TANF's predecessor); only a portion of a sponsor's income and resources was deemed to the sponsored applicant; and deeming lasted for three years after entry (with a brief five-year rule for SSI). Since it is Section 213A of the Immigration and Nationality Act (INA) that makes the affidavits of support legally binding, some policymakers use "213A" as shorthand to identify who is covered by the deeming rules. Systematic Alien Verification for Entitlements (SAVE) system The Illegal Immigration Reform and Immigrant Responsibility Act of 1996 (IIRIRA, Division C of P.L. 104-208 ) altered the obligations of persons who sponsor LPRs in the United States. When IIRIRA made an affidavit of support a legally binding contract, it also directed the Attorney General (now the Secretary of Homeland Security) to include "appropriate information" regarding affidavits of support in the Systematic Alien Verification for Entitlements (SAVE) system. While Congress did not specify exactly what information was to be included in the SAVE system, it did require the Attorney General to establish an automated record of the sponsors' social security numbers. The SAVE system enables federal, state, and local governmental agencies to obtain immigration status information to determine eligibility for public benefits. The goal of the system is to aid eligibility workers in determining an applicant's immigration status to ensure that only entitled applicants receive public benefits. Federal and State Benefit Eligibility Standards for Unauthorized Aliens Federal Benefits25 Unauthorized aliens (often referred to as illegal aliens) are not eligible for most federal benefits, regardless of whether they are means tested. The class of benefits denied is broad. The scope of the bar on unauthorized aliens hinges on how broadly the clause "federal public benefit" is implemented. The law defines this clause to be (A) any grant, contract, loan, professional license, or commercial license provided by an agency of the United States or by appropriated funds of the United States; and (B) any retirement, welfare, health, disability, public or assisted housing, postsecondary education, food assistance, unemployment benefit, or any other similar benefit for which payments or assistance are provided to an individual, household, or family eligibility unit by an agency of the United States or by appropriated funds of the United States. So defined, this bar covers many programs whose enabling statutes do not individually make citizenship or immigration status a criterion for participation. Thus, unauthorized aliens are statutorily barred from receiving benefits that previously were not individually restricted—Social Services Block Grants, and migrant health centers, for example—unless they fall within the 1996 welfare act's limited exceptions. These statutory exceptions include the following: treatment under Medicaid for emergency medical conditions (other than those related to an organ transplant); short-term, in-kind emergency disaster relief; immunizations against immunizable diseases and testing for and treatment of symptoms of communicable diseases; services or assistance (such as soup kitchens, crisis counseling and intervention, and short-term shelters) designated by the Attorney General as (i) delivering in-kind services at the community level, (ii) providing assistance without individual determinations of each recipient's needs, and (iii) being necessary for the protection of life and safety; and to the extent that an alien was receiving assistance on the date of enactment, programs administered by the Secretary of Housing and Urban Development, programs under title V of the Housing Act of 1949, and assistance under Section 306C of the Consolidated Farm and Rural Development Act. PRWORA sought further to prevent unauthorized aliens from receiving the Earned Income Tax Credit (EITC) by requiring that the social security numbers (SSN) of recipients (and spouses) be valid for employment in the United States. P.L. 104-193 also states that individuals who are eligible for free public education benefits under state and local law shall remain eligible to receive school lunch and school breakfast benefits. (The act itself does not address a state's obligation to grant all aliens equal access to education under the Supreme Court's decision in Plyler v. Doe .) Beyond these nutrition benefits, the act neither prohibits nor requires a state to provide unauthorized aliens other benefits funded under the National School Lunch Act or the Child Nutrition Act, or under the Emergency Food Assistance Act, Section 4 of the Agriculture and Consumer Protection Act, or the Food Distribution Program on Indian Reservations under the Food Stamp Act. State Benefits Unlike earlier federal law, P.L. 104-193 expressly bars unauthorized aliens from most state and locally funded benefits. The restrictions on these benefits parallel the restrictions on federal benefits. Unauthorized aliens are generally barred from state and local government contracts, licenses, grants, loans, and assistance. The following exceptions are made: treatment for emergency conditions (other than those related to an organ transplant); short-term, in-kind emergency disaster relief; immunization against immunizable diseases and testing for and treatment of symptoms of communicable diseases; and services or assistance (such as soup kitchens, crisis counseling and intervention, and short-term shelters) designated by the Attorney General as (i) delivering in-kind services at the community level, (ii) providing assistance without individual determinations of each recipient's needs, and (iii) being necessary for the protection of life and safety. Also, the restrictions on state and local benefits do not apply to activities that are funded in part by federal funds; these activities are regulated under the 1996 law as federal benefits. Furthermore, the law states that nothing in it is to be construed as addressing eligibility for basic public education. Finally, the 1996 law allows the states, through enactment of new state laws, to provide unauthorized aliens with state and local benefits that otherwise are restricted by federal law. Despite the federally imposed bar and the state flexibility provided by the 1996 law, states still may be required to expend a significant amount of state funds for unauthorized aliens. Public elementary and secondary education for unauthorized aliens remains compelled by judicial decision, and payment for emergency medical services for unauthorized aliens remains compelled by federal law. Meanwhile, certain other costs attributable to unauthorized aliens, such as criminal justice costs, remain compelled by the continued presence of unauthorized aliens. Appendix A. Noncitizen Eligibility for Selected Major Federal Programs Appendix B. Overview of Alien Eligibility Law Pre-1996 Program Policies Prior to the major amendments made in 1996, there was no uniform rule governing which categories of noncitizens were eligible for which government-provided benefits and services, and there was no single statute where the rules were described. Alien eligibility requirements, if any, were set forth in the laws and regulations governing the individual federal assistance programs. Summarizing briefly, lawful permanent residents (i.e., immigrants) and other noncitizens who were legally present (e.g., refugees) were generally eligible for federal benefits on the same basis as citizens in programs where rules were established by law or regulation. These included major public assistance programs like Aid to Families with Dependent Children (AFDC, the predecessor of TANF), the SSI program, food stamps, and Medicaid. With the single exception of emergency Medicaid, unauthorized (illegally present) aliens were barred from participation in all the major federal assistance programs that had statutory provisions for noncitizens, as were aliens legally present in a temporary status (i.e., nonimmigrants such as persons admitted for tourism, education, or employment). However, many health, education, nutrition, income support, and social service programs did not include specific provisions regarding alien eligibility, and unauthorized aliens were potential participants. These programs included, for example, the Special Supplemental Nutrition Program for Women, Infants, and Children (the WIC program), child nutrition programs, initiatives funded through the Elementary and Secondary Education Act, the Earned Income Tax Credit (EITC), community and migrant health centers, and the Social Services Block Grant (SSBG) program. The 1996 Welfare Reform Law Title IV of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA, P.L. 104-193 ) established comprehensive new restrictions on the eligibility of noncitizens for means-tested public assistance—with significant exceptions for those with a substantial U.S. work history or military connection. For legal permanent residents (LPRs) who were resident as of enactment of the law (August 22, 1996), the act generally barred eligibility (food stamps/SNAP and SSI) or allowed it at state option (Medicaid and TANF). For food stamps/SNAP and SSI benefits, LPRs entering after August 22, 1996 (new entrants) also were denied eligibility, with no time constraint. On the other hand, new entrants applying for Medicaid and the newly established Temporary Assistance for Needy Families (TANF) program were barred for five years after their entry, and then allowed eligibility at state option. Refugees and asylees were allowed eligibility for five years after entry/grant of status, then made ineligible (unless they became citizens or qualified under another status). Nonimmigrants (i.e., aliens on temporary visas) and unauthorized aliens were barred from almost all federal programs. Post-1996 Revisions The 1996 changes made in the alien eligibility rules proved controversial, particularly the termination of benefits for recipients who were receiving benefits or for legal residents of the United States as of the date the new welfare law was enacted, August 22, 1996. The SSI termination date for these recipients was extended from August 22, 1996, to September 30, 1997, by P.L. 105-18 , signed into law on June 12, 1997. More extensive modifications to the new alienage rules were then included in P.L. 105-33 , the 1997 Balanced Budget Act, signed into law on August 5, 1997. It amended the welfare reform law to provide that legal immigrants who were receiving SSI as of August 22, 1996, continue to be eligible, regardless of whether their claim was based on disability or age. Additionally, those who were here by August 22, 1996, and subsequently become disabled were made eligible for SSI. Food stamp/SNAP eligibility was expanded by provisions of P.L. 105-185 , the Agricultural Research, Extension, and Education Reform Act of 1998. Eligibility was extended to several groups of LPRs who were here as of August 22, 1996: elderly (65+) persons (not including those who become 65 after August 22, 1996); individuals receiving government disability benefits (including those who become disabled after August 22, 1996); and children (persons who were under 18 as of August 22, 1996, until they become adults). Amendments in P.L. 105-33 and P.L. 105-185 extended the period of SNAP/SSI/Medicaid (but not TANF) eligibility for refugees and asylees from five to seven years. In addition, the Victims of Trafficking Protection Act of 2000 ( P.L. 106-386 ) created a new visa category, the T visa, for noncitizen victims of severe forms of trafficking. The act made these trafficking victims eligible for public assistance, resettlement assistance, entitlement programs, and other benefits available to refugees admitted under Section 207 of the INA. During the 107 th Congress, P.L. 107-171 , the "farm bill," contained substantial changes to food stamp eligibility rules for noncitizens, expanding food stamp eligibility to include the following groups: all LPR children, regardless of date of entry (it also ended requirements to deem sponsors' income and resources to these children); LPRs receiving government disability payments, so long as they pass any noncitizen eligibility test established by the disability program (e.g., SSI recipients would have to meet SSI noncitizen requirements in order to get food stamps/SNAP); and all individuals who have resided in the United States for five or more years as "qualified aliens"—that is, LPRs, refugees/asylees, and other non-temporary legal residents (such as Cuban/Haitian entrants). The changes to rules for the disabled became effective October 1, 2002; new rules for children were effective October 1, 2003; and the five-year residence rule went into effect April 1, 2003. Subsequent laws have resulted in additional revisions, as follows: In 2007, Section 525 of the Consolidated Appropriations Act for FY2008 ( P.L. 110-161 ) permitted Iraqi and Afghan aliens who had been granted special immigrant status under Section 101(a)(27) of the INA eligible for resettlement assistance, entitlement programs, and other benefits available to refugees admitted under Section 207 of the INA for a period not to exceed six months. Also, Section 409 of the Consolidated Appropriations Act prohibited funds from being used to provide homeowners assistance to foreign nationals who are neither aliens lawfully admitted for permanent residence, nor authorized to be employed in the United States. P.L. 110-328 extended to nine years (during FY2009 through FY2011) the period of eligibility of certain refugees, asylees, and aliens in other specified humanitarian categories for SSI benefits, provided that the alien has a pending naturalization application or makes a declaration that he or she has made a good faith effort to pursue U.S. citizenship. It also made victims of trafficking among the eligible population. As a result of this provision, the specified LPR must additionally fit within one of several categories, which include being an LPR for less than six years, applying for LPR status within four years of beginning to receive SSI, being at least age 70, or being under age 18. The Children's Health Insurance Program Reauthorization Act of 2009 (CHIPRA 2009, P.L. 111-3 ) allows states to waive—for children and pregnant women who are LPRs and battered individuals lawfully residing in the United States—key elements of PRWORA: the statutory bar, the limited eligibility provision, and the five-year bar, and thus gives states the option of providing Medicaid and State Children's Health Insurance Program (CHIP) to children and pregnant women who are LPRs and battered individuals (described in Section 431(c) of PRWORA) lawfully residing in the United States during the first five years that they are living in the United States. Sponsorship and Deeming "Public Charge" Historical Development Opposition to the entry of foreign paupers and aliens "likely at any time to become a public charge"—language found in the Immigration and Nationality Act (INA) today—dates from colonial times. A bar against the admission of "any person unable to take care of himself or herself without becoming a public charge" was included in the act of August 3, 1882, the first general federal immigration law. Over time, a policy developed in which applicants for immigrant status can overcome the public charge ground for exclusion based on their own funds, prearranged or prospective employment, or an affidavit of support from someone in the United States. An affidavit of support on behalf of a prospective immigrant had to be submitted as necessary by one or more residents of the United States in order to provide assurance that the applicant for entry would be supported in this country. Starting in the 1930s and continuing until the 1980s, affidavits of support were administratively required by what was then the Immigration and Naturalization Service (INS) but had no specific basis in statute or regulation. Court decisions beginning in the 1950s generally held that affidavits of support were not legally binding on the U.S. resident sponsors. The unenforceability of affidavits of support led to the adoption of legislation in the late 1970s and early 1980s intended to make them more effective (see the discussion of "deeming" of income and financial resources below). 1996 Immigration Law Reforms The Illegal Immigration Reform and Immigrant Responsibility Act of 1996 (IIRIRA, Division C of P.L. 104-208 ), coupled with the 1996 welfare reform law, altered the obligations of persons who sponsor immigrants arriving or adjusting to LPR status in the United States. The IIRIRA standards, which are part of the INA, cover requirements for sponsors, mandatory affidavits for family immigrants, and sponsorship liability, as follows: The person petitioning for the immigrant's admission must be the sponsor signing the affidavit of support. Sponsors must demonstrate the ability to maintain an annual income of at least 125% of the federal poverty line (100% for sponsors who are on active duty in U.S. Armed Forces), or share liability with one or more joint sponsors, each of whom must independently meet the income requirement. All family-based immigrants as well as employment-based immigrants who are coming to work for relatives must have affidavits of support filed for them. Sponsors who fail to support sponsored aliens are legally liable to the sponsored aliens and to any government agency that provides sponsored aliens needs-based assistance. As modified by the 1996 immigration law, a sponsor's liability ends when the sponsored alien is no longer subject to deeming, either through naturalization or meeting a work test. Since passage of IIRIRA, the affidavit of support is a legally binding contract enforceable against the affiant (i.e., sponsors) if the immigrant collects any means-tested benefit. Upon notification that a sponsored alien has received designated means-tested benefits, the federal, state, or local entity which provided the benefit must request the sponsor's reimbursement for an amount equal to the cost of the benefit. If the sponsor fails to respond to the request within 45 days, the agency may commence an action in federal or state court. There is a 10-year limit on actions to obtain reimbursement. In the context of Medicaid, Section 214 of CHIPRA 2009 ( P.L. 111-3 ) states "no debt shall accrue under an affidavit of support against any sponsor of such an alien on the basis of provision of assistance to such category and the cost of such assistance shall not be considered as an unreimbursed cost." According to the legislative language, this provision applies only to LPRs who are covered under Section 214 of that act; that is, LPRs who are pregnant or children, whom the state opts to provide CHIP and Medicaid during their first five years in the United States. "Deeming" of Income and Resources Pre-1996 Policy In response to concerns about the unenforceability of affidavits of support and the perceived abuse of the welfare system by some newly arrived immigrants, legislation was enacted in the late 1970s and early 1980s limiting the availability of SSI, food stamps/SNAP, and Aid to Families with Dependent Children (AFDC) to sponsored immigrants. The enabling legislation for these programs was amended to provide that—for the purpose of determining financial eligibility—immigrants who had used an affidavit of support to meet the public charge requirement would be deemed to have a portion of their immigration sponsors' income and resources available to them. Post-1996 Requirements The 1996 welfare reform law and the Illegal Immigration Reform and Immigrant Responsibility Act of 1996 significantly expanded the use of sponsor-to-alien deeming as a means of restricting the participation of new immigrants in federal means-tested programs. Both deeming and the affidavits of support upon which deeming is based are intended to implement the provision of the INA that excludes aliens who appear "likely at any time to become a public charge." Appendix C. "Qualified Aliens" The 1996 welfare law divided noncitizens into two general categories for purposes of benefit eligibility. The least restrictive category is that of qualified aliens , a category that, despite its name, is subject to numerous limitations and does not itself indicate eligibility for assistance. Qualified aliens are legal permanent residents, refugees, aliens paroled into the United States for at least one year, and aliens granted asylum or related relief. The 1996 immigration law added certain abused spouses and children as another class, and P.L. 105-33 added Cuban-Haitian entrants. The other, more restrictive category is that of non-qualified aliens . It consists of other noncitizens, including unauthorized (illegal) aliens, nonimmigrants (i.e., aliens admitted for a temporary purpose, such as education or employment), short-term parolees, asylum applicants, and various classes of aliens granted temporary permission to remain. Non-qualified aliens generally are ineligible for almost all federal assistance provided directly to households or individuals. Limited exceptions include emergency medical services and disaster relief. In general, qualified aliens compose the "universe" of potentially eligible noncitizens. As noted below and in the earlier portions of this report, however, these aliens must, in most cases, pass another test to gain eligibility. In addition, some classes of noncitizens who are not specifically listed as qualified aliens (e.g., Hmong/Highland Laotians, Vietnam-born Amerasians fathered by U.S. citizens, victims of severe forms of trafficking) are indeed eligible for benefits. Qualified aliens are subject to eligibility restrictions that vary by program (see Appendix A ) and may be subject to sponsor-to-alien deeming rules that affect their financial eligibility for aid (noted earlier in this report). The following presents the eligibility for qualified aliens for SNAP, SSI, TANF, and Medicaid: To gain eligibility for SNAP, qualified aliens must (1) have a substantial work history or military connection; (2) have been resident in the United States as of August 22, 1996, and meet certain age or disability requirements; or (3) be within seven years of entry (e.g., if a refugee/asylee). To gain eligibility for SSI, qualified aliens must (1) have a substantial work history or military connection; (2) have been an SSI recipient as of August 22, 1996; (3) have been resident in the United States as of August 22, 1996, and be disabled; or (3) be within seven years of entry (e.g., if a refugee/asylee). To gain eligibility for TANF, qualified aliens must (1) have a substantial work history or military connection; (2) be in a state that has chosen to allow eligibility to those resident as of August 22, 1996, and/or new entrants who have been resident five years; or (3) be within five years of entry (e.g., if a refugee/asylee). New entrants are not eligible for five years after entry. To gain eligibility for Medicaid, qualified aliens must (1) have a substantial work history or military connection; (2) be in a state that has chosen to allow eligibility to those resident as of August 22, 1996, and/or new entrants who have been resident five years; or (3) be within seven years of entry (e.g., if a refugee or asylee). For Medicaid and CHIP, new entrants are not eligible for five years after entry, except in the states that have opted to cover children and pregnant LPRs. However, for CHIP, the five-year ban is the only additional citizenship-related eligibility requirement that must be met by qualified aliens.

The extent to which residents of the United States who are not U.S. citizens should be eligible for federally funded public aid has been a contentious issue since the 1990s. This issue meets at the intersection of two major policy areas: immigration policy and welfare policy. The eligibility of noncitizens for public assistance programs is based on a complex set of rules that are determined largely by the category of the noncitizen in question and the nature of services being offered. Over the past 20 years, Congress has enacted significant changes in U.S. immigration policy and welfare policy. Congress has also exercised oversight of revisions made by the 1996 welfare reform law (the Personal Responsibility and Work Opportunity Reconciliation Act, P.L. 104-193) concerning the rules governing noncitizen eligibility for public assistance, and of legislation covering programs with major restrictions on noncitizen eligibility (e.g., Medicaid). This report deals with the four major federal means-tested benefit programs: the Supplemental Nutrition Assistance Program (SNAP, formerly food stamps), the Supplemental Security Income (SSI) program, Temporary Assistance for Needy Families (TANF) cash assistance, and Medicaid. Laws in place for the past 20 years restrict the eligibility of legal permanent residents (LPRs), refugees, asylees, and other noncitizens for most means-tested public aid. Noncitizens' eligibility for major federal means-tested benefits largely depends on their immigration status; whether they arrived (or were on a program's rolls) before August 22, 1996, the enactment date of P.L. 104-193; and how long they have lived and worked in the United States. LPRs with a substantial work history (defined as 40 quarters of Social Security covered earnings) or military connection are eligible for the full range of programs, as are asylees, refugees, and other humanitarian cases (for at least five to seven years after entry). Other LPRs must meet additional eligibility requirements. For SSI, they are not eligible for the first five years even if they had a substantial work history (e.g., as a temporary worker prior to receiving LPR status). For SNAP, they generally must have been LPRs for five years or be under age 18. Under TANF, they generally are ineligible for five years after entry and then eligible at state option. States have the option of providing Medicaid to pregnant LPRs and children within the five-year bar; otherwise LPRs are ineligible for the first five years. Unauthorized aliens (often referred to as illegal aliens) are not eligible for most federal benefits, regardless of whether they are means tested, with notable exceptions for emergency services (e.g., Medicaid for emergency medical care or Federal Emergency Management Agency disaster services). This report does not track legislation and will be updated as policy changes warrant.

Overview of Palestinian Initiative and Congressional Interest1 Palestine Liberation Organization (PLO) Chairman and Palestinian Authority (PA) President Mahmoud Abbas cites a lack of progress on the two-decades-old peace process with Israel as the driving factor behind current PLO/PA consideration of alternative pathways toward a Palestinian state. In recent months, PLO and PA officials have actively worked to obtain more widespread international recognition of Palestinian statehood in the West Bank (including East Jerusalem) and the Gaza Strip. Over 100 countries have recognized the state of Palestine that the PLO declared unilaterally in 1988. No North American or Western European governments that provide significant financial support to the PA and are influential in the Middle East have recognized the 1988 claim, and the current Palestinian initiative has raised new questions about the positions of these third parties. PLO officials are pursuing action in the United Nations (U.N.) aimed at solidifying international support for Palestinian statehood, and they appear to enjoy support from the Palestinian public and several international institutions for their efforts. Proponents of these initiatives at the U.N. support the timing of their efforts by citing both the plan of PA Prime Minister Salam Fayyad to reach "de facto statehood" by August 2011 through strengthening PA institutions and economic development, and the goal President Obama enunciated in September 2010 for establishing a Palestinian state by 2011 as part of a negotiated two-state solution with Israel. According to a September 2011 poll by the Palestinian Center for Policy and Survey Research, 83% of Palestinians in the West Bank (including East Jerusalem) and Gaza Strip support "turning to the UN to obtain support for a Palestinian state." Reports in 2011 from the World Bank, the International Monetary Fund, and the Office of the U.N. Special Coordinator for the Middle East Peace Process stated that the PA has made institutional progress in areas traditionally deemed necessary for statehood, but noted continued impediments: an underdeveloped private sector, constraints—mainly Israel-imposed—on movement and access respecting the West Bank and Gaza, fiscal problems related to a dearth of international donor funding, and lack of progress in negotiations. PLO Chairman/PA President Abbas initiated action at the opening of the annual U.N. General Assembly session that could lead to votes in both the Security Council and the General Assembly. On September 23, 2011, he submitted an application for Palestinian state membership—on the basis of the armistice lines that prevailed before the Arab-Israeli War of 1967 (commonly known as the "1967 borders")—to the U.N. Secretary-General, who is expected to submit the matter to the Security Council for its action on whether to recommend membership. A positive recommendation would require 9 "yes" votes out of 15 and no vetoes by any of the five permanent Council members. The Obama Administration has indicated that it will veto a Security Council recommendation resolution, but in the unlikely event the Council were to make a positive recommendation, a two-thirds majority vote would be required in the General Assembly to admit a Palestinian state to the United Nations. To date, Security Council deliberations on the Palestinian membership application have remained at the committee level, and the Council could take additional weeks to review it. In an alternate or parallel scenario, an existing U.N. member state supportive of PLO plans may sponsor a resolution in the General Assembly. A General Assembly resolution could recommend the recognition of a Palestinian state based on the 1967 borders—either as-is or based provisionally on those lines subject to future Israel-PLO negotiation—and change Palestine's permanent observer status in the United Nations from that of an "entity" to that of a "non-member state" with a simple majority vote. Deferring the establishment of permanent borders to future negotiations could help the Palestinians obtain more widespread support for U.N. action from European and other countries. Additionally, the Executive Board of the U.N. Educational, Scientific and Cultural Organization (UNESCO) voted in early October 2011 to have UNESCO's General Conference consider the question of Palestinian membership—see " United Nations Educational, Scientific and Cultural Organization (UNESCO) " below for further discussion. A session of UNESCO's General Conference, at which a vote on Palestinian membership might occur, is scheduled to convene from October 25 to November 10, 2011. Admission of a Palestinian state to membership in UNESCO might trigger a legal requirement for the United States to discontinue contributions to UNESCO. Section 410 of the Foreign Relations Authorization Act, Fiscal Years 1994 and 1995 ( P.L. 103-236 ) is a currently codified legal provision that states that the United States shall not make contributions to "any affiliated organization of the United Nations which grants full membership as a state to any organization or group that does not have the internationally recognized attributes of statehood." Given that the U.S. currently contributes roughly 22% of UNESCO's budget, discontinuance of U.S. contributions could impact the organization. Many Members of Congress are actively interested in the question of possible U.N. action on Palestinian statehood. Congress could try to influence U.S. policy and the choices of other actors through the authorization and appropriation of economic and security assistance and through oversight of the Obama Administration's diplomatic efforts. The United States may be faced with a choice between backing its vigorous opposition to U.N. action with possible changes to U.S. aid to the PA, the U.N., and individual U.N. agencies; and taking more of a wait-and-see approach by reserving possible ultimatums for what follows the U.N. outcome both diplomatically and on the ground. Both approaches contain risks. By unsuccessfully mounting strong opposition to U.N. action, the United States may lose credibility and leverage with key actors. A restrained response, however, could lead these actors to perceive U.S. flexibility as weakness open to further exploitation. Either way, the outcome and aftermath of U.N. action on Palestinian statehood could present further challenges to U.S. efforts to pursue a negotiated two-state solution that secures U.S. interests, is acceptable to the Palestinians, guarantees Israel's security, and is credible to both parties and the international community. United Nations Framework and Process12 This section provides information on the U.N. framework and process for options being discussed, including the following topics: the United Nations and recognition of states, observer status in the United Nations, and criteria and process for gaining United Nations membership. Introduction Following PLO Chairman Abbas's September 23 application—presented under the auspices of Abbas's claim to be "President of the State of Palestine"—to the U.N. Secretary-General for admission to membership in the United Nations, the Secretary-General circulated the application and a further letter to U.N. member states and to the U.N. Security Council and General Assembly. On September 28, 2011, the Security Council referred the application to its Committee on Admission of New Members "for examination and report." Since September 28, the Committee has been meeting, primarily at the "expert" level, to review and "examine" the application. These meetings have, as of October 20, 2011, been closed, informal, and not announced in the Daily Journal of the United Nations. Some international media sources have reported that the Committee will report on its deliberations to the Security Council by November 11, but when a vote might occur remains unclear. The United Nations and Recognition of States Under international practice, a state is generally understood to be "an entity that has a defined territory and a permanent population, under the control of its own government, and that engages in, or has the capacity to engage in, formal relations with other such entities." The United Nations does not recognize states. States recognize states. The United Nations is "neither a State nor a Government and therefore does not possess any authority to recognize either a state or a government." On the other hand, some contend that admission to membership is an acknowledgement by an organization and its members that an entity has satisfied the requirement of statehood. Observer Status in the United Nations The current relationship of Palestine and the United Nations, as defined through a series of General Assembly resolutions, is as an "entity" having received a standing invitation to participate as an observer in the sessions and the work of the General Assembly and maintain permanent offices at Headquarters. Since 1946, non-member states of the United Nations that were members of one or more specialized agencies have applied with the U.N. Secretary-General for the status of Permanent Observer. This practice originated with the application of Switzerland in 1946 for access as a Permanent Observer. It has been suggested that the General Assembly adopt a resolution on the status of Palestine in the United Nations that would change its observer status from "entity" to non-member state. United Nations Membership: Criteria and Process Criteria Article 4 of the United Nations Charter establishes the parameters and criteria as well as the process for acquiring membership in the organization. Paragraph 1 of the Article reads Membership in the United Nations is open to all other peace-loving states which accept the obligations contained in the present Charter and, in the judgment of the Organization, are able and willing to carry out these obligations. Bruno Simma, in his two-volume article-by-article commentary on the Charter, converts paragraph 1, above, into "five criteria for admission." "Membership … is Only Open to States" Simma identifies the standard requirements for statehood, including recognition by other states and the capacity to conduct diplomacy with other states. [A]n applicant would have to meet the formal requirements of the notion of statehood under international law, i.e., a defined territory, a permanent population, and an independent government…. In order to prove that an applicant ... was a State within the meaning of Art. 4(1) reference was also occasionally made to a certain measure of diplomatic intercourse or a certain degree of international recognition of the applicant State. "The Applicant State Must be 'Peace-Loving'" The primary purpose of the United Nations organization, as stated in Article 1 of the Charter, is maintenance of international peace and security. This criterion was partly a historical criterion and partly used to qualify a candidate's current conduct.... The criterion ... has also served as a useful instrument of individual States' membership policies.... With regard to the admission of the large number of new States resulting from decolonization, however, the criterion "peace-loving State" was of no practical importance at all. "Applicant States Must Accept the Obligations Contained in the Present Charter" Applicant states declare that they accept the obligations set forth in the Charter, a treaty. This would include the principles set forth in Article 2. "Applicants Must, in the Opinion of the Organization, be Able and Willing [emphasis added] to Carry out the Obligations Contained in the Charter" While some observers might suggest that these two criteria—capacity and willingness—have been abandoned, they are in the Charter and might be raised during consideration for membership. Originally, it was intended that States should be precluded from membership of the UN if they fell below an objective minimum standard of resource endowment necessary for effective compliance with such obligations .... In this respect, the admissions practice has shown a high measure of flexibility. *** With the open admission to the UN in the second phase of its development, the requirement of the ability to carry out the obligations of the Charter has become practically irrelevant as a membership test. Regarding the subjective criterion of willingness to carry out the obligations of the Charter, the GA suggested the following indicators: maintenance of friendly relations with other States; fulfillment of international obligations; and the reputation of States concerned for being prepared to utilize procedures of peaceful dispute settlement (GA Res. 506A (VI), Feb. 1, 1952). Process The Security Council Both the U.N. Security Council and General Assembly are involved in the process for consideration of applications for U.N. membership. According to paragraph 2 of Article 4 of the U.N. Charter, The admission of any such state to membership in the United Nations will be effected by a decision of the General Assembly upon the recommendation of the Security Council. The details of the process are set forth in the rules of procedure of the Security Council and the General Assembly. Applications for membership are submitted by the requesting state to the U.N. Secretary-General, who forwards them to both the Assembly and the Council. In accordance with Rules 58 through 60 of the Provisional Rules of Procedure of the Security Council , the applicant state includes a declaration that "it accepts the obligations contained in the Charter." After receipt of the application, the Council President usually refers the application to the Council Committee on the Admission of New Members for its consideration. After the Council Committee completes its review of the application, it submits a report, with recommended resolution language back to the Council, which takes up the matter in a formal meeting. Decisions on membership applications are subject to veto by any of the five permanent members of the Council. If the Council decides to recommend the state for admission, it adopts a resolution of recommendation that is forwarded in a report to the General Assembly, with a complete record of the discussion. The Council, in recent years, has also issued a presidential statement on its action. If the Council decides not to recommend the state for admission to U.N. membership, it shall, in accordance with Rule 60, submit a special report to the General Assembly with a complete record of the discussion. The General Assembly Rule 136 of the Rules of Procedure of the General Assembly states that if the Security Council recommends the applicant State for membership, the General Assembly shall consider whether the applicant is "a peace-loving State" and is "able and willing" to carry out the obligations contained in the Charter. The Assembly decides, by a two-thirds majority of the members present and voting, on the state's application for membership. Membership becomes effective on the date on which the General Assembly adopts the resolution on admission. If the Security Council has not recommended the applicant state for membership or postpones its consideration of the application, then Assembly Rule 137 provides that the General Assembly may, after full consideration of the special report of the Security Council, send the application back to the Council, along with a full record of the discussion in the Assembly, for further consideration and recommendation or report. Appendix A provides information on the process for three recently admitted states. It includes document numbers so that a reader might examine them. Advisory Opinion of the International Court of Justice (ICJ) Can the General Assembly admit a state to membership in the United Nations without a prior Security Council resolution recommending admission? That, in essence, was the question placed before the International Court of Justice (ICJ) in 1949, in response to the persistent inability of the Security Council, between 1946 and 1949, to recommend admission of a number of states. During this time, the USSR exercised its veto in 23 votes on membership applications involving at least nine states. In November 1949, the General Assembly, in an effort to determine if an alternative approach was possible, requested the ICJ, or World Court, to provide an advisory opinion on the following question: Can the admission of a State to membership in the United Nations, pursuant to Article 4, paragraph 2, of the Charter, be effected by a decision of the General Assembly, when the Security Council has made no recommendation for admission by reason of the candidate failing to obtain the requisite majority or of the negative vote of a permanent Member upon a resolution so to recommend? On March 3, 1950, the World Court, in its advisory opinion to the Assembly, answered the question in the negative, by 12 votes to 2. Some have argued that Security Council failure to recommend Palestine for U.N. membership could be circumvented by taking the issue to the General Assembly, under the Uniting for Peace Resolution (General Assembly Resolution 377 A (V)). The aforementioned World Court advisory opinion appears to refute use of that approach, which was intended to be applied in instances involving maintenance of international peace and security. See Appendix B for further discussion. Palestinian Initiatives in U.N. Specialized Agencies32 Introduction There are currently 17 specialized agencies in what is known as the United Nations system. These are "legally independent international organizations with their own [constitutions,] rules, membership, organs and financial resources" that have a "specialized agency" arrangement or agreement with the United Nations under Article 57 of the United Nations Charter. While the International Atomic Energy Agency (IAEA) is included in this count of 17, it is not a specialized agency having been created by a resolution of the U.N. General Assembly. However, IAEA operates like a specialized agency. The unique feature is that IAEA reports to the General Assembly and when appropriate to the Security Council as well as to ECOSOC on matter[s] within ECOSOC's competence. The specialized agencies report to ECOSOC. A review of the membership requirements set forth in the constitutions of 13 of these agencies shows a range of provisions. In eleven instances, membership in the United Nations gives a state access to membership in the agency without having to have its admission approved by the membership of the agency (ICAO, IFAD, ILO, IMO, ITU, UNIDO, UPU, WHO, WIPO, WMO, and UNESCO—see textbox below for the agencies' full names). Of these, three agencies also provide membership, without a vote, to member nations of any specialized agency (IFAD, UNIDO, and WIPO). Two agencies require some process of voting for admission to membership (FAO and the UNWTO). The World Tourism Organization (UNWTO) requires a two-thirds vote of its General Assembly for admission to membership. However, an amendment to Article 5 of its Statute, adopted in 2005 but not yet in force, would have membership open to all states that are U.N. members. The United States is not a member of UNIDO or UNWTO. United Nations Educational, Scientific and Cultural Organization (UNESCO) Membership Process Article II (paragraph 1) of the UNESCO Constitution provides that membership in the United Nations "shall carry with it the right to membership in UNESCO." Paragraph 2 of Article II states that states not members of the United Nations may be admitted to UNESCO membership, upon recommendation of the UNESCO Executive Board, by a two-thirds majority vote of the UNESCO General Conference. The PLO, or "Palestine," applied for membership in UNESCO in April 1989. The response of both the Executive Board and the General Conference at that time and in intervening years, until October 2011 (see below), has been to defer consideration of the application and to refer the agenda item to the next session of the Executive Board and General Conference. Recent and Prospective Action On October 5, 2011, the UNESCO Executive Board, by a roll call vote of 40 in favor, 4 against, and 14 abstentions, decided to recommend that the General Conference of UNESCO admit Palestine as a member of UNESCO. The UNESCO General Conference convenes its 36 th session October 25 through November 10, 2011 and may be expected to act on the Board decision during that meeting. The official text of the Board decision is not yet available on the UNESCO website but the following text (see textbox below) was provided by UNESCO through its Liaison Office to the United Nations. Tactical Possibilities During the U.N. Process The following discussion sets forth various possibilities regarding the nature of potential U.N. action or alternatives to such action. Security Council action has begun, but even so, continuing diplomacy might lead to deferral, withdrawal, or modification of a potential resolution. Several actors—including the United States, the PLO, Israel, the European Union, Arab states, and Turkey—could influence developments. The two main decisions for the PLO will be: In which U.N. venue(s) (the Security Council, the General Assembly, or both) will it pursue or continue to pursue its efforts? What will be the substance and wording of its request(s)? Compromise Resolution? The United States, Israel, and other actors may seek to influence Palestinian decision-making on both questions. A compromise U.N. resolution might set forth parameters for future Israeli-Palestinian negotiations but stop short of addressing the question of Palestinian statehood beyond expressing aspirations. Such a compromise could prevent the United States from feeling compelled to veto a Security Council vote and risking a significant loss of goodwill among the Palestinian people and wider Arab world. On the other hand, a compromise approach, if perceived by Palestinians as U.S.- or Israeli-engineered coercion of PLO leadership, could lead to an even more negative Palestinian popular reaction—possibly stoked by Hamas or other parties opposed to peace with Israel that have criticized the PLO's resort to the United Nations as futile—than U.S. opposition to U.N. action on statehood. Diplomacy Involving Europe It is unclear what leverage U.S. economic and security assistance might have on Palestinian decision-making (see " Congressional Options on Aid " below), but any such leverage is likely to be lessened in the event the Palestinians secure significant Western European, Gulf Arab, or other support or assurances of continued assistance. Thus U.S., Israeli, and PLO diplomacy focused on Europe—particularly permanent Security Council members France and the United Kingdom—could intensify as the time for a possible vote draws closer. Such diplomacy also could become intertwined with negotiations regarding the venue for, and the timing and wording of, potential resolutions or other actions. Possible Implications of U.N. Action for Future Israeli-Palestinian Developments The following discussion sets forth possible implications stemming from the process, outcome, or aftermath of U.N. action on Palestinian statehood. Such implications could include consequences for day-to-day interactions between Israelis and Palestinians, precedents that could lead to further international action on behalf of the Palestinians, and ramifications for possible future negotiations and internal Israeli and Palestinian political developments. On-the-Ground Consequences and Further International Action Many proponents of emphasizing Palestinian claims to statehood acknowledge that greater international support through the United Nations or elsewhere will not resolve disputes between Israelis and Palestinians on core issues—borders, security, settlements, refugees, Jerusalem, water rights. Some observers express skepticism that international or unilateral action on the statehood question can transcend symbolism to significantly contribute to Palestinian independence. An upgrade in status would not confer characteristics of sovereignty that might strengthen the Palestinians' position in a negotiating context—such as an independent military capacity and control over territory and borders. Israel would probably retain control over East Jerusalem and overall control—despite the PA's limited self-rule—in the West Bank, while the Sunni Islamist group Hamas (a U.S.-designated Foreign Terrorist Organization) remains de facto ruler over the Gaza Strip. If Israel continues to control developments on the ground in the West Bank and East Jerusalem, along with access to Gaza, the PLO might face questions about next steps from its own people. PLO officials have portrayed the possibility of U.N. action as consequential, if not ultimately decisive, on the statehood issue. However, reduced levels of financial and political support from international patrons stemming from U.N. action could hinder possible subsequent efforts by Palestinian leaders to follow up such action with measures seeking to change Israel's posture in the West Bank and Gaza. It could also detract from their ability to rally popular and international support for these possible follow-up measures. A resolution upgrading the permanent observer status of Palestine in the United Nations to a non-member state may also set in motion developments that eventually change how Israelis and Palestinians address their ongoing, fundamental disputes. If Palestinians and other international actors perceive that Palestinian political or legal claims have more basis for redress, altered expectations and calculations could lead to a new dynamic in how Palestinian and third parties relate to Israel with regard to core issues of the dispute. Possible developments—many of which Israel decries as connoting or possibly leading to its "delegitimization"—include greater levels of Palestinian civil disobedience or unrest; international boycott, divestment, and sanctions (BDS) movements; and an increase in grievances filed in international courts concerning Israeli actions —such as the International Court of Justice (ICJ) and the International Criminal Court (ICC)—and other forums. A General Assembly resolution purporting to recognize Palestinian statehood could strengthen the Palestinian case for membership in or greater access to some of these international courts and forums, but would not automatically confer such privileges or rights upon the Palestinians. Yet, the possibility of Palestinian state membership in UNESCO might foreshadow future developments. Some PLO leaders have stated that following acknowledgment of even limited Palestinian sovereignty, aspects of Israeli control over the West Bank and Gaza would constitute a "state occupying another state." This argument is presumably advanced in order to increase international pressure on Israel to reduce its presence and military control over the territories. Yet, some international actors might reject this argument, particularly if the state's borders have not been definitively established in the Security Council. Israel is likely to reject it under any circumstances. Back to Negotiations? Abbas maintains that he still favors a U.S.-led negotiating process under the right conditions, and that U.N. action supporting Palestinian statehood could help bring Israel and the Palestinians to the bargaining table on a more equal footing. Yet, pursuit of U.N. action on Palestinian statehood outside of negotiations could be interpreted as a lack of faith by the Palestinians in the ability and/or willingness of the United States to be an "honest broker" and guarantor of the peace process. Additionally, some analysts argue that the PLO's pursuit of U.N. action on Palestinian statehood undermines prospects for resuming negotiations because it violates previous Israeli-PLO agreements that form the foundation for a peace process. See Appendix C for further analysis of this question. Still other analysts warn that nominal Palestinian sovereignty gained through unilateral or international means might serve possible Israeli interests in avoiding serious negotiations toward a two-state solution by relieving the sense of international urgency for action on the issue. On September 23, the same day Abbas submitted the application for Palestinian state membership in the U.N., the international Quartet (United States, European Union, United Nations Secretary-General, Russia) issued a statement that read in part: The Quartet takes note of the application submitted by President Abbas on 23 September 2011, which is now before the Security Council. The Quartet reaffirmed its statement of 20 May 2011, including its strong support for the vision of Israeli-Palestinian peace outlined by United States President Barack Obama. The Quartet recalled its previous statements, and affirmed its determination to actively and vigorously seek a comprehensive resolution of the Arab-Israeli conflict, on the basis of United Nations Security Council resolutions 242, 338, 1397, 1515, 1850, the Madrid principles, including land for peace, the Road Map and the agreements previously reached between the parties. The Quartet reiterated its commitment to a just, lasting and comprehensive peace in the Middle East and to seek a comprehensive resolution of the Arab-Israeli conflict, and reaffirms the importance of the Arab Peace Initiative. The Quartet reiterated its urgent appeal to the parties to overcome the current obstacles and resume direct bilateral Israeli-Palestinian negotiations without delay or preconditions. But it accepts that meeting, in itself, will not re-establish the trust necessary for such a negotiation to succeed. It therefore proposes the following steps: 1. Within a month, there will be a preparatory meeting between the parties to agree an agenda and method of proceeding in the negotiation. 2. At that meeting, there will be a commitment by both sides that the objective of any negotiation is to reach an agreement within a time frame agreed to by the parties, but not longer than the end of 2012. The Quartet expects the parties to come forward with comprehensive proposals within three months on territory and security, and to have made substantial progress within six months. To that end, the Quartet will convene an international conference in Moscow, in consultation with the parties, at the appropriate time. Subsequent U.S. efforts to restart negotiations have led to plans for Quartet meetings with Israeli and Palestinian officials in late October to discuss an agenda and framework for potential future negotiations. However, a resumption of negotiations may be unlikely unless the PLO drops its insistence on a halt to Israeli settlement building, which in turn is unlikely in light of Israeli bureaucratic progress in September and October toward new housing units for Jewish residents in disputed areas of East Jerusalem—over 1,000 in Gilo and approximately 1,800 for a new development in Givat Hamatos. These steps toward further construction triggered statements of protest from Palestinian officials, as well as from European Union foreign policy chief Catherine Ashton and U.N. Secretary-General Ban Ki-moon. U.S. State Department spokeswoman Victoria Nuland said that further construction in East Jerusalem would be "counterproductive to our efforts to resume direct talks between the parties." Israeli newspaper Ha'aretz published an editorial on October 18, stating that "the creation of the new Jewish neighborhood will reduce the likelihood of reaching a peace agreement over Jerusalem that would allow for territorial contiguity between the Palestinian communities. Givat Hamatos joins the plans for the expansion of Gilo and Har Homa to complete the ring that will cut off East Jerusalem completely from the southern West Bank." Moreover, even if negotiations resume, their prospects remain uncertain, if not dim. The unwillingness of Hamas to recognize Israel's right to exist and renounce violence further complicates matters. Israel and Hamas remain unwilling to negotiate directly with one another, and Israelis and Palestinians appear unwilling to compromise on conflicting positions concerning the claims of Palestinian refugees and the status of Jerusalem. Israel's Reaction Broad international support for Palestinian statehood could amplify Israelis' concerns about their own security, particularly in view of ongoing political change in the surrounding Arab world and the volatility and possible deterioration of Israel's political and military relationships with Egypt and Turkey. Israeli threat perceptions could lead to greater flexibility on its positions on some of the core issues expected to be resolved in a final-status Israel-PLO peace agreement, although the political climate in Israel makes this unlikely. The rationale, espoused by commentators and some former Israeli leaders commonly identified with the left and center of the political spectrum, would be that time for reaching a deal with the Palestinians is running out, as changes in the region lead Palestinian leaders and Arab state governments to show greater responsiveness to popular anti-Israel sentiment, and that negotiating peace is Israel's best chance to ensure its long-term security. Israeli leaders might, instead, be more likely to become less flexible in negotiations due to calculations that Israeli concessions are likely to embolden—not assuage—Palestinians and other Arabs, encouraging them to seek greater gains at Israel's expense. Many Israelis, including many or most in the ruling coalition of Prime Minister Binyamin Netanyahu's government, see the wave of change in the Arab world, and especially in Egypt, as a repudiation of the logic of trading land for peace, and as contributing to an unpredictable environment that merits caution, not concessions. If these views prevail, Israel might conclude that its best options lie in using its military and other strategic assets to shape desired outcomes either unilaterally or in concert with regional and international allies and supporters. Possible specific Israeli responses may include, among others: withholding transfer revenue (taxes and customs Israel collects on behalf of the PA) that constitutes nearly two-thirds of the PA's budget; increasing construction and approval of Israeli settlements and infrastructure in the West Bank and East Jerusalem; and tightening security in and around the West Bank and Gaza. Internal Palestinian Developments Although the PLO is internationally recognized as the sole representative of the Palestinian people, the nature, outcome, and aftermath of U.N. action aimed at advancing the cause of Palestinian statehood could have a significant effect on internal Palestinian developments, which would in turn affect the Palestinians' dealings with Israel and the international community. The following questions could become pertinent: Will Mahmoud Abbas and his PLO/PA/Fatah colleagues and possible successors be willing and able to drive the Palestinian agenda toward a negotiated peace with Israel, or will past experience, regional trends, and popular sentiment compel them to pursue alternatives? Will efforts by Fatah and Hamas to form a consensus PA government and reunite the West Bank and Gaza under limited self-rule resume in light of their May 2011 agreement? What form might these efforts take? Could the outcome of international or unilateral action contribute to internal challenges to Fatah-led PA leadership in the West Bank and/or Hamas rule in Gaza? What are the relative risks of uprisings fed by changed popular expectations or the actions of organized militant groups? If a Palestinian entity claims or receives greater international recognition of its sovereignty over the West Bank, Gaza, and East Jerusalem on the basis of the 1967 lines, how might the rights and privileges of Palestinian refugees and other diaspora members living outside the 1967 borders be affected? Many observers believe that Hamas was at least partly motivated to agree to the October 2011 exchange of captured Israeli Sergeant Gilad Shalit for roughly 1,000 Palestinian prisoners by its desire to regain domestic and regional prestige that Abbas and the PLO have been receiving for proceeding with U.N. initiatives while facing concerted U.S. and Israeli opposition. Congressional Options on Aid Background on U.S. Aid to the Palestinians Many observers point to signs of progress with PA security capacities and West Bank economic development, along with greater Israeli cooperation, as indications that U.S. aid is serving its purpose. It is less clear whether the progress they cite can be made self-sustaining and will be useful in promoting a broader political solution, and whether the level of Israeli cooperation is sufficient in forwarding both these goals. For a description of U.S. aid programs, see CRS Report RS22967, U.S. Foreign Aid to the Palestinians , by [author name scrubbed]. Ultimately, the ability of U.S. aid to influence Palestinian political decisions depends on some level of Palestinian popular recognition that U.S. policies and assistance promote Palestinians' long-term interests. PA willingness to support U.S.-sponsored efforts to counter Hamas and to reform internal Palestinian political and economic structures could recede as well unless Palestinians believe that the United States is both willing and able to support their quest for self-determination. Continued active U.S. opposition to U.N. action on Palestinian statehood—particularly a possible U.S. veto in the U.N. Security Council—could cast further doubt among Palestinians (possibly along with other international actors) that the United States is an effective partner, and thus may undermine any potential leverage provided by U.S. aid programs. Bottom-up political pressure, along with frustration at the lack of progress over the past several years, might influence some leaders who once supported U.S. priorities to change course. Close Abbas advisor Yasser Abed Rabbo, anticipating U.S. opposition to U.N. action, said in September 2011: This shows not only disdain for the Palestinian position, but also scorn for what is happening in the Arab world: a revival seeking justice for the Arab peoples and the region as whole. The prospect of a peace process with no end in sight could intensify the jockeying between and among Israelis and Palestinians for alternatives to a two-state solution, perhaps leading ultimately to greater conflict. Also, the attention and resources devoted to reform and to strengthening anti-Hamas groups in the West Bank could widen divisions between the two Palestinian territories, given perceptions that residents of the Gaza Strip—almost totally dependent on external assistance and illicit economic activity—are being neglected, left behind, or perhaps even targeted. This could lead to heightened Palestinian resentment of all parties promoting the peace process. Possible Changes to Aid to the Palestinians and Contributions to the United Nations Some Members of Congress are questioning the continuation of U.S. budgetary, security, and/or developmental assistance to the Palestinians due to uncertainty over possible contingencies. Both the House of Representatives ( H.Res. 268 ) and Senate ( S.Res. 185 ) passed resolutions in the summer of 2011 questioning the continuation of U.S. aid to the PA or to Palestinians in general in the event the PLO appeals to the United Nations, other international bodies or forums, and/or foreign governments for recognition of statehood or similar diplomatic support. Congressional Holds on FY2011 Aid Various Members of congressional committees with jurisdiction over the authorization and appropriation of U.S. aid to the Palestinians have reportedly placed informal holds on the obligation of the following two tranches of already-appropriated FY2011 assistance following August 18 congressional notifications by the Obama Administration: $192.2 million in Economic Support Fund (ESF) project assistance for the West Bank and Gaza to be distributed through non-governmental organizations; and $147.6 million in International Narcotics Control and Law Enforcement (INCLE) non-lethal assistance for PA security forces. Media reports and statements from Member offices indicate that Congresswoman Kay Granger, Chairwoman of the House Appropriations Subcommittee on State, Foreign Operations, and Related Programs; and Congresswoman Ileana Ros-Lehtinen, Chairwoman of the House Foreign Affairs Committee have each placed holds on at least some portion of one or both tranches listed above. Senator Richard Lugar, Ranking Member of the Senate Foreign Relations Committee, had placed a hold on both tranches, but the hold was lifted in early October 2011. According to reports, the current holds on U.S. FY2011 assistance to the Palestinians are at least partly attributable to Members' uncertainty regarding the advisability of providing aid to the PA when it and the PLO are taking action in international forums to boost support for Palestinian statehood outside of negotiations with Israel. It is unclear how long congressional holds on FY2011 assistance to the Palestinians might last. Although the Administration also notified Congress on August 18 of its intent to obligate the final $50 million of the total FY2011 authorized amount of $200 million in direct budgetary assistance for the PA, this amount is not subject to a hold. The New York Times reported in September 2011 that Israeli Prime Minister Binyamin Netanyahu "urged dozens of members of Congress visiting Israel [in August] not to object to the aid," at the Administration's request. FY2012 Aid Draft legislation for FY2012 appropriations approved by the House Appropriations Subcommittee for State, Foreign Operations, and Related Programs in July 2011 would condition any direct budgetary assistance to the Palestinian Authority on the Secretary of State's certification that the PA is "not attempting to establish or seek recognition at the United Nations of a Palestinian state outside of an agreement negotiated between Israel and the Palestinians." Draft legislation for FY2012 approved in September 2011 by the Senate Appropriations Committee ( S. 1601 , The Department of State, Foreign Operations, and Related Programs Appropriations Bill, 2012) would prohibit direct budgetary assistance to the PA if "Palestine becomes a member or non-member state of the United Nations outside of an agreement negotiated between Israel and the Palestinians," but would also give the Secretary of State authority to waive the prohibition for national security reasons. S. 1601 also would require the Secretary of State to "submit to the Committees on Appropriations specific recommendations on appropriate actions to be taken with respect to the Palestine Liberation Organization's status in the United States, especially about the closing of its office, if Palestine seeks to become a member or non-member state of the United Nations outside an agreement negotiated between Israel and the Palestinians." Looking Ahead If the PLO is even partly successful in its ongoing effort to gain U.N. and other international support for Palestinian statehood, one might conclude that it would be encouraged to continue with this approach and either discard or call into question the traditional "Oslo peace process" approach involving U.S.-supported negotiations with Israel. In that event, Congress would likely face a dilemma. If Congress continues to appropriate U.S. aid to the Palestinians as-is, the PLO might not have sufficient incentive to consider modifying its new approach to the peace process. The PLO might perceive that it has enhanced its leverage with both the United States and Israel and thus become emboldened to act with less regard for U.S. positions. Alternatively, if Congress elects to reduce or discontinue assistance, U.S. influence over future Palestinian policies and internal developments may decline. Such an approach may also increase PA reliance on aid either from European or from Gulf Arab sources, and might amplify Iran's influence by weakening the PA relative to Hamas. The underlying political agendas of these sources could significantly diverge from U.S. interests with regard to issues such as maintaining Israel's security and promoting democratic values and civil liberties. Moreover, if possible cuts in U.S. aid contribute to an environment in which Israel-PA security cooperation erodes, the result could be an increased level of Israeli-Palestinian or regional violence and the further degradation of prospects for a negotiated two-state solution. Witnesses from a September 14, 2011, hearing before the House Committee on Foreign Affairs, including Elliott Abrams (of the Council on Foreign Relations), who handled Israeli-Palestinian issues on the George W. Bush National Security Council, cautioned that an automatic and across-the-board cutoff of aid to the PA in the event of U.N. action might not serve U.S. interests—depending on the venue and substance of the possible action: Some of the programs that are up for cutting are actually in our interest and the interest of Israel, such as the security programs…. The entire Palestinian Authority is not to blame for what the PLO-Fatah crew is planning in New York. I think the collapse of the P.A. would not be in our interest, or for that matter, Israel's or Jordan's. It might actually benefit Hamas and other terrorist groups…. [W]ait and see what President Abbas in his capacity as chairman of the PLO does. Does he go to the Security Council to force an American veto? That is very harmful for the United States. What language does he put forth in his resolution? How bad is it, exactly? Does he try to get the General Assembly to pronounce on Jerusalem; on refugees, on borders? Does he go forward the next day to say, "I'm for negotiations," or is he to go forward the next day in the International Criminal Court? So you should keep some powder dry, I think. Some Members of Congress have proposed reducing or ceasing U.S. contributions to the United Nations or any U.N. agency that recognizes Palestinian statehood or accepts a putative Palestinian state as a member, on top of currently codified legal provisions ( P.L. 103-236 discussed above, and P.L. 101-246 discussed in Appendix D ) that may require the discontinuance of such contributions. As possible precedent, Representative Ileana Ros-Lehtinen, chairwoman of the House Committee on Foreign Affairs, has cited threats to U.N. funding from the George H. W. Bush Administration that may have discouraged the General Assembly and U.N. agencies from recognizing the 1988 declaration of Palestinian statehood. See Appendix D for information on congressional action from past instances since 1988 relating to unilateral or international efforts to advance the cause of Palestinian statehood. Conclusion PLO diplomatic efforts in 2011 are unlikely to lead to U.N. membership for a putative Palestinian state because of a near certainty that the United States would veto a Security Council membership recommendation vote. However, most observers believe that the PLO has majority support for a possible General Assembly resolution that would upgrade Palestine's permanent observer status in the U.N. to that of a "non-member state." Additionally, action by U.N.-affiliated agencies such as UNESCO to grant membership to a Palestinian state is possible. The United States, Israel, and European countries are likely to focus on influencing Palestinian decisions on the venue of U.N. action and/or the substance and wording of a possible resolution—with special attention to the question of statehood and to the permanence or provisionality of borders along the 1967 lines. The future implications of U.N. action on Palestinian statehood—beyond its potential symbolic value—are unclear. Although such action is unlikely to immediately resolve any of the core issues of the Israeli-Palestinian dispute, it may affect developments on the ground. For example, tightened Israeli security measures with respect to the West Bank and Gaza and popular unrest or civil disobedience among Palestinians could ensue. Although PLO Chairman/PA President Mahmoud Abbas maintains that he seeks an eventual return to U.S.-backed Israel-PLO negotiations, chances for a meaningful resumption of talks remain dim. An upgrade to Palestinian statehood status at the U.N. could lead to subsequent efforts to apply greater political and international legal pressure on Israel to change its posture on the ground, especially if the PLO gains greater access to international courts—such as the ICJ or ICC—or other forums in order to bring action against Israel. Such legal action could focus on Israeli military and security practices and Israeli settlements and infrastructure in the West Bank and East Jerusalem. Israel has expressed concern that additional Palestinian access to such institutions will further expose Israeli military leaders to the types of war crimes charges that have become more common following Israel's military actions of the past decade—possibly affecting the military's morale and operational freedom. U.N. action on Palestinian statehood or its aftermath may affect the willingness of Israel to offer concessions in a negotiating process, especially in light of ongoing, widespread change in the Arab world and the volatility and possible deterioration of Israel's political and military relationships with Egypt and Turkey. Nominal Palestinian sovereignty gained through U.N. action might serve Israeli interests by relieving the sense of international urgency for further action on the issue. If the U.N. outcome does not meet the expectations of the Palestinian people, the PLO could face internal challenges—from popular movements, Hamas, or other organized militant groups—to its continued control of the West Bank and status as the international representative of the Palestinian people. Congressional decision-making on future budgetary assistance to the PA and other forms of aid could be tied to PLO efforts to pursue U.N. action, to the outcome of Security Council and/or General Assembly votes, to what follows the U.N. outcome both diplomatically and on the ground, some combination of these, or none of these. Resolution of these questions could depend on congressional views of how maintaining or changing aid levels could affect U.S. leverage and credibility in future regional and global contexts. Appendix A. Timeline and Documentation for Three Recently Admitted Member States Appendix B. The Uniting for Peace Resolution Some observers have expressed the opinion that in the absence of positive Security Council action relating to an independent Palestine, such as a Council recommendation to the General Assembly on an application for U.N. membership by Palestine, the issue might be referred to the Assembly for approval of a membership application. This section briefly discusses the Uniting for Peace Resolution process and application, in light of the U.N. Charter's express requirement that Assembly consideration of an application for U.N. membership is predicated on prior favorable Council recommendation. The General Assembly adopted Resolution 377 A (V) on November 3, 1950, as an option in the event that the Security Council was unable to act on a matter dealing with the maintenance of international peace and security. After military forces from North Korea invaded the Republic of Korea in June 1950, the Council recommended that U.N. member states "furnish such assistance ... as may be necessary to repel the armed attack and to restore international peace and security in the area." Adoption of S/RES/83 (1950) was possible because the USSR had boycotted meetings of the Council. However, from August on, a Soviet delegation was present at Council meetings and cast a negative vote on a U.S. draft resolution condemning the action by the North Korean authorities. In the resolution, the General Assembly 1. Resolves that if the Security Council, because of lack of unanimity of the permanent members, fails to exercise its primary responsibility for the maintenance of international peace and security in any case where there appears to be a threat to the peace, breach of the peace, or act of aggression, the General Assembly shall consider the matter immediately with a view to making appropriate recommendations to Members for collective measures, including in the case of a breach of the peace or act of aggression the use of armed force when necessary, to maintain or restore international pace and security. If not in session at the time, the General Assembly may meet in emergency special session within twenty-four hours of the request therefor. Such emergency special session shall be called if requested by the Security Council the vote of any seven members, or by a majority of the Members of the United Nations; The aforementioned World Court advisory opinion (see " United Nations Membership: Criteria and Process " in the main body of the report) appears to refute use of the Uniting for Peace Resolution approach in connection with the possible admission of states to U.N. membership. The resolution was intended to be applied in instances involving maintenance of international peace and security. Appendix C. Possible Legal Implications of U.N. Action on Palestinian Statehood For Previous Israeli-PLO Agreements Some Israeli analysts believe that PLO pursuit of a U.N. Security Council or General Assembly vote on Palestinian statehood violates or contradicts previous Israeli-PLO agreements. A May 2011 Jerusalem Report article stated that a former legal advisor to the Israeli Foreign Ministry is contending that "the Palestinians are in serious breach of the 1995 Oslo Interim Agreement, which set up the Palestinian Authority [PA], the presidency and the parliament, on the understanding that all remaining differences would be resolved through negotiations." As discussed below, Palestinian claims that Israel has breached the "Oslo agreements" also are possible. The Interim Agreement and the 1993 Declaration of Principles, two of the main Oslo agreements, both contemplated that Israel and the PLO would negotiate a "permanent settlement based on Security Council Resolutions 242 and 338," both of which support the principle of Israel withdrawing from territories that its military occupied during the June 1967 war in exchange for "just and lasting peace" with its Arab adversaries. Article XXXI, Clause 7 of the Interim Agreement reads: Neither side shall initiate or take any step that will change the status of the West Bank and the Gaza Strip pending the outcome of the permanent status negotiations. PLO pursuit or acceptance of a U.N. vote on Palestinian statehood for the West Bank and Gaza outside of an Israel-PLO negotiating context could be interpreted as contradicting the above clause. Israeli sources have argued that, by allowing the U.N. to vote on the issue rather than issuing its own unilateral declaration of statehood, the PLO might seek to receive sovereignty for "Palestine" while maintaining that it is not taking active steps that constitute a breach of Article XXXI, Clause 7. Whether the PLO has an ongoing requirement to abide by the above clause and the rest of the Oslo agreements may be subject to debate. The PLO could argue that any requirement pertaining to negotiations that might have existed under the Oslo agreements no longer applies because the Oslo agreements contemplated that the transitional period under which negotiations would proceed and the PA would govern specified areas of the West Bank and Gaza Strip would "not exceed 5 years." The continuing applicability of the agreements beyond the initial 5-year period is unclear; one could argue that the agreements remain in force unless explicitly terminated, or one could argue that they are no longer binding. Israel might argue that by continuing the PA's administrative duties in the West Bank and Gaza beyond the initial 5-year-period, the PLO has implicitly accepted the continuing applicability of the Oslo agreements in their entirety. This, however, also could lead to Palestinian claims—likely to be disputed by Israel—that Israel has breached obligations under the agreements. For example, Palestinians could allege that Israel sought to change the status of Gaza when it withdrew its military forces and settlers in 2005, that it failed to treat the West Bank and Gaza as a single territorial unit, or that continued building of settlements and infrastructure in the West Bank and East Jerusalem is tantamount to a change in status. For Previous U.N. Resolutions A potential U.N. General Assembly resolution on Palestinian statehood could be seen as contrary to the letter or spirit of U.N. Security Council Resolutions 242 and 338 because these two resolutions are commonly seen as the foundational international legal basis for a negotiated "land-for-peace" peace process contemplated under the Oslo agreements (as discussed above). Recognizing Palestinian sovereignty within the 1967 borders in connection with a General Assembly resolution could be interpreted as satisfying the Palestinians' claims to land without requiring them to make commitments for peace with Israel or otherwise address security considerations, and therefore as undermining UNSCRs 242 and 338. Because General Assembly resolutions, however, are generally seen as non-binding as a matter of international law, or at least less binding than Security Council resolutions, such a General Assembly resolution on Palestinian statehood might not legally conflict with the two UNSCRs in question. The PLO and other actors supportive of a General Assembly resolution could argue that pursuing Palestinian statehood does not conflict with "land-for-peace" principles because nominal sovereignty alone would not alter Israel's control over lands beyond the 1967 borders. Mahmoud Abbas asserted in a May 2011 New York Times column that a sovereign Palestinian entity could actually be better positioned than the non-sovereign PA to negotiate a final land-for-peace compromise with Israel. Analyzing the matter similarly, though from a different viewpoint, one prominent Israeli analyst stated that "Abbas' move is aimed at shaping the political context of the diplomatic struggle between Israel and the Palestinians in the future in the Palestinians' favor…. This is as much a struggle about political consciousness as it is about international law." Another prominent Israeli analyst has related the idea of potential international recognition of Palestinian statehood to the concept of an "independent Palestinian state with provisional borders and attributes of sovereignty" proposed by the United States and the other members of the Middle East Quartet (United Nations, European Union, Russia) in 2002-2003 in Phase II of the Performance-Based Road Map to a Permanent Two-State Solution to the Israeli-Palestinian Conflict ("Roadmap"). Appendix D. Congressional Action Regarding Palestinian Statehood: 1988-2000 Following the PLO's declaration of statehood in 1988, Congress included a section (Section 414) in the Foreign Relations Authorization Act for FY1990 and FY1991 ( P.L. 101-246 ) that prohibited U.S. funding for the United Nations or any U.N. agency to the extent those forums accorded the PLO "the same standing as member states." In the context of Yasser Arafat's threat to declare a state in May 1999 at the expiration of the initial five-year interim period of the Oslo Accords—which Arafat did not ultimately carry out—the House of Representatives (in March 1999) and Senate (in April 1999) passed H.Con.Res. 24 , which contained the following three resolutions: The final political status of the territory controlled by the Palestinian Authority can only be determined through negotiations and agreement between Israel and the Palestinian Authority; Any attempt to establish Palestinian statehood outside the negotiating process will invoke the strongest congressional opposition; and The President should unequivocally assert United States opposition to the unilateral declaration of a Palestinian state, making clear that such a declaration would be a grievous violation of the Oslo accords and that a declared state would not be recognized by the United States. In September 2000, in the context of another Arafat threat—also not carried out—to declare a state following the breakdown of U.S.-brokered Israel-PLO negotiations, and just prior to the outbreak of the second intifada , the House passed the Peace Through Negotiations Act of 2000 ( H.R. 5272 ), which, if enacted as law, would have established the following provisions in the event of a subsequent PLO unilateral declaration of statehood: Downgrade to the status of the PLO's office in the United States; Prohibition on U.S. aid to a unilaterally declared Palestinian state, the Palestinian Authority, or any successor or related entity; Prohibition on U.S. program or project aid (except humanitarian aid) in the West Bank and Gaza Strip; Authorization of the President to reduce contributions to international organizations that recognize a unilaterally-declared Palestinian state; and Prohibition on use of funds to extend U.S. recognition to a unilaterally declared Palestinian state. H.R. 5272 also sought to require the United States to oppose membership by a unilaterally declared Palestinian state in any international financial institution and to oppose any such institution's extension of loans or other financial or technical assistance to such a state. Appendix E. United Nations Observer Status—The Holy See and Palestine: A Comparison of Capacities The following table is intended to provide information on the capacities of observer status in the United Nations (U.N.) for the Holy See (sometimes referred to as the Vatican), which has non-member state observer status, and for Palestine, which is an entity with observer status. Originally, the Holy See gained permanent observer status in the U.N. General Assembly in 1964 when it established a permanent observer mission and requested access to the General Assembly from the U.N. Secretary-General. That status was and is listed in the Blue Book, the Permanent Missions to the United Nations publication. The Palestine Liberation Organization, later designated by the General Assembly as Palestine within the U.N. system, was given observer status in 1974 and received enhanced capacities in successive Assembly resolutions. In 2004, the Assembly adopted a resolution on the Status of the Holy See in the United Nations, that gave the Holy See enhanced capacities that are nearly identical to those Palestine has received.

Many Members of Congress are actively interested in the question of possible U.N. action on Palestinian statehood. Congress could try to influence U.S. policy and the choices of other actors through the authorization and appropriation of foreign assistance to the Palestinians, the United Nations, and Israel and through oversight of the Obama Administration's diplomatic efforts. Changes to aid levels may depend on congressional views of how maintaining or changing aid levels could affect U.S. leverage and credibility in future regional and global contexts. Officials from the Palestine Liberation Organization (PLO) and Palestinian Authority (PA) are taking action in the United Nations aimed at solidifying international support for Palestinian statehood. On September 23, 2011, at the opening of the annual session of the General Assembly, PLO Chairman and PA President Mahmoud Abbas submitted an application for Palestinian state membership to the U.N. Secretary-General—on the basis of the armistice lines that prevailed before the Arab-Israeli War of 1967 (the "1967 borders")—in order to bring about a Security Council vote on whether to recommend membership. Abbas cites a lack of progress on the peace process with Israel as the driving factor behind PLO consideration of alternative pathways toward a Palestinian state. The Obama Administration has indicated that it will veto a Security Council resolution in favor of statehood. In an alternate or parallel scenario, an existing U.N. member state supportive of PLO plans may sponsor a resolution in the General Assembly. Such a resolution could—with a simple majority vote—recommend the recognition of a Palestinian state based on the 1967 borders—either as-is or subject to future Israel-PLO negotiation—and change Palestine's permanent observer status in the United Nations from that of an "entity" to that of a "non-member state." U.S., Israeli, and PLO diplomacy focused on Europe—particularly permanent Security Council members France and the United Kingdom—has been active and could further intensify as the time for a possible vote draws closer. Diplomacy also might currently or in the future include negotiations regarding the venue for, and the timing and wording of, potential resolutions or other actions on Palestinian statehood. Additionally, action by U.N. specialized agencies such as UNESCO to grant membership to a Palestinian state is possible. This report provides information on the U.N. framework and process for options being discussed, including overviews of the following topics: the United Nations and recognition of states, observer status in the United Nations, and the criteria and process for United Nations membership. The report also analyzes the prospects for avoiding further U.N. action by reaching an Israel-PLO agreement to resume negotiations, as well as the possibility of a compromise U.N. resolution that could set forth parameters for future Israeli-Palestinian negotiations but stop short of addressing the question of Palestinian statehood beyond expressing aspirations. It is difficult to predict the potential future implications of U.N. action on Palestinian statehood. Some observers speculate that tightened Israeli security with respect to the West Bank and Gaza and popular unrest or civil disobedience among Palestinians could ensue, depending on various scenarios. Although Abbas maintains that he seeks an eventual return to U.S.-backed Israel-PLO negotiations on a more equal basis, an upgrade of the Palestinians' status at the U.N. also could facilitate subsequent efforts to apply greater pressure on Israel, especially if the PLO gains enhanced ability to present grievances in international courts—such as the International Court of Justice (ICJ) or International Criminal Court (ICC). Whether U.N. action or its aftermath would make Israel more or less willing to offer concessions in a negotiating process remains unclear, especially in light of ongoing regional political change and the volatility and possible deterioration of Israel's political and military relationships with Egypt and Turkey.

Introduction The estate and gift tax is imposed on bequests at death and on inter-vivos (during lifetime) gifts. The rate of the tax and the level of exemption have been under discussion for some time, with temporary provisions in place for a number of years. The American Taxpayer Relief Act of 2012 ( P.L. 112-240 ) established permanent rules for the estate and gift tax for 2013 going forward. Although details of the tax structure are addressed in the following section, the principal rules are as follows: In 2011, estates and lifetime gifts had a combined exemption of $5 million in asset value, indexed for inflation. This exemption was made permanent and is $5.49 million for 2017. The estate tax rate on the taxable portion of the estate, if any, is 40%. The exemption from the estate tax applies to estates and lifetime inter-vivos gifts in the aggregate. The separate annual exemption per donee for inter-vivos gifts is retained; it is also indexed in $1,000 increments and has increased from $13,000 in 2012 to $14,000 in 2017 and $15,000 in 2018. Transfers to spouses remain exempt, but spouses can inherit any unused portion of the exemption from each other, so that the combined exemption for a couple was $10 million in 2011. Other estate tax deductions, such as those for charitable contributions, are retained. A number of special rules for farms and small businesses are retained. A doubling of the exemption level was adopted in the 2017 tax revision ( P.L. 115-97 ), effective from 2018 to 2025; for 2018, the exemption is $11.2 million. This report describes the basic structure of the estate and gift tax, provides a brief history of recent developments, discusses the revenue effects and distribution of the tax, and briefly discusses issues and options. Basic Structure The estate and gift tax is a unified tax, so that assets transferred as gifts during a person's lifetime are combined with those transferred at death (bequests) and subject to a single rate schedule. The tax is imposed on the decedent's estate and the rate structure applies to total bequests and gifts given; heirs are not subject to tax. Rates and Basic Exemptions The exemption for 2017 is $5.49 million, and it is indexed for inflation. From 2018 to 2025, the exemption is doubled, and it is $11.2 million for 2018. Although the rates of the tax are graduated, the exemption is applied in the form of a credit and offsets taxes applied at the lower rates. Thus the taxable estate is therefore subject to a flat 40% rate. This rate is higher than the 35% rate that prevailed in 2011 and 2013, but lower than the 45% rate that applied in 2009. Individuals are also allowed to exempt annual gifts of $14,000 per recipient for 2017, which are not counted as part of the lifetime exemption. The annual gift tax exemption is indexed for inflation in $1,000 increments and will rise to $15,000 in 2018. A generation-skipping tax is also imposed, to address estate tax avoidance through gifts and bequests to a later generation. Other Exemptions and Deductions Transfers between spouses are exempt. Estates are allowed to take deductions for charitable contributions and administrative expenses; a deduction for taxes paid on estates and inheritances imposed by states; and to exempt up to $5.49 million for 2017 ($11.2 million in 2018) in remaining assets from the tax. A spouse can inherit any unused exemption. Thus, if a husband died and left an estate of $3 million in 2017, the remainder of his $5.49 million exemption can be used by his wife, whose exemption would be increased by the $2.43 million difference. Special Provisions for Small Businesses, Farms, and Landowners A series of provisions benefit small businesses, including farms and landowners. These provisions include the ability of family businesses to pay any estate tax due in installments with only the interest payments during part of the installment period, special use valuations, and conservation easements. Minority discounts, although granted by courts rather than specifically in the law, may also benefit small businesses. Minority discounts are allowed when assets are left to a family partnership in which no individual has a controlling share and are thus deemed to lose value for that reason. Although the estate tax return is due within nine months of the death, small businesses are allowed to defer payment (except for interest) for the next five years, and pay the remaining installment payments over 10 years. Because the last interest payment and the first installment coincide, the overall delay in full payment is 14 years. The benefit is allowed only for the business portion of assets if 35% of the estate is in a farm or closely held business. Small businesses are also allowed to value their assets at use as a farm or business. This provision is particularly beneficial to farms and allows a reduction in the estate value of up to $1 million. It means, for example, that the value of the farm will be what it could be sold for if restricted to farm use rather than to be subdivided for development. Heirs are required to continue use of the assets as a farm or business for 10 years. Farmers and other landowners may also benefit from conservation easements, a perpetual restriction on the use of the land. In addition to the reduction in value due to the easement itself, an exclusion of up to 40% of the restricted value of the land, capped at $500,000, is allowed. Step-up in Basis for Appreciated Assets Heirs take as their basis (the amount to be deducted from the sales price) for purposes of future capital gains the value of the asset at the date of the decedent's death. This treatment is referred to as step-up in basis and means that no capital gains tax is paid on the appreciation of assets during the decedent's lifetime. For example, if a decedent purchased stock for $100,000 and the value of the stock at the time of death were $200,000, if the heir sells the property for $250,000 a gain of $50,000 ($250,000 minus the stepped-up basis of $200,000) is recognized. The $100,000 of gain that accrued during the decedent's lifetime is never taxed. The step-up rules do not apply to gifts, in which carryover basis is applied. In that case, the original basis of $100,000 would be carried over and the gain would be $150,000 ($250,000 minus $100,000). Both the gain accrued by the donor and the gain accrued by the donee are taxed. Differences in the Treatment of Bequests and Gifts Aside from the different exemption levels in some estate tax rules, there are other differences between the taxation of gifts and bequests. As noted above, gifts do not benefit from the step-up in basis. When the donee subsequently sells an asset, the cost (referred to as basis) deducted from the sales price is the original cost to the donor. For example, if a donor purchased stock for $100,000 and the value of the stock at the time of the gift were $200,000, when the donee sells the property for $250,000 a gain of $150,000 ($250,000 minus the original basis of $100,000) is recognized. The basis cannot be less than the fair market value at the time of the gift if a loss is realized. In addition, the gift tax is tax exclusive (i.e., the tax is imposed on the gift net of the tax), whereas the estate tax is tax inclusive (i.e., the tax is applied to the estate inclusive of the tax). To illustrate, consider a 50% tax rate. Assuming the exemption is already used, to provide a gift of $1 million costs $1.5 million: the tax rate of 50% is applied to the gift of $1 million for a $0.5 million tax. To provide a net amount of $1 million for a bequest, $2 million is required: a tax of $1 million (50% of $2 million) and a net to the heir of $1 million. Another way of stating this is that the gift tax rate, if stated as a tax inclusive rate like the estate tax, would be 33%. Thus for a 40% estate tax rate, the gift tax rate equivalent is 28.6%. Brief History of Recent Developments The Economic Growth and Tax Relief Act of 2001 (EGTRRA; P.L. 107-16 ) provided for a gradual reduction in the estate tax. A unified exemption for both lifetime gifts and the estate of $675,000 applied at that time. Under EGTRRA, the estate tax exemption rose from $675,000 in 2001 to $3.5 million in 2009, and the top tax rate fell from 55% to 45%. Although combined estate and gift tax rates are graduated, the exemption is effectively in the form of a credit that eliminates tax due at lower rates resulting in a flat rate on taxable assets under 2009 law. The gift tax exemption was, however, restricted to $1 million. For 2010, EGTRRA scheduled the elimination of the estate tax, although it retained the gift tax and its $1 million exemption. EGTRRA also provided for a carryover of basis for assets inherited at death, so that, in contrast with prior law, heirs who sold assets would have to pay tax on gains accrued during the decedent's lifetime. This provision has a $1.3 million exemption for gain (plus $3 million for a spouse). As with other provisions of EGTRRA, the tax revisions were to expire in 2011, returning the tax provisions to their pre-EGTRRA levels. The exemption would have reverted to $1 million (a value that had already been scheduled for pre-EGTRRA law) and the rate to 55% (with some graduated rates). The carryover basis provision effective in 2010 would be eliminated (so that heirs would not be taxed on gain accumulated during the decedent's life when they inherit assets). During debate on the estate tax, most agreed that the 2010 provisions would not be continued and, indeed, could be repealed retroactively. President Obama proposed a permanent extension of the 2009 rules (a $3.5 million exemption and a 45% tax rate), and the House provided for that permanent extension on December 3, 2009 ( H.R. 4154 ). The Senate Democratic leadership indicated a plan to retroactively reinstate the 2009 rules for 2010 and beyond. Senate Minority Leader McConnell proposed an alternative of a 35% tax rate and a $5 million exemption. A similar proposal for a $5 million exemption and a 35% rate, which also included the ability of the surviving spouse to inherit any unused exemption of the decedent, is often referred to as Lincoln-Kyl (named after the two Senators who supported it). Proposals were also made to begin with the $3.5 million exemption and 45% rate and phase in the $5 million exemption and 55% rate. Others had argued for permanent estate tax repeal. At the end of 2010, a temporary two-year extension, with a $5 million exemption, a 35% rate, and inheritance of unused spousal exemptions was enacted in P.L. 111-312 . These provisions provided for estate tax rules through 2012, and absent legislation, the provisions would have reverted to the pre-EGTRRA rules ($1 million exemption, 55% top rate). The American Taxpayer Relief Act of 2012 ( P.L. 112-240 ) established the permanent exemption ($5.25 million) and rate (40%) described above. The 2017 tax revision ( P.L. 115-97 ) doubled the exemptions for the years 2018 through 2025. The House had proposed doubling the exemption through 2024 and then repealing the estate tax and lowering the gift tax rates to 35%. Revenues and Coverage Compared with pre-existing law (a $1 million exemption and a 55% rate), the ATRA revision was projected to lose $369 billion in revenue from FY2013 to FY2022, rising from $27 billion in FY2015 to $54 billion FY2022. This change reduced total projected revenue from the estate tax by about two-thirds. The 2017 revision was projected to reduce revenues by $83 billion over eight years, for a further reduction in projected revenue of about 40%. Only a small portion of high-income decedents are affected by the tax under a $5 million exemption. The estate tax would have affected less than 0.2% of decedents over the next decade under the permanent rules. The doubling of the exemption would reduce that share to 0.05%. The estate tax is concentrated among high-income taxpayers: 91% is paid by the top quintile, 60.4% by the top 1%, and 26% by the top 0.1%. The concentration in upper income categories would be increased with the higher temporary exemption levels. About 0.2% of estates with half or more of their assets in businesses will be subject to the estate tax under the permanent rules, and less with the higher exemption levels. About 100 farm estates (or approximately two per state) are projected to be subject to the estate tax, and constitute 1.8% of taxable estates according to a projection from a CBO study. If the number of farm estates fall in proportion to the number of estates in general, around 25 farm estates (one estate every two years per state) would be taxable with the higher exemption level enacted in 2017. Less than a quarter of taxable farm estates (0.4% of all farm estates) are projected to have inadequate liquidity to pay estate taxes. The Department of Agriculture, using a somewhat different measure of what constitutes a farm, projects less than 1% (0.4%) of farm operator estates is projected to pay the tax, totaling 153 estates. These shares would also be expected to decline significantly with the higher exemptions. About 94 estates (about two per state) with half their assets in small business and that expect their heirs to continue in the business are projected to be subject to the estate tax; they constitute 2.5% of total estates. Less than a half (1.1%) is projected to have inadequate liquidity to pay estate taxes. These amounts would also decline significantly with the higher exemption level. Issues and Options A number of general issues have been raised about the estate tax. For example, some have expressed concern that the estate tax discourages savings. Others have noted that the tax encourages charitable bequests because they are deductible and reducing rates and increasing the exemption will reduce charitable contributions. A broader estate tax is also criticized as causing complex planning and tax administration problems. Although the current size of the exemption and the rate of tax had been set in permanent tax law, the House and Senate tax reform proposals differed in their approaches. Although both proposed an immediate doubling of the exemption level, the House would have repealed the estate tax (and reduced the gift tax rate to 35%) after 2024. The final bill doubled the exemption level but, as with other individual provisions, the increase is set to expire after 2025. As a result, the exemption level will return to its permanent level in 2026, absent further legislative change to extend the increase or make the increase permanent. The Obama Administration had previously proposed to return to the 2009 rates and levels. The President Obama's current and past budgets have also contained some more narrow proposals aimed at perceived abuses of the estate tax. All of the estimates of revenue gain unless otherwise noted are for FY2016-FY2025 and are obtained from the FY2016 budget proposals. Note that these estimates of narrow provisions are based on the assumption of lower exemptions and higher rates in the 2016 budget. Making the Higher Exemption Levels Permanent The 2017 increase in exemption level was estimated to lose $83 billion in revenue. Making it permanent would appear to have increased the cost by about $12 billion; it would also eventually be larger, not just due to growth in wealth, but to lags in filing estate tax returns. Proposal to Repeal the Estate Tax and Reduce the Gift Tax Rate to 35% The House version of H.R. 1 would have first increased the exemption levels and repealed the estate tax after 2023. The revenue estimate indicates a cost of $150 billion from FY2018 to 2027, but this estimate understates the permanent cost of this proposal because repeal was delayed (and there is a delay in filing estate tax returns as well). In the 114 th Congress, H.R. 1105 and S. 860 would have immediately repealed the estate tax and reduced the rate of the gift tax rate. H.R. 1105 was reported by the House Ways and Means Committee ( H.Rept. 114-52 ). The bills would have provided a transition rule for assets placed in a qualified domestic trust by a decedent who died before the effective date. The estate tax would not apply after 10 years or after the death of the surviving spouse. The proposal was estimated to cost $269 billion for FY2015-FY2025. Proposal to Return to 2009 Rates and Exemptions The Obama Administration's FY2016 budget proposals to restore the 2009 higher rates and lower exemptions were estimated to raise $189 billion over 10 years. Narrow Provisions Grantor Retained Annuity Trusts A Grantor Retained Annuity Trust (GRAT) is a trust that allows the grantor to receive an annuity, with any remaining assets transferred to the trust recipient. The value of the gift is reduced by the value of the assets used to fund the annuity. If the assets in the trust appreciate substantially, then virtually all of the gift can be reduced by the value of the annuity, while still providing a substantial ultimate gift to the recipient. If the grantor dies during the annuity period, the remaining value of the annuity is included in the estate. This trust approach could be a method of transferring assets roughly tax free if the assets appreciate at a rate faster than the discount rate used to value the annuity. The grantor needs to survive over the period of the annuity. To assure the latter will be likely to occur, many of these trusts have very short annuity periods, as short as two years. Although successive short-term GRATs reduce the risk of losing control of capital by the grantor, there is also an advantage of a long-term GRAT. If the interest rate is expected to rise, the trust can lock in a low discount rate for the entire term. This low interest rate will increase the value of the annuity deduction compared with successive short-term GRATs that will have to use the current interest rate at the time the GRAT is established. The GRAT proposal in President Obama's 2016 budget proposal would have imposed a minimum annuity term of 10 years, disallowed any decline in the annuity, and required a non-zero remainder interest. It would have imposed a maximum term of the annuitant's life plus 10 years. The provision was estimated to raise $18.4 billion over 10 years. Minority Discounts There are existing restrictions to keep estates from engaging in artificial actions designed to reduce the value of estates (such as freezes on assets). As discussed above, courts sometimes allow estates to reduce the fair-market value when assets are left in family partnerships in which no one has a majority control. These discounts have even been allowed when assets are in cash and readily marketable securities, and the setting up of these family partnerships has become an estate tax avoidance tool. This provision is not in the current budget proposal, but it was estimated in the past to raise $18.1 billion from FY2013 to FY2022. Consistent Valuation Currently, there is no explicit rule preventing a low valuation of fair-market value for an estate and a high valuation of the asset for purposes of stepped-up basis in the hands of the heir. A low value of an asset reduces the estate tax, but a high value (because it reduces the amount of gain) reduces the capital gains tax. Requiring the same value for both purposes was projected to raise $3.2 billion over 10 years. Other Minor Provisions When generation-skipping transfers are made to a trust, the estate tax exemption applicable to them also exempts the associated earnings during the trust lifetime. In the past, a trust life has been limited because most states had a Rule Against Perpetuities that generally limited trusts to a 21-year life. Most of those laws have been eliminated. The Obama Administration's proposal would have limited the life of a generation-skipping trust to 90 years. The revenue effect would have been negligible over the next 10 years. Currently, the Internal Revenue Service (IRS) has a lien on estate tax deferrals for closely held business, but these liens are for 10 years, shorter than the deferral period. This provision would have extended the liens through the deferral period and was projected to raise $0.3 billion over 10 years. Currently, payments for medical care or education made directly to the provider for another are exempt from the generation-skipping tax and the gift tax. Taxpayers have been using trusts to eventually pay for these expenses and avoid tax on the accumulations. The Obama Administration indicated that the original purpose of this provision was to exempt payments between living persons and would have disallowed exemptions for payments to trusts. This provision would have lost revenue in the budget horizon, $0.2 billion. The executor of an estate is responsible for estate tax issues, but there is no clear federal rule about authority to address income tax issues of the decedent form prior years. This provision would have extended authority for addressing federal income tax issues to the executor. It would have involved a negligible revenue loss. Simplify Gift Tax Exclusion for Annual Gifts This provision would have disallowed the unlimited use of trusts (called Crummey trusts) to expand the number of annual gift exclusions, by imposing an additional overall limit of $50,000 on gifts made via trusts. This provision was projected to raise $3.4 billion over 10 years. Coordinate Grantor Trusts Income and Transfer Tax Rules In a grantor trust, an individual is treated as owner for income tax purposes. However, the trust and the individual are treated as separate persons for purposes of the estate and gift tax. This proposal from the Obama Administration included the assets of the trust in the grantors estate and subjected distributions to the gift tax if the grantor is the owner for income tax purposes. If the grantor ceases to be the owner, the assets would have been subject to a gift tax. This provision is not in the current budget proposal, but was included in prior budgets and was projected to raise $3.3 billion over 10 years at that time.

The American Taxpayer Relief Act (ATRA; P.L. 112-240) established permanent rules for the estate and gift tax for 2013 going forward. The tax revision of 2017 (P.L. 115-97) doubled the exemption levels. This increase expires after 2025. The estate tax is imposed on bequests at death as well as inter-vivos (during life) gifts. A certain amount of each estate, $5 million in 2011, indexed for inflation, is exempted from taxation by the federal government. With indexation, the value was $5.49 million in 2017 and with the temporary doubling of the exemption and inflation adjustments, is $11.2 million in 2018. The taxable estate is taxed at 40%. The exemption applies to total bequests and gifts (separate from the annual inter-vivos gift exemption of $15,000 per donee for 2018). Transfers between spouses are exempted, and any unused exemption can be inherited by a surviving spouse. Other elements of the tax remain, including deductions for charitable bequests and a number of special provisions for farms and small businesses. The permanent tax treatment of estates and gifts had been uncertain for some time. The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA; P.L. 107-16), among other tax cuts, provided for a gradual reduction and elimination of the estate tax. Under EGTRRA, the estate tax exemption rose from $675,000 in 2001 to $3.5 million in 2009, and the rate fell from 55% to 45%. In 2010, the estate tax was eliminated. There was general agreement that some sort of estate tax would be retained. A proposal to make the 2009 rules ($3.5 million exemption and 45% rate) permanent was included in President Obama's 2010 and 2011 budget outlines and was passed by the House in December 2009. In addition, in 2009, Senate Democratic leaders supported the plan to enact the 2009 rules permanently. The Senate Republican leadership proposed a $5 million exemption and 35% rate. This latter provision was eventually adopted for a two-year period, through 2012. For estates of decedents in 2010, either the 2010 or 2011 rules could have been elected. Spouses can inherit unused exemptions. The permanent provisions retain most of the rules adopted for 2011 and 2012, but with a higher rate. Compared with the $1 million exemption and 55% rate under pre-EGTRRA law, the 2013 permanent rules were estimated to lose an average of about $37 billion over the next 10 years, a two-thirds reduction in estate tax revenues. The increase in the exemption level costs around $10 billion per year, a further reduction of about 40% of projected revenues. Regardless of the exemption levels considered, few estates are affected by the tax. The estate tax is a highly progressive tax, with about three-fourths collected from estates in which decedents are in the top 1% of the income distribution. At a $5 million exemption, less than 0.2% of estates will be subject to the tax. Although concerns have been raised about the effects of the tax on small businesses and farmers, estimates indicate that only a small share of these decedents are affected. Budget proposals during the Obama Administration proposed a return to the 2009 rates and exemptions. They also proposed a variety of structural reforms, including restricting Grantor Retained Annuity Trusts (GRATs), providing consistent valuation for estate tax and basis for capital gains, limiting the duration of generation-skipping trusts, and providing consistent treatment of grantor trusts along with some other minor changes. Prior provisions would have disallowed minority discounts (for estates left to a family partnership) and addressed other aspects of GRATs. During the recent 2017 tax reform deliberations, the House proposed to increase the higher exemption temporarily, and repeal the estate tax after 2024.

Introduction Issue For Congress The Bush Administration identified transformation as a major goal for the Department of Defense (DOD) soon after taking office, and initially justified many of its proposals for DOD on the grounds that they are needed for defense transformation. The Administration's early emphasis on transformation altered the framework of debate for numerous issues relating to U.S. defense policy and programs. Although defense transformation is still discussed in administration defense-policy documents and budget-justification materials, the concept is now less prominent in discussions of U.S. defense policy and programs than it was during the earlier years of the Bush Administration. Related CRS Reports This report addresses defense transformation from a DOD-wide perspective. For discussions of transformation as it relates to specific parts of DOD, see the following CRS reports: CRS Report RS20787, Army Transformation and Modernization: Overview and Issues for Congress , by [author name scrubbed], CRS Report RL32476, U.S. Army's Modular Redesign: Issues for Congress , by [author name scrubbed], CRS Report RS20859, Air Force Transformation , by [author name scrubbed], CRS Report RS20851, Naval Transformation: Background and Issues for Congress , by [author name scrubbed], CRS Report RL32411, Network Centric Operations: Background and Oversight Issues for Congress , by [author name scrubbed], CRS Report RL31425, Military Transformation: Intelligence, Surveillance and Reconnaissance , by [author name scrubbed], CRS Report RL32151, DOD Transformation Initiatives and the Military Personnel System: Proceedings of a CRS Seminar , by [author name scrubbed] (pdf), and CRS Report RL33148, U.S. Military Overseas Basing: New Developments and Oversight Issues for Congress , by [author name scrubbed]. Background What Is Defense Transformation? The term defense transformation came into common use among military officials and defense analysts in the late 1990s. It has been defined by military officials, military analysts, and other observers in various ways. In general, defense transformation can be thought of as large-scale, discontinuous, and possibly disruptive changes in military weapons, organization, and concepts of operations (i.e., approaches to warfighting) that are prompted by significant changes in technology or the emergence of new and different international security challenges. Advocates of defense transformation stress that, in contrast to incremental or evolutionary military change brought about by normal modernization efforts, defense transformation is more likely to feature discontinuous or disruptive forms of change. They also stress that while much of the discussion over transformation centers on changes in military weapons and systems, changes in organization and concepts of operations can be as important, or even more important, than changes in weapons and systems in bringing about transformation. Changes in organization and concepts of operation, some have argued, can lead to transformation even without changes in weapons and systems, while even dramatic changes in weapons and systems might not lead to transformation if not accompanied by changes in organization and concepts of operation. DOD has defined transformation in one document as a process that shapes the changing nature of military competition and cooperation through new combinations of concepts, capabilities, people and organizations that exploit our nation's advantages and protect against our asymmetric vulnerabilities to sustain our strategic position, which helps underpin peace and stability in the world. First and foremost, transformation is a continuing process. It does not have an end point. Transformation anticipates and creates the future and deals with the co-evolution of concepts, processes, organizations, and technology. Profound change in any one of these areas necessitates change in all. Transformation creates new competitive areas and competencies and identifies, leverages, or creates new underlying principles for the way things are done. Transformation also identifies and leverages new sources of power. The overall objective of these changes is to sustain U.S. competitive advantage in warfare. The Administration's view of transformation has evolved somewhat since 2001 to include more emphasis on transformation as a continuing process rather than one with an endpoint, and on making changes not just in combat forces and warfighting doctrine, but in supporting DOD activities such as training, personnel management, logistics, and worldwide basing arrangements. The Administration's definition of transformation also encompasses making changes in DOD business policies, practices, and procedures, particularly with an eye toward streamlining operations and achieving efficiencies so as to reduce costs and move new weapon technologies from the laboratory to the field more quickly. The Administration has also used the term transformation to refer to proposed changes in matters such as the budget process and environmental matters affecting military training. Some observers have equated transformation principally with the idea of making U.S. forces more mobile, agile, and lethal through greater reliance on things such as unmanned vehicles (UVs), advanced technologies for precision-strike operations, and special operations forces (SOF). Other observers have equated transformation principally with the concept of network-centric warfare (NCW) and the C4ISR technologies needed to implement NCW. Still others have equated transformation primarily with making U.S. military forces more expeditionary, with making order-of-magnitude improvements in specific military capabilities, with making many smaller improvements that add up to larger improvements, or with the notion of weapon modernization in general. Some of these alternative formulations are not so much definitions of transformation as prescriptions for how U.S. military forces should be transformed. Others can be viewed as reducing the threshold of what qualifies as transformation by including changes that, while perhaps dramatic, represent an elaboration of current practices and arrangements rather than something discontinuous with or disruptive of those practices and arrangements. Related to the concept of defense transformation is the somewhat earlier term Revolution in Military Affairs (RMA), which came into use in the early 1990s. RMAs are periodic major changes—discontinuities—in the character of warfare. Depending on the source consulted, a few or several RMAs are deemed to have occurred in recent decades or centuries. Although the terms transformation and RMA have sometimes been used interchangeably, RMA can be used to refer to a major change in the character of warfare, while transformation can be used to refer to the process of changing military weapons, concepts of operation, and organization in reaction to (or anticipation of) an RMA. What Are The Administration's Plans For Transformation? DOD Publications DOD has published a number of documents describing the Administration's plans for defense transformation. Among these are Elements of Defense Transformation , published in October 2004, Military Transformation: A Strategic Approach , published in the fall of 2003, Transformation Planning Guidance , published in April 2003, and separate transformation plans (called road maps) for each of the military services. Overall Vision In general, the Administration's vision for defense transformation calls for placing increased emphasis in U.S. defense planning on the following: irregular warfare (including terrorism, insurgencies, and civil war), potential catastrophic security threats (such as the possession and possible use of weapons of mass destruction by terrorists and rogue states), and potential disruptive events (such as the emergence of new technologies that could undermine current U.S. military advantages). The Administration's vision for defense transformation calls for shifting the U.S. military away from a reliance on massed forces, sheer quantity of firepower, military services operating in isolation from one another, and attrition-style warfare, and toward a greater reliance on joint (i.e., integrated multi-service) operations, NCW, effects-based operations (EBO), speed and agility, and precision application of firepower. Some transformation advocates characterize these changes as shifting from an industrial-age approach to war to an information-age approach. As mentioned earlier, the Administration's transformation vision also includes proposals for changing things like training practices, personnel management practices, logistics operations, and worldwide basing arrangements, and for changing DOD's business practices, particularly with an eye toward streamlining those practices so as to accelerate the fielding of new weapons and generate savings that can be used to invest in them. A potential emerging area of DOD's vision for defense transformation are actions to reduce DOD's energy requirements and to develop alternative energy sources, particularly for forces operating in distant theaters. DOD has stated that its transformation effort is focused on achieving six "critical operational goals" and consists of four essential "pillars:" Six critical operational goals identified by Secretary of Defense Donald H. Rumsfeld provide the focus for the Department's transformation efforts: (1) Protecting critical bases and defeating chemical, biological, radiological, and nuclear weapons; (2) Projecting and sustaining forces in anti-access environments; (3) Denying enemy sanctuary; (4) Leveraging information technology; (5) Assuring information systems and conducting information operations; and (6) Enhancing space capabilities. Over time, the continued focus of the Department's force transformation efforts on the development of the capabilities necessary to achieve these six critical operational goals will help shift the balance of U.S. forces and broaden our capabilities.... The four military transformation pillars identified by the Secretary—strengthening joint operations, exploiting U.S. intelligence advantages, concept development and experimentation, and developing transformational capabilities—constitute the essential elements of the Department's force transformation strategy. The first pillar focuses on strengthening joint operations through the development of joint concepts and architectures and the pursuit of other important jointness initiatives and interoperability goals. The overarching Joint Operations Concepts (JOpsC) document provides the operational context for military transformation by linking strategic guidance with the integrated application of Joint Force capabilities. The second pillar involves exploiting U.S. intelligence advantages through multiple intelligence collection assets, global surveillance and reconnaissance, and enhanced exploitation and dissemination. Our ability to defend America in the new security environment requires unprecedented intelligence capabilities to anticipate where, when, and how adversaries intend to harm us. The third pillar, concept development and experimentation, involves experimentation with new approaches to warfare, operational concepts and capabilities, and organizational constructs through war gaming, simulations, and field exercises focused on emerging challenges and opportunities. Experiments designed to evaluate new concepts provide results that help refine those concepts in an iterative fashion. [Regarding the fourth pillar, the] Department requires strong mechanisms for implementing results from concept development and experimentation and, more immediately, for developing transformational capabilities needed to support the JOpsC and subordinate Joint Operating Concepts. In its report on the 2005 Quadrennial Defense Review, submitted to Congress on February 6, 2006, DOD stated: If one were to attempt to characterize the nature of how the Department of Defense is transforming and how the senior leaders of this Department view that transformation, it is useful to view it as a shift of emphasis to meet the new strategic environment. In this era, characterized by uncertainty and surprise, examples of this shift in emphasis include: •    From a peacetime tempo—to a wartime sense of urgency. •    From a time of reasonable predictability—to an era of surprise and uncertainty. •    From single-focused threats—to multiple, complex challenges. •    From nation-state threats—to decentralized network threats from non-state enemies. •    From conducting war against nations—to conducting war in countries we are not at war with (safe havens). •    From "one size fits all" deterrence—to tailored deterrence for rogue powers, terrorist networks and near-term competitors. •    From responding after a crisis starts (reactive)—to preventive actions so problems do not become crises (proactive). •    From crisis response—to shaping the future. •    From threat-based planning—to capabilities-based planning. •    From peacetime planning—to rapid adaptive planning. •    From a focus on kinetics—to a focus on effects. •    From 20 th century processes—to 21 st century integrated approaches. •    From static defense, garrison forces—to mobile, expeditionary operations. •    From under-resourced, standby forces (hollow units)—to fully-equipped and fully-manned forces (combat ready units). •    From a battle-ready force (peace)—to battle-hardened forces (war). •    From large institutional forces (tail)—to more powerful operational capabilities (teeth). •    From major conventional combat operations—to multiple irregular, asymmetric operations. •    From separate military Service concepts of operation—to joint and combined operations. •    From forces that need to deconflict—to integrated, interdependent forces. •    From exposed forces forward—to reaching back to CONUS [the continental United States] to support expeditionary forces. •    From an emphasis on ships, guns, tanks and planes—to focus on information, knowledge and timely, actionable intelligence. •    From massing forces—to massing effects. •    From set-piece maneuver and mass—to agility and precision. •    From single Service acquisition systems—to joint portfolio management. •    From broad-based industrial mobilization—to targeted commercial solutions. •    From Service and agency intelligence—to truly Joint Information Operations Centers. •    From vertical structures and processes (stovepipes)—to more transparent, horizontal integration (matrix). •    From moving the user to the data—to moving data to the user. •    From fragmented homeland assistance—to integrated homeland security. •    From static alliances—to dynamic partnerships. •    From predetermined force packages—to tailored, flexible forces. •    From the U.S. military performing tasks—to a focus on building partner capabilities. •    From static post-operations analysis—to dynamic diagnostics and real-time lessons learned. •    From focusing on inputs (effort)—to tracking outputs (results). •    From Department of Defense solutions—to interagency approaches. Service and Agency Transformation Plans The military services and DOD agencies have developed transformation plans or road maps in support of DOD's overall transformation vision. The Army's transformation plan centers on reorganizing the Army into modular, brigade-sized forces called Units of Action (UAs) that can be deployed to distant operating areas more easily and can be more easily tailored to meet the needs of each contingency. Key elements of the Air Force's transformation plan include reorganizing the service to make it more expeditionary, and exploiting new technologies and operational concepts to dramatically improve its ability to rapidly deploy and sustain forces, to dominate air and space, and to rapidly identify and precisely attack targets on a global basis. Key elements of naval transformation include a focus on operating in littoral (i.e., near shore) waters, new-design ships requiring much-smaller crews, directly launching and supporting expeditionary operations ashore from sea bases, more flexible naval formations, and more flexible ship-deployment methods. Elements common to the transformation plans of all the services include greater jointness, implementing NCW, and greater use of unmanned vehicles (UVs). As mentioned earlier, for more on the transformation plans of the Army in general, the Army plan for UAs, the Air Force, and the Navy, see CRS Report RS20787, CRS Report RL32476, CRS Report RS20859, and CRS Report RS20851, respectively. Office of Force Transformation As part of its strategy for implementing transformation, DOD in October 2001 created the Office of Force Transformation (OFT), which resided within the Office of the Secretary of Defense (OSD). OFT was a small office with a staff of roughly 18 people and an annual budget of roughly $20 million. It reported directly to the Secretary of Defense. Among other things, OFT issued guidance to the rest of DOD on transformation; reviewed and approved transformation plans submitted by the military services and DOD agencies; acted as a generator, promoter, and clearinghouse of ideas for transformation; and generally evangelized in support of transformation. From October 29, 2001, until January 31, 2005, the director of OFT was retired Navy Vice Admiral Arthur K. Cebrowski. Cebrowski, who died in November 2005, was a leading advocate and intellectual developer of defense transformation. Prior to becoming director of OFT, Cebrowski was President of the Naval War College, where he was a proponent of the then-emerging concept of NCW and initiated studies on radically new kinds of Navy warships. Following Cebrowski's departure from OFT in January 2005, the office's deputy director, Terry Pudas, served as acting director. On August 28, 2006, DOD announced that it planned to dissolve OFT and transfer its functions into other DOD offices. The announcement followed press reports dating back to April 2005 about the possible fate of the office. OFT was disestablished on October 1, 2006; its research and development projects were transferred to DOD's Director for Defense Research and Engineering (DDR&E), and its operation and maintenance activities were transferred to the Under Secretary of Defense for Policy. An April 2007 press article stated: The Defense Department's decision in August 2006 to close the Office of Force Transformation left many people inside and outside the department wondering what would happen to the office's programs and track record of innovation. Some experts even said DOD's catalyst for experimentation would be lost. Now, more than seven months later, those concerns and questions remain unanswered. DOD has folded most of OFT into a reorganized policy office within the Office of the Secretary of Defense. It has shifted OFT's people and projects into new offices, but it has not finalized the role of the new office. "We're starting to settle into the new construct as we move from outside the [policy] organization to a more aligned construct," said Terry Pudas, former acting director of OFT. Pudas now is acting deputy assistant secretary of Defense for forces transformation and resources in the Office of the Undersecretary of Defense for Policy. When DOD decided to close OFT, Pentagon officials countered critics by saying transformational thinking at DOD had matured and was engrained [sic] throughout the department. They emphasized how network-centric warfare and the emerging Global Information Grid are revolutionizing intelligence collaboration and battlefield command and control. The decision to move OFT inside OSD's policy structure was a double-edged sword, Pudas said. On the one hand, former OFT employees are more directly connected to policy development and implementation, which encourages better coordination. But now they now spend much of their time in meetings rather than focusing on new initiatives. Pudas' new office houses 20 people, about the same number as at OFT. But staff members aren't leading any projects yet, he said. Instead, they are focused on collaborating with other offices and overseeing policy concerns of the Joint Forces and Transportation commands. John Garstka, director of force transformation in the new office, said being inside the OSD policy shop has advantages, but the unique character of the original OFT has been lost. "It all revolves around the money," Garstka said, adding that the former OFT leadership pursued project funding without getting specific permission. It remains to be seen whether OFT's technology concept development activities, now under the director for Defense research and engineering, will remain robust, he said. Proximity to the policy-making process doesn't necessarily correspond to increased influence in that process, Garstka added.... Network-centric operations, a core philosophy of [the first OFT director, retired Vice Adm. Art] Cebrowski and OFT, is one idea that DOD has embraced, officials say. DOD has applied OFT's conceptual framework for network-centric operations to a variety of case studies, including research into the use of Blue Force Tracking and the benefit of Stryker Brigade Combat Teams.... Meanwhile, DOD gave OFT's technology projects and research funding, along with four staff members, to the Office of the Director for Defense Research and Engineering, led by John Young. Those projects are continuing as planned, said Alan Shaffer, the office's director of plans and programs.... DOD will rename the part of the office that houses those projects the Operational Experimentation Division, Shaffer said. As those projects reach the demonstration phase, the office will replace them with new, midsize projects that carry higher-than-normal risk. Overall, DOD must figure out how to make transformation fiscally sustainable by leveraging initiatives that offer returns and losing others, Pudas said. DOD officials must also balance investments in information with investments in other capabilities to close a gap in usability, he added. The new OFT policy section still can be a catalyst for innovation, Pudas said. "We haven't lost that charter." U.S. Joint Forces Command As another measure to help implement transformation, DOD designated U.S. Joint Forces Command (USJFCOM), a unified military command with a staff of more than 800 headquartered in Norfolk, VA, as the military's premier "transformation laboratory." USJFCOM states: U. S. Joint Forces Command (USJFCOM) is one of nine combatant commands in the Department of Defense, and the only combatant command focused on the transformation of U.S. military capabilities. Among his duties, the commander of USJFCOM oversees the command's four primary roles in transformation—joint concept development and experimentation, joint training, joint interoperability and integration, and the primary conventional force provider as outlined in the Unified Command Plan approved by the president. The Unified Command Plan designates USJFCOM as the "transformation laboratory" of the United States military to enhance the combatant commanders' capabilities to implement the president's strategy. USJFCOM develops joint operational concepts, tests these concepts through rigorous experimentation, educates joint leaders, trains joint task force commanders and staffs, and recommends joint solutions to the Army, Navy, Air Force and Marines to better integrate their warfighting capabilities.... As the joint force integrator, USJFCOM helps develop, evaluate, and prioritize the solutions to the interoperability problems plaguing the joint warfighter. At USJFCOM, joint interoperability and integration initiatives continue to deliver materiel and non-materiel solutions to interoperability challenges by working closely with combatant commanders, services and government agencies to identify and resolve joint warfighting deficiencies. This work is one of the most important near-term factors required to transform the legacy forces and establish a "coherently integrated joint force." New Weapon Acquisition Regulations As an additional measure to help implement transformation, the Administration has revised the regulations governing the acquisition of new weapons and systems with the aim of reducing costs and "acquisition cycle time"—the time needed to turn useful new technologies into fielded weapon systems. One element of DOD's effort in this regard is evolutionary acquisition with spiral development (EA/SD), which DOD has identified is its new preferred acquisition strategy. EA/SD is an outgrowth of the defense acquisition reform movement of the 1990s and is intended to make its acquisition system more responsive to rapid changes in threats, technology, and warfighter needs. For more on EA/SD, see CRS Report RS21195. How Much Would Transformation Cost? Calculating the potential cost of defense transformation is not an easy matter, for the following reasons: Opinions differ, often significantly, on what kinds of planned changes for DOD qualify as transformational, and which do not. Developing and acquiring new weapons and equipment that are deemed transformational can be very expensive, but the cost of this can be offset, perhaps substantially or even completely, by reducing or cancelling the development and procurement of non-transformational weapons and equipment that would no longer be needed. Implementing transformational changes in organization can also cost money, but these costs might similarly be offset by the reduced recurring cost of maintaining the new forms of organization. While exercises intended to explore new warfighting concepts of operation can be expensive, the cost of staging these exercises can be offset by curtailing other exercises that are intended to further develop older concepts of operations. If transformation is viewed as a continuing process rather than one with an endpoint, any calculations of its cost become snapshots rather than final figures. In an article published in the summer of 2006, an official from DOD's Office of Force Transformation (OFT) stated: A frequent question is how much DOD spends on transformation. That is hard to say, because transformation is far more than a list of programs. The concepts, capabilities, and organizations developed through innovative ideas, experimentation, major training exercises, and assessment of lessons learned on the battlefields of Afghanistan and Iraq cannot be categorized under a transformation line item in the defense budget. Although some analysts who advocate defense transformation might personally support increased spending on defense, most appear to advocate transformation as a cost-neutral or cost-reducing proposition. Indeed, some advocates support their proposals for transformation on the grounds that they represent a less-expensive strategy for meeting future security challenges than the alternative of investing in programs for making more incremental or evolutionary changes to current military capabilities. Some analysts have gone even further, arguing that an increasing defense budget might actually impede transformation by permitting officials to believe that projected security challenges can be solved by investing larger amounts of funding in today's military forces, while a constrained or declining defense budget, conversely, might help encourage transformation by forcing officials to contemplate more seriously the idea of shifting to new and less expensive approaches for meeting these challenges. The Administration has stressed that its interest in incorporating current best private-sector business practices in DOD operations, and in running DOD more "like a business," is driven in large part by a desire to run DOD more efficiently and thereby generate maximum savings that can be used for, among other things, investing in transformation. The acting director of OFT, in an interview published in the summer of 2006, stated: Transformation should not be equated with plussing up the defense budget. Transformation should be associated with how we make choices, using a new logic, so it's not necessarily about spending more money. It's really about making better choices. What Weapons And Systems Are Transformational? Although transformation involves (and might even depend more significantly on) changes in organization and concepts of operations, much of the debate over transformation has centered on which military weapons and systems should be deemed transformational, and which not. Experts disagree on this question, even when working from a common definition of transformation. As a result, lists of weapons and systems that qualify as transformational differ from one source to the next. Supporters of various weapon procurement programs, keenly aware of the Administration's interest in transformation, have been eager to argue that their own favored weapon systems should be viewed transformational, or at least not as "legacy"—a label that for many has become synonymous with obsolescence and suitability for reduction or termination. As a result, a wide variety of military weapons and systems have been presented at one point or another as transformational, while fewer have been spotlighted as non-transformational or legacy. Weapons and systems that have frequently been identified as closely associated with the Administration's transformation vision include but are not necessarily limited to the following: C4ISR systems that link military units into highly integrated networks for conducting NCW, forces for countering terrorists and weapons of mass destruction, space systems, missile defense, unmanned vehicles, special operations forces, precision-guided air-delivered weapons, lighter and more mobile Army ground forces, and smaller and faster Navy surface ships. Weapons and systems that have been identified by various observers, not necessarily by DOD, as non-transformational or legacy include the following: weapons and associated C4ISR systems that operate in an isolated, stand-alone manner rather than as part of a network, unguided weapons, heavy armored forces for the Army, manned tactical aircraft, and large, slower-moving Navy surface ships. How Might It Affect the Defense Industrial Base? A related matter of interest to Congress is how the Administration's transformation plans, if implemented, might affect the composition of U.S. defense spending and, as a consequence, revenues and employment levels of various firms in the defense industrial base. In assessing this issue, potential points to consider include the following: Transformational vs. non-transformational/legacy programs. To some degree, implementing the Administration's transformation vision could lead to increased DOD spending on the items listed above as transformational, and more restrained amounts of spending on the items listed above as non-transformational or legacy. Large-scale systems integration work. Implementing the Administration's transformation plan could lead to increased DOD spending for the large-scale systems integration work that is required to tie individual military weapons and systems together into smoothly functioning "systems of systems." Some defense firms, particularly some of the larger ones, have taken steps to strengthen and publicize their capacity for performing this kind of work. Large, diversified contractors vs. specific units within them and smaller firms. For larger defense firms that perform a wide range of work for DOD, implementing the Administration's transformation plan might transfer revenues from one part of the company to another without necessarily having a major effect on the company's bottom line. The potential effect on individual units within those firms, however, may be greater, if those facilities specialize in producing only certain kinds of defense goods or services. These units—as well as smaller defense firms that perform a less-diverse array of work for DOD—may be more likely to experience either an increase or decrease in revenues and employment levels as a result of transformation. Traditional vs. non-traditional DOD contractors. Some new technologies that may contribute to transformation, particularly certain information technologies, are found more in the civilian economy than in the world of defense-related research. As a result, implementing the Administration's transformation plan could shift some DOD spending away from traditional DOD contractors and toward firms that previously have done little or no business with DOD. Indeed, DOD is attempting to encourage firms that have not previously done business with DOD—so-called "non-traditional" contractors—to begin doing business with DOD, so that DOD may make maximum use of applicable technologies from the civilian sector. How Might It Affect Operations With Allied Forces? DOD states that it is working toward a transformed force capable of conducting effective combined operations with other countries' military forces: As the U.S. military transforms, our interests are served by making arrangements for international military cooperation to ensure that rapidly transforming U.S. capabilities can be applied effectively with allied and coalition capabilities. U.S. transformation objectives should be used to shape and complement foreign military developments and priorities of likely partners, both in bilateral and multilateral contexts. Some observers have expressed concern that U.S. defense transformation could widen the current gap between U.S. and foreign military concepts and capabilities, which is already quite significant in some respects, and thereby make U.S. forces less compatible with allied and friendly forces. Reduced compatibility, they believe, could lead to reduced coalition warfighting effectiveness when the United States engages in combined operations with allied and friendly forces, increased risk of fratricide (i.e., friendly-fire) incidents involving U.S. and coalition forces, and increased risk of political friction between the United States and its coalition partners. Whether transformation strengthens or weakens the ability of U.S. forces to participate in combined operations with foreign military forces will depend in part on decisions made by foreign governments. If these governments, for example, invest in networking technologies for NCW that are compatible with those used by U.S. forces, it could increase interoperability with U.S. military forces to a level that was not possible in pre-NCW times. Conversely, if those governments do not significantly invest in networking-related technologies for NCW, or invest in technologies that are not compatible with those of U.S. forces, it could reduce interoperability between U.S. forces and the forces of those countries below what it is today. Under this latter scenario, operations involving U.S. and foreign military forces might be combined operations in name only, with the foreign forces assigned to marginal or other functions that can be performed acceptably without being fully incorporated into the U.S. network or without creating complications. Future interoperability with foreign military forces will also depend in part on decisions made together by U.S. and foreign leaders. Decisions that align emerging U.S. concepts of operations with those of foreign military forces, and to hold combined exercises employing these new concepts of operations, could improve the potential for conducting effective combined operations. Conversely, lack of coordination in emerging concepts of operations, or of exercises to practice them together, could impede interoperability and reduce the potential for effective combined operations. The acting director of DOD's Office of Force Transformation (OFT), in an interview published in the summer of 2006, stated the following when asked about the transformation efforts of other countries: I would point to three or four countries that have really accelerated their efforts in thinking about transformation, in pursuing this information-age construct of network-centric operations. We can look to the United Kingdom and to Australia, who are very engaged in things like network-enabled capabilities, and that is to be expected because we operate with each other all the time and we're very close. We can also look to countries like Sweden, which has taken this whole network-centric business to a really high level. Singapore is doing an enormous amount of work. They have something that's akin to a transformation office as well. And of course we've got the Allied Command Transformation, which is stood up, and this NATO Reaction Force. What Transformational Changes Has Congress Initiated? Congress in past years has instituted changes that can be viewed as examples of, or contributors to, defense transformation, including changes that were opposed (or at least not proposed or actively supported) by DOD leaders. Examples of such actions include the following: Congress played a leading role in promoting jointness within DOD by creating the landmark 1986 Goldwater-Nichols Act ( P.L. 99-433 ), which, among other things, strengthened the institutional roles played by the Joint Chiefs of Staff and the commanders in charge of joint forces assigned to various regions around the world. Although the term defense transformation was not in common use in 1986, the Goldwater-Nichols Act today can be viewed, in retrospect, as a significant early example of defense transformation. Congress in 1986 also expressed concern for the status of SOF within overall U.S. defense planning and passed legislation—Section 1311 of the FY1987 defense authorization act ( P.L. 99-661 )—to strengthen its position. Among other things, Section 1311 established the U.S. Special Operations Command (USSOCOM) as a new unified command. To the extent that enhancement of special operations forces is now considered a key element of defense transformation, this action also can be viewed, in retrospect, as an early example of transformation. In 2000, Congress passed legislation—Section 220 of the FY2001 defense authorization act ( P.L. 106-398 )—that established a transformation-related goal for unmanned vehicles. The provision stated that "It shall be a goal of the Armed Forces to achieve the fielding of unmanned, remotely controlled technology such that—(1) by 2010, one-third of the aircraft in the operational deep strike force aircraft fleet are unmanned; and (2) by 2015, one-third of the operational ground combat vehicles are unmanned." Potential Oversight Issues for Congress Transformation Under DOD's New Leadership One potential oversight issue for Congress relating to defense transformation is how much DOD will continue to emphasize transformation, and how DOD's overall vision for transformation might change, as a result of Robert Gates succeeding Donald Rumsfeld as Secretary of Defense in December 2006. Rumsfeld was a key designer of DOD's transformation plans and, at his departure, perhaps the most prominent single advocate for defense transformation. Gates, whose career prior to becoming Secretary of Defense was primarily in intelligence rather than defense, is not generally known as a leading advocate of, or commentator on, defense transformation. An April 2007 news article stated that: far-reaching change toward a smaller, more high-tech force was to be a cornerstone of Rumsfeld's legacy, and he had a vested interest in the answer.... Today, new Defense Secretary Robert Gates has yet to say much about transformation. It's been largely pushed to the background by the immediate needs to, if anything, expand the military—a move consistently resisted by Rumsfeld. A November 2006 news article stated: Course corrections for Iraq are certainly anticipated, but officials predicted that Mr. Rumsfeld's push for future military transformation would become a secondary priority as Mr. Gates deals with the challenges that threaten to overwhelm both the military and its budget. "Gates will focus less on transformation and more on understanding the world around us," one Pentagon official said. "We all agree that needs to happen." A second November 2006 news article stated: Rumsfeld, who first served as secretary of defense during the Ford administration from 1975 to 1977, returned as defense secretary in 2001 vowing to transform the military into a highly mobile and technological force. But some of his decisions, such as relying more heavily on special forces rather than large divisions and slashing prized weapon systems, immediately sparked opposition. And his reputation for brooking little dissent and discounting military advice engendered growing resentment. Yet Rumsfeld—who next month will become the longest-serving defense secretary ever—is also credited with bringing his corporate executive's knife to a massive bureaucracy in critical need of reform. In particular, he improved the Defense Department's famously imprecise financial controls and forced unpopular changes to an entrenched civilian workforce. Many of his supporters believe the changes he championed—over the objections of a culture highly resistant to change—help explain his frayed relations with military leaders and a handful of retired generals who have increasingly called for his removal. A third November 2006 news article stated: [Rumsfeld's] many supporters credit him with making tough decisions, speeding up the transformation of the military, cutting outdated weapons systems, advancing the missile defense system, creating a new focus on domestic security, repositioning forces out of Germany and South Korea, and reorganizing the Army to make it more adaptable. But critics shook their heads in dismay as he considered cutting the Army by two divisions early in his tenure. They also charge that he allowed strong-willed deputies to drop the military's adherence to the baseline standards of the Geneva Convention and created a military prison at Guantanamo Bay beyond the reach of American courts. The critics said he equated long experience with antiquated thinking, and ran roughshod over people who offered alternate ideas. To these critics, the difficulties of the Iraq war are the natural result of Rumsfeld's tendency to ignore the warnings of others. Lawrence DiRita, a former advisor to Rumsfeld, disputed the criticism and argued that his former boss accelerated the military's move toward a more nimble and faster-moving force. "Adversaries around the world understand how much more capable we are today," DiRita said. "There has been a paradigm shift at the Department of Defense toward speed, agility and precision." A fourth November 2006 news article stated: At the Pentagon, Mr. Rumsfeld's program was called "transformation," and it acquired the status of an official ideology. Mr. Rumsfeld was enamored of missile defense and space-based systems, issues he had worked on during his years out of office. Like many conservatives, he was wary about the Army leadership, which he considered to be too wedded to heavy forces and too slow to change.... Within the military establishment, however, the defense secretary quickly became a contentious figure as his penchant for hands-on management and his theories on military transformation were given a field test. Mr. Rumsfeld did not decide how many troops would be deployed for the war in Iraq, but he helped pick the generals who did. He never hesitated to push, prod and ask questions to shape their recommendations.... In terms of his transformation agenda, Mr. Rumsfeld enjoyed, at best, mixed success. He overhauled the cold-war-era system of military bases around the world, a decision that has led to the reduction in American forces in Europe and Korea. He also insisted on greater cooperation among the military services. "On the positive side he brought the armed forces to a much higher degree of joint thinking and integration," said Barry M. Blechman, a member of the Defense Policy Board, which advises Mr. Rumsfeld, and the president of DFI International, a consulting firm. Still, despite Mr. Rumsfeld's avowed intention to challenge orthodox Pentagon thinking, few major weapons programs were canceled and the military's force structure and spending patterns were not radically altered. "At the end of the day you would have to say that for Rumsfeld, transformation was more promise than reality," said Andrew F. Krepinevich Jr., the executive director of the Center for Strategic and Budgetary Assessments. "He made a start, but these things take time, and it is clear now that Iraq has denied him that time." Specific Elements of DOD's Transformation Vision Certain specific elements of DOD's transformation vision, at least as articulated during Rumsfeld's tenure as Secretary of Defense, have been subject to debate at various points. These include the following: the emphasis on network-centric warfare, the planned total size of the force, the Army's transformation plan, the balance of air power vs. ground forces, the balance of tactical aircraft and unmanned air systems vs. long-range bombers, the emphasis on special operations forces, forces for stability operations, the role of reserve forces, ballistic missile defense, and the meaning of, and emphasis on, effects-based operations. Overall Leadership and Management of Transformation A December 2004 report from the Government Accountability Office on DOD's transformation efforts stated: DOD has taken positive steps to design and implement a complex strategy to transform U.S. military capabilities, but it has not established clear leadership and accountability or fully adopted results-oriented management tools to help guide and successfully implement this approach. The responsibility for transforming military capabilities is currently spread among various DOD organizations, with no one person or entity having the overarching and ongoing leadership responsibilities or the accountability for achieving transformation results. In addition, although DOD established an informal crosscutting group that meets occasionally to discuss transformation issues, this group has no charter, formal responsibilities, or authority to direct changes. GAO has previously reported that key practices for successful transformation include leadership that sets the direction of transformation and assigns accountability for results, and the use of crosscutting implementation teams, which can provide the day-to-day management needed for success. In recent testimony on DOD's business transformation, we underscored the importance of these elements and stated that DOD has not routinely assigned accountability for performance to specific organizations or individuals who have sufficient authority to accomplish goals. DOD officials believe that a single organization accountable for transformation results and a formal implementation team are not necessary because existing informal mechanisms involve key organizations that can individually implement needed changes, and an annual assessment of transformation roadmaps is prepared for the Secretary of Defense, who can direct the transformation efforts of each organization. However, in the absence of clear leadership, accountability, and a formal implementation mechanism, DOD may have difficulty resolving differences among competing priorities, directing resources to the highest priorities, and ensuring progress should changes in senior personnel occur. In addition, informal mechanisms are not sufficient to provide transparency to the process or assurance to Congress that DOD is allocating resources to address needed improvements rather than desired improvements. While DOD's strategy to transform military capabilities is a good first step, DOD has not fully developed results-oriented management tools that can help managers effectively implement and manage major efforts, and focus on achieving results. Specifically, DOD has not revised its initial transformation goals, set in 2001, to reflect new joint concepts—thus, DOD lacks a foundation for developing other tools such as performance goals and measures and linking specific resources needed to achieve each goal. DOD faces challenges in developing these tools because the joint concepts are being developed concurrently with its plans to acquire new capabilities. But without these results-oriented tools, it will be difficult for DOD to determine the extent to which its transformation efforts are achieving desired results, to measure its overall progress, or to provide transparency for how billions of dollars in planned investments are being applied. Experiments And Exercises Some observers have expressed concern about whether experiments and exercises carried out nominally in support of transformation are sufficiently focused on exploring transformational warfighting ideas as opposed to demonstrating existing non-transformational capabilities. Observers have also expressed concerned about whether experiments and exercises are sufficiently challenging and realistic, and whether they are "scripted" to ensure the success of favored transformation ideas. Potential questions for Congress regarding transformation-related tests and exercises include the following: Culture of Innovation DOD officials and other observers note that instilling a culture of innovation among DOD personnel will be critical to implementing transformation. Instilling such a culture could involve things such as actions to create an institutional and workplace receptiveness to new ideas, procedures for protecting people who generate new ideas, and avoidance of the so-called "zero-defect" approach for assessing performance and selecting people for advancement. Potential challenges to creating a culture of innovation include a widespread familiarity and comfort with the status quo, the so-called "not-invented-here" syndrome, a cadre of senior officers who were taught, and have spent their entire careers abiding by, traditional ideas and practices, and the difficulty of quantifying or explaining the potential advantages of proposed innovations. A 2002 survey of more than 2,500 U.S. military officers provided mixed evidence on whether those officers believed such a culture was being created. Adequacy of Information for Congress Transformation is a broad topic with many elements subject to frequent change and development. In addition, measuring progress in attaining transformation can be a complex undertaking. Transformation thus raises a potential issue as to whether Congress has adequate information and tools for assessing DOD's progress in implementing transformation. Potential questions for Congress on this issue include the following: Are the defense budget and related budget-justification documents that are submitted to Congress adequately organized and presented to support the incorporation of the concept of transformation into Congress's review of the budget? If not, in what ways should the organization and content of the budget and the budget-justification documents be changed? Does DOD provide Congress with sufficiently detailed and periodic information about the status of DOD transformation efforts to support congressional oversight of these efforts? Should Congress, for example, require DOD to submit periodic reports on the status of transformation in general, or of specific aspects of transformation? Does Congress have adequate metrics for measuring military capability in light of transformation-related changes, such as NCW, or for assessing DOD's success in implementing transformation? Transformation As All-Purpose Justification Tool Some observers expressed concern that the Administration's regular (some might even say habitual) use of the term transformation in discussing its proposals for DOD during the period 2001-2004 turned the concept of transformation into an empty slogan or buzz-phrase. Other observers were concerned that the Administration invoked the term transformation as an all-purpose rhetorical tool for justifying its various proposals for DOD, whether they relate to transformation or not, and for encouraging minimal debate on those proposals by tying the concept of transformation to the urgent need to fight the war on terrorism. Concerns along these lines were heightened by the "Defense Transformation for the 21 st Century Act of 2003," a 205-page legislative proposal that the Administration submitted to Congress on April 10, 2003, that would, among other things, permit DOD to establish its own policies for hiring, firing, and compensating its civil service employees; change the terms in office for certain senior generals and admirals; give DOD increased authority to transfer funds between DOD budget accounts; alter laws relating to the protection of marine mammals; and eliminate many DOD reporting requirements that were instituted to assist Congress in conducting oversight of DOD activities. Potential oversight questions for Congress relating to the Administration's use of transformation in justifying its proposals for DOD include the following: Did the Administration debase the concept of transformation through overuse? Did the Administration, in justifying its proposals for DOD, draw adequate distinctions between proposals that are transformational and proposals that are not transformational but might nevertheless be worthwhile for other reasons? Did the Administration use the term transformation in part to cloud potential issues pertaining to its proposals for DOD or to minimize congressional debate on those proposals? Did the Administration use the large, complex, and somewhat abstract topic of transformation in part to occupy Congress's attention and thereby distract Congress from conducting detailed oversight on DOD's proposed budgets, or to keep Congress off balance as it attempted to conduct oversight of DOD activities? Legislative Activity For FY2008 The proposed FY2008 defense budget was submitted to Congress in early February 2008.

The Bush Administration identified transformation as a major goal for the Department of Defense (DOD) soon after taking office, and initially justified many of its proposals for DOD on the grounds that they were needed for defense transformation. Although defense transformation is still discussed in administration defense-policy documents and budget-justification materials, the concept is now less prominent in discussions of U.S. defense policy and programs than it was during the earlier years of the Bush Administration. The Administration's vision for defense transformation calls for placing increased emphasis in U.S. defense planning on the following: irregular warfare, including terrorism, insurgencies, and civil war; potential catastrophic security threats, such as the possession and possible use of weapons of mass destruction by terrorists and rogue states; and potential disruptive events, such as the emergence of new technologies that could undermine current U.S. military advantages. The Administration's vision for defense transformation calls for shifting U.S. military forces toward a greater reliance on joint operations, network-centric warfare, effects-based operations, speed and agility, and precision application of firepower. Transformation could affect the defense industrial base by transferring funding from "legacy" systems to transformational systems, and from traditional DOD contractors to firms that previously have not done much defense work. Potential oversight issues for Congress regarding defense transformation include the potential for DOD transformation plans to change as a result of Robert Gates succeeding Donald Rumsfeld as Secretary of Defense; the merits of certain elements of DOD's transformation plan; overall leadership and management of transformation; experiments and exercises conducted in support of transformation; measures for creating a culture of innovation viewed as necessary to support transformation; the adequacy of information provided to Congress regarding transformation-related initiatives; and whether the Administration has invoked the term transformation as an all-purpose rhetorical tool for justifying its various proposals for DOD. This report will be updated as events warrant.

Introduction Early in the 19 th century, the federal government began development of a special body of labor standards protections applicable to its own direct workforce. However, much of the work of the federal government was not undertaken by its direct employees, but rather through contracts with the private sector: by employers who operated beyond the reach of federal regulation and to whom standards applicable to federal employees did not apply. Through the early 20 th century, public work was awarded to the lowest responsible bidder. Responsible was defined as the ability to fulfill the terms of the contract: that is, to provide the goods, services, or construction work the government sought. No consideration was given to the conditions under which such work was performed. Regulation of wages, hours, and child labor was regarded as beyond the reach of government. Attempts to legislate in those areas were generally found to be unconstitutional and were vigorously opposed as an illegal and unjustified intrusion upon private sector prerogatives. Industrial health, safety and sanitation were left, largely, to local jurisdictions. Where states and local governments were able to enact measures that would withstand the test of constitutionality, they appear to have been of little impact: either lacking substance or unenforced. Most contractors appear to have been reputable; some were not. Often, bid brokers sought contracts and then, with the award in hand, would sub-contract to firms willing to work at the lowest cost. Since government would normally specify the quality of the fabric or materials, the style and construction standards, the prime area in which to cut costs was on labor: engaging the cheapest viable workers and pressing them to work as long as endurance would permit. These were often not permanent employees of the contractor but, rather, casual workers whose welfare was of little continuing concern—neither to the bid broker nor to the sub-contractor. Where government protected its own direct workforce through wage/hour and related standards, contracting out for public work placed a premium on low wages and sometimes led to adverse working conditions. By paying less, private contractors could enhance their competitive position. Thus, an informal alliance might be struck between the procurement officer and the low-wage employer, each, for their own reasons, conspiring to cut costs by keeping wages low. At the same time, by indirectly tolerating abusive conditions, government sacrificed its role as a model employer (an oft-expressed desire) and as an example for the private sector. Evolving Federal Contract Labor Standards Policies First the states and then the federal government embarked upon a program of reform: often encountering constitutional challenges. But, in at least two areas, government was free to act. As an employer , it could set standards that applied to its own direct employees—just as any private sector employer could then do. More significant here, as a consumer , it could set standards for the goods, services and construction that it was willing to purchase in the public marketplace. It could, for example, write into bid specifications requirements that certain unfair labor practices would not be tolerated in the context of public procurement. And, in that way, it reserved to itself the right to define the concept of fairness. The Davis-Bacon Act (1931) During the years following World War I, various efforts were made to bring a greater level of professionalism to the construction industry. However, certain practices continued that embarrassed the better contractors and complicated the process of doing business with government. Assessing contractor and worker credentials posed a problem. For example, was a particular firm equipped to fulfill the terms of a specific contract, and were the workers employed by the firm competent workmen? Some contractors would bid above their level of expertise and, having won a contract on the basis of the lowest projected costs, would then attempt to draw together a workforce. Sometimes they were successful, but at other times they may not have been. It was also alleged that itinerant contractors would enter a local market, bid on public construction work, bring onto the worksite a crew from outside the area, complete the work, and move on. Some of these contractors did excellent work: perhaps better than local firms could have done or were equipped to do. But, it appears, there were also firms that were less-than-competent and to whom the opprobrious title, fly-by-night operators, was given. In either case, outside firms came under attack during the 1920s—increasingly so as the Great Depression dawned and as local companies and their employees became desperate for work. As the federal government commenced major expenditures for public buildings and public works, the broader, more abstract, issue of fairness (in terms of wages, hours and conditions of work) combined with wage-based economic competition as an issue of public policy. In part, the federal construction program was intended to spur the economy of depressed areas by providing jobs for local workers and contracts for their employers. But, it appears, outside contractors, working with imported low-wage crews, would often underbid local firms and, once having finished the immediate project, would move on. The economic impact sought from the work was, thus, defused: the effort to provide work (and contracts) for distressed communities, frustrated. But, public contracting activity of the 1920s and 1930s needs further exploration. How frequently, for example, did outside contractors compete with local firms on an unfair basis, however defined? What were their labor practices? The quality of work of the respective firms and the economic/cost implications of dealing with local or outside contractors needs assessment. Much of what is asserted with respect to this period appears to be anecdotal. Davis-Bacon Enacted In 1931, as an emergency measure urged by President Herbert Hoover, Congress adopted the Davis-Bacon Act (P.L. 71-798). It mandated that not less than the locally "prevailing rate of wages for work of a similar nature" had to be paid on construction work to which the federal government (or the District of Columbia) was a party. No specific rate was set; but the act provided: ... in case any dispute arises as to ... the prevailing rates of wages for work of a similar nature applicable to the contract which can not be adjusted by the contracting officer, the matter shall be referred to the Secretary of Labor for determination and his decision thereon shall be conclusive on all the parties to the contract. In effect, the initial determination was left to the parties (to the contractor and the workers) and only secondarily to the Secretary of Labor. In that manner, Congress sought to end the wage-based competition from the fly-by-night operators, to stabilize the local contracting community, and to protect workers from unfair exploitation. Employers could compete on the basis of efficiency, skill, or any other factor except wages. Substantively, the act was contained in one relatively brief paragraph. Evolution of the Statute Problems, largely unaddressed in the original statute, quickly arose. Oversight hearings commenced almost immediately; but, in January 1932, before Congress could act, President Hoover issued Executive Order No. 5778 in an attempt to improve the administration of the statute. While the Order was not successful as administrative reform, it did defer formal amendment of the act for several years. As enacted in 1931, the Davis-Bacon Act attracted many critics. Some contractors, it was alleged, paid the locally prevailing wage—but then demanded rebates from their employees. In 1934, Congress adopted the Copeland "anti-kickback" Act (P.L. 73-324). The act, specified a fine of up to $5,000 or imprisonment of up to five years, or both, for anyone who induces any person engaged in covered federal construction work "to give up any part of the compensation to which he is entitled under his contract of employment, by force, intimidation, threat of procuring dismissal from such employment, or by any other manner whatsoever." Other complications arose as well with respect to the Davis-Bacon Act, most of which were addressed in amendments adopted in 1935 (P.L. 74-403). Among the changes made in the statute were the following. First . In 1931, the dollar volume coverage threshold had been set at $5,000. However, it was charged that contractors fragmented their work to make it come in under the threshold—a matter of particular concern with respect to painting and decorating. Thus, the threshold was lowered to $2,000 and coverage for painting and decorating work was specified in the statute. Second . Where the 1931 statute had concerned only public buildings, the 1935 amendments extended coverage to include public works. Third . The Comptroller General would be directed to prepare a list of contractors who have "disregarded their obligations to employees and subcontractors." Listed violators would be barred from federal contracts for a period of three years. Fourth . Davis-Bacon contracts were to state "the minimum wages to be paid various classes of laborers and mechanics." Thus, there would be a pre-determination of the Davis-Bacon wage rate: that is, prior to the submission of bids by the contractor. Fifth . The 1935 amendments added various enforcement and related administrative provisions. After 1935, though some found aspects of the statute and its administration with which to disagree, the Davis-Bacon Act emerged as a regular component of federal procurement policy. Gradually, Congress wrote Davis-Bacon requirements into a number of program statutes involving federally assisted construction. In the early 1960s, Congress undertook a review of the statute: the first major oversight of the act since the 1935 amendments were adopted. The investigation and hearings led to two changes. First . Although there was often disagreement about specific coverage and/or wage rate determinations, there was no independent review provided for decisions of the Secretary. Some, primarily from industry, urged that a formal judicial review option was needed. Others suggested an internal review structure within the Department of Labor (DOL). On January 3, 1964, Secretary of Labor Willard Wirtz moved unilaterally to establish a Wage Appeals Board within DOL—short-circuiting a legislative initiative then before Congress. Second . As compensation increasingly came to include fringe benefits, some felt that the Davis-Bacon rates (cash wages per hour) were outdated. In the spring of 1964, Congress amended Davis-Bacon to expand the definition of wage to include certain fringe benefits or, as an alternative, a fringe benefit component (P.L. 88-349). Areas of Controversy In almost every session of the Congress since the 1960s, the Davis-Bacon Act has emerged in some context. Often, debate has focused upon inclusion of Davis-Bacon provisions in various program statutes. But, the act has also been directly an object of dispute. In 1971, President Richard Nixon briefly suspended the act as part of his program to control inflation. The suspension lasted just over one month, after which the act was fully restored. In October 1992, during the presidential campaign, President George H. W. Bush suspended the statute as it might have been applied to federal construction associated with hurricanes Andrew and Iniki. It was restored shortly after the election of 1992 by President William Clinton. Again, on September 8, 2005, President George W. Bush suspended the Davis-Bacon Act as part of a program to clear up the destruction associated with Hurricane Katrina. As in 1992, the suspension was for a limited area (parts of Florida, Alabama, Mississippi, and Louisiana) and for a limited, if unspecified, duration. Within two months, the President announced that Davis-Bacon would be reinstated on November 8, 2005. The Comptroller General, during consideration of the original Davis-Bacon legislation, had pointed to what he perceived to be flaws in the proposal. Through the years, the General Accounting Office (GAO, now the General Accountability Office) had continued to critique both the statute and its administration by the DOL. Finally, in 1979, GAO issued an extended report titled: The Davis-Bacon Act Should Be Repealed . The report touched off heated debate in labor policy circles and sparked several congressional hearings on the Davis-Bacon Act. While Congress took no direct legislative action, administrative restructuring was proposed—first by the Carter Administration and, subsequently (and in different form), by the Reagan Administration. Extended litigation followed—the controversy continuing beyond the end of the 20 th century. At least since the 1979 GAO report, debate has been ongoing over the economic impact of the Davis-Bacon Act: an issue that remains unresolved. Other aspects of the administration of the statute that have been of continuing dispute include the DOL's ability, appropriately, to render prevailing wage rate determinations; the definition of basic concepts associated with the statute such as the site of the work and helper ; and the application of the act to the various program statutes involving federal funding and certain funding mechanisms where there is a federal presence. The Walsh-Healey Public Contracts Act (1936) "The Government," stated Secretary of War Newton Baker in August 1917, while considering the production of military uniforms, "cannot permit its work to be done under sweatshop conditions, and it cannot allow the evils widely [associated with such production] ... to go uncorrected." Government contracts for goods had long sparked complaints of abuse. Profiteering on sales to the federal government had been a continuing focus of public policy debate. During World War I, reformers battled to protect workers on the home front from exploitation. After the war, wartime cooperation with labor faded before a reluctance, in peacetime, to interfere with labor practices of the private sector. Compelled "to accept the lowest responsible bid regardless of the conditions of work under which the contract was performed," government often found itself "an unwilling collaborator with ... firms that sought to get government business by cutting wages." In the early 1930s, the Roosevelt Administration, staffed heavily by social activists from the World War I era and faced with the economic realities of the Great Depression, began to press for reforms. In June 1933, Congress passed the National Industrial Recovery Act (NIRA) under which industries, given limited anti-trust immunity, developed codes of fair competitive practices which, normally, included minimum wage and overtime pay requirements, restriction of industrial homework, and prohibition of child labor. The result was a flurry of quasi-regulatory activity—with high visibility and extreme contentiousness. In May 1935, the NIRA was declared unconstitutional. Walsh-Healey Enacted The Roosevelt Administration set out to salvage what it could of the labor standards provisions of the NIRA. The approach taken under Davis-Bacon (i.e., regulation through procurement policy, rather than direct restraint upon the private sector) seemed a likely option. Anticipating a Court threat to the NIRA, Labor Secretary Frances Perkins had drafted (but temporarily set aside) two separate bills. One proposed establishment of labor standards under federal contracts for manufactured goods. The second would emerge in mid-1938, after considerable modification, as the Fair Labor Standards Act. The thrust of the public contracts legislation, reverting to the spirit of World War I reforms, was the eradication of sweatshop production: ending child labor and industrial homework, while establishing a minimum wage floor and overtime pay standards. Legislation mandating labor standards in contract production of goods for the federal government was introduced by Senator David Walsh (D-Mass.) in June 1935. A slightly different proposal was offered by Representative Arthur Healey (D-Mass.). A year later (June 1936), after extended hearings, the Walsh-Healey legislation was enacted (P.L. 74-846). In some ways, Walsh-Healey resembled Davis-Bacon. It mandated that any contract "made and entered into by any executive department, independent establishment, or other agency or instrumentality of the United States, or by the District of Columbia ... for the manufacture or furnishing of materials, supplies, articles, and equipment in any amount exceeding $10,000," shall include a stipulation for payment to: ... all persons employed by the contractor in the manufacture or furnishing or the materials, supplies, articles, or equipment used in the performance of the contract ... without subsequent deduction or rebate on any account, not less than the minimum wages as determined by the Secretary of Labor to be the prevailing minimum wages for persons employed on similar work or in the particular or similar industries or groups of industries currently operating in the locality in which the materials, supplies, articles, or equipment are to be manufactured or furnished under said contract; ... The act required the contractor to be "the manufacturer of or a regular dealer in the materials, supplies, articles, or equipment to be manufactured or used in the performance of the contract." The intent was to assure that the contractor was an actual ("regular") "dealer" or "manufacturer" and not a bid broker. The provision would later be altered. (See discussion of this provision below.) Given its experience with Davis-Bacon and the NIRA, Congress seems to have been more concerned with detail in drafting Walsh-Healey. It set workhours limits of 8 hours per day and 40 hours per week—subsequently modified to provide for a general 40-hour workweek. Child labor would be precluded: "no male person under sixteen years of age and no female person under eighteen years of age" could be employed on covered work. No convict labor was to be employed in work covered by Walsh-Healey. Congress mandated that covered work was to be performed in buildings that were safe, sanitary, and without hazard "to the health and safety of employees engaged in the performance of said contract" in an effort to thwart sweatshop production and industrial homework. There were limitations on the act's coverage. Specifically, it would not apply with respect to goods that "may usually be bought in the open market" (i.e., that are not manufactured under contract for the federal government). In keeping with other legislation of the period, Walsh-Healey did not apply to agriculture: "to perishables, including dairy, livestock and nursery products, or to agricultural or farm products processed for the first sale by the original producers ...." Similarly, common carriers of freight or personnel were exempt. Like Davis-Bacon, it provided that the Comptroller General should compile and circulate "to all agencies of the United States" a list of firms that "have breached any of the agreements or representations required by this Act" and permitted debarment of such firms for three years. The act left latitude to the Secretary of Labor. First . Should the Secretary find that compliance with the labor standards provisions of the act would "seriously impair the conduct of Government business," he "shall make exceptions in specific cases or otherwise when justice or public interest will be served thereby." Second . The Secretary is granted the option, through rules and regulations, of "allowing reasonable variations, tolerances, and exemptions to and from any or all provisions of this Act ...." Determining a Wage Standard Although covered workers were to be paid "not less than the minimum wages as determined by the Secretary of Labor to be the prevailing minimum wages," it was not specified how the Secretary was to make such a determination. Nor were either "prevailing" or "minimum" defined. As a result, there appears to have been some variation both of a working definition and of wage rate determination methodology from one Secretary to the next. In 1952, the act was amended making it subject to the Administrative Procedure Act, specifying that rate determinations were to be made "on the record after opportunity for a hearing." Further, it provided that "any interested person shall have the right of judicial review of any legal question which might otherwise be raised, including, but not limited to, wage determinations and the interpretation of the terms 'locality,' 'regular dealer,' 'manufacturer,' and 'open market.'" The result of instituting judicial review would not be long in coming. Rendering prevailing wage rate determinations, as suggested above, was not easy. The act left undefined critical concepts. But practical issues would overwhelm the theoretical and most would be dealt with by the Department at its own discretion. Should all firms be canvassed for prevailing wage purposes? DOL would choose a cutoff at five, 10, 20 employees—whatever seemed appropriate at the time; but the size of the firms surveyed could have a significant impact upon the survey findings. Which firms might be grouped together for survey purposes? What would be an appropriate payroll period: that is, at what point during the production cycle should the survey be conducted? Which employees should be taken into account and, in terms of job description, how should they be differentiated one from the other? (Unlike Davis-Bacon, workers covered by Walsh-Healey were not distinguishable along craft lines—for the most part.) Should there be sub-minima for beginners, learners, apprentices, etc., or should all workers be treated similarly? The actual wage survey was undertaken by the Bureau of Labor Statistics (BLS). When conducting surveys of manufacturing establishments to establish a database, BLS worked under a promise of firm-specific confidentiality. Thus, as a practical matter, affected firms saw only the general tabulations and not the data upon which they were based and, therefore, had no way to judge the validity of the Department's calculations. As a result, its methodology was subjected to judicial challenge. In the 1964 case of Wirtz v. Baldor Electric Co. , the court reviewed the wage determination process as utilized by DOL and suggested that the Department could sustain the confidentiality of the survey data but, at the same time, it risked having its determinations invalidated. The court found tabulations of wage rates "compiled from undisclosed confidential data ... failed to accord to appellees [industry] the adequate opportunity for rebuttal and cross-examination that the Congress prescribed" under the Walsh-Healey Act as amended in 1952. And, the court found that the Secretary's wage rate determination methodology "must be set aside for the further reason that it is not supported by 'reliable, probative, and substantial evidence.'" In the wake of Wirtz v. Baldor Electric , no further Walsh-Healey wage rate determinations were made. As a result, the "prevailing minimum" wage for Walsh-Healey purposes has become the federal minimum wage under the Fair Labor Standards Act (FLSA). The Issue of Overtime Pay Establishment of an 8-hour day had been a concern of organized labor at least since the late 19 th century—and it had been one of the labor standards addressed in the industrial codes growing out of the NIRA. Thus, in 1936, it was consistent both with history and the spirit of the times that the authors of the Walsh-Healey Act provided that covered workers should not be permitted to work "in excess of eight hours in any one day or in excess of forty hours in any one week." However, P.L. 74-846 granted the Secretary discretion in dealing with workhours and affirmed: "Whenever the Secretary ... shall permit an increase in the maximum hours of labor stipulated in the contract, he shall set a rate of pay for any overtime, which rate shall be not less than one and one-half times the basic rate received by any employee affected." Under the original Walsh-Healey language, the Secretary could set aside the 8-hour and 40-hour standards—but only in so far as payment of time-and-a-half for hours worked in excess of 8 per day and 40 per week was granted. Both Walsh-Healey and the Fair Labor Standards Act (FLSA) were rooted in the NIRA. Introduced in 1937 before Walsh-Healey was fully implemented, the FLSA was signed into law in mid-1938 (P.L. 75-718). In the latter enactment, Congress dropped the daily limit on hours of work (pre-overtime) but ultimately kept a weekly standard. The FLSA permitted any combination of hours of work to which an employer would agree so long as the total did not exceed 40 hours in a single workweek—after which overtime rates would have to be paid. At least by the late 1960s, some in industry were pointing to a conflict between the overtime pay requirements of Walsh-Healey and those of the FLSA. It created scheduling problems, it was argued, where firms were engaged both in private sector (FLSA-covered) work and in contract production for the federal government. On the other hand, certain worker groups, consultants, and women's groups were urging greater flexibility in work scheduling. In 1978, Congress adopted the Federal Employee's Flexible and Compressed Work Schedules Act ( P.L. 95-390 ). The latter statute, at first experimental and subsequently established on a permanent basis, allowed federal agencies to schedule hours of work over a two-week 80-hour period without payment of overtime rates. This program for federal employees (on which the trade unions were divided) raised a question of equality of treatment of public and private sector workers and provoked new demands for amendment of Walsh-Healey. Finally, as part of the National Defense Authorization Act for FY1986 ( P.L. 99-145 ), Congress amended both Walsh-Healey and the Contract Work Hours and Safety Standards Act (which supplements the Davis-Bacon Act) by eliminating the 8-hour daily pre-overtime pay requirements as they applied to federal contract work. The 8-hour provision was replaced by the 40-hour standard of the FLSA. The measure was signed by President Ronald Reagan on November 8, 1985. Manufacturer or Regular Dealer As noted above, federal procurement had witnessed the presence of bid brokers : professional bidders on public contracts who may, in fact, have possessed no independent ability to produce the deliverables specified in the contract. Once award had been made, the bid broker would market the work to a third party—to the contractor who could do the work most cheaply and perhaps accept a less than average profit. In order to end such practices, Section 1(a) of the original Walsh-Healey Act provided that an eligible contractor had to be "the manufacturer of or a regular dealer in the materials, supplies, articles, or equipment to be manufactured or used in the performance of the contract ...." The concepts of "manufacturer" and "regular dealer" (determining eligibility as a federal contractor under the act) came to be set forth in DOL regulations. A manufacturer was defined as "a person who owns, operates, or maintains a factory or establishment that produces on the premises the materials, supplies, articles, or equipment required under the contract and of the general character described by the specifications." Similarly, a regular dealer was identified as one "who owns, operates, or maintains a store, warehouse, or other establishment in which the materials ... described by the specifications and required under the contract are bought, kept in stock, and sold to the public in the usual course of business." The rules specified how eligibility determinations were to be made. During the 103 rd Congress, the law was changed ( P.L. 103-355 ). The mandatory character of the "manufacturer" and "regular dealer" eligibility test was altered. Instead, a new section was added which provides that the Secretary of Labor " may prescribe in regulations the standards for determining whether a contractor is a manufacturer of or a regular dealer in materials" and other articles to be used in the performance of a contract covered by Walsh-Healey. (Italics added.) Adherence to the "manufacturer" and "regular dealer" standards, thus, became a matter of discretion with DOL. Naval Vessels Initially, there seems to have been some dispute as to whether the "construction, alteration, furnishing, or equipping of a naval vessel" was construction subject to the Davis-Bacon Act or the purchase of goods covered by the Walsh-Healey Act. Under naval procurement law (Title 10, Section 7299), naval vessels fell under Walsh-Healey. However, the Federal Acquisition Streamlining Act of 1994 ( P.L. 103-355 ) repealed Title 10, Section 7299. While this change in the law "required no changes in the regulations," DOL stated: ... the Department advised contracting agencies and contractors that such contracts would, as a result, be subject to the Davis-Bacon Act, which applies to contracts in excess of $2,000 for the construction, alteration, and/or repair ... of a public building or a public work, because marine vessels have historically been regarded as "public works" for purposes of the Davis-Bacon Act. In a Federal Register notice, the Department noted objections to its interpretation (placing vessels under Davis-Bacon). In rulemaking, both the Department of the Navy and the Shipbuilders Council of America "questioned the Department's interpretation" that, in the absence (here, the repeal) of Section 7299, labor standards coverage would devolve to Davis-Bacon. DOL conceded that the result (devolution) "may have been an unintended consequence" of P.L. 103-355 but, nonetheless, found the issue moot. The Fiscal Year 1996 Department of Defense Authorization Act ( P.L. 104-106 ), it pointed out, "includes a provision reinstating former 10 U.S.C. 7299." Therefore, the Department concluded: "... each contract for the construction, alteration, furnishing or equipping of a naval vessel is once again subject to the PCA [Walsh-Healey], unless the President determines that this requirement is not in the interest of national defense." The McNamara-O'Hara Service Contract Act (1965) As the 1960s dawned, the FLSA was still evolving. Wide gaps in coverage remained—including many service employees. And, although Congress had mandated minimum wage standards, variously calculated, for construction and manufacturing workers employed in contract work for the federal government, the service sector was not covered by these standards. Legislation to fill that void was offered during several Congresses and, during the 88 th Congress (1963-1964), hearings were held and a bill reported from the House Committee on Education and Labor. The measure died in the Rules Committee. McNamara-O'Hara Enacted In 1965, with support from the Johnson Administration, Representatives Tom Pelly (R-Wash.) and James O'Hara (D-Mich.) introduced new legislation to protect service workers. "The employees who would be covered by the proposed legislation are among the most poorly paid and economically deprived in our society," explained DOL Solicitor Charles Donahue during hearings in August 1965. "Often," he continued, "they are not members of unions and have little prospect of bettering their condition through collective bargaining." He argued that the federal government should provide an example of fairness and justice. "While I do not wish to imply that low-wage rates are universal in the service industry," the Solicitor cautioned, "the fact that they exist at all is indefensible, particularly where Government contracts are involved." The Solicitor pointed both to economic and policy considerations in support of the Pelly-O'Hara proposals. Contracting agencies, he stated, must "award contracts to the lowest bidder who can satisfactorily complete the work. Since labor costs are the predominant factor in most service contracts," he added, "the odds on making a successful low bid for a contract are heavily stacked in favor of the contractor paying the lowest wage." When the "low bid policy" for service contracts "is coupled with a policy of no labor standards protection," Donahue observed, "the trend may well be in certain areas for wage rates to spiral downward." In the view of the Johnson Administration, low wages were not a prudent economy. "... it is very doubtful whether the Government gains in the long run by a policy which encourages the payment of wages at or below the subsistence level. Substandard wages," Donahue affirmed, "must inevitably lead to substandard performance. Further, the economy as a whole suffers from the reduced purchasing power of the workers." He concluded: "The present policy of low bid contract awards is one under which everyone loses—the employee, the Government, the responsible contractor—that is, everyone except the fly-by-night operator who is eager to profit from the under compensated toil of his workers." Although differing opinions were expressed concerning coverage and the wage rate determination process, the legislation appears to have generated little controversy. The Pelly-O'Hara bill was unanimously reported from the House Committee on Education and Labor and on September 20, 1965, passed by the House under suspension with a voice vote. Three days later, following a brief hearing by the Senate Subcommittee on Labor, chaired by Senator Patrick McNamara (D-Mich.), the measure was unanimously reported from the full Committee on Labor and Public Welfare. On October 1, 1965, the bill (now, McNamara-O'Hara) was passed by the Senate virtually without debate. In signing the legislation on October 22, 1965, President Lyndon Johnson observed that it "closes the last big gap" in labor standards protection for federal contract workers (P.L. 89-286). Evolution of the Service Contract Act Like Davis-Bacon and Walsh-Healey, the McNamara-O'Hara Service Contract Act is bid-based. It provides that every contract (and bid specification therefore) "entered into by the United States or the District of Columbia in excess of $2,500 ... [with certain exceptions specified in the act], whether negotiated or advertised, the principal purpose of which is to furnish services in the United States through the use of service employees," shall contain certain labor standards provisions. (Italics added.) Among these were: ... that not less than a specified minimum wage, "determined by the Secretary" to be "in accordance with prevailing rates" for comparable work "in the locality," be paid to workers employed under the said contract—but in no case less than the minimum wage provided for in the FLSA, that workers under the contract be provided the fringe benefits (or the cash equivalent thereof) found by the Secretary to be prevailing for such workers engaged in comparable work in the locality; that the workplace be safe and sanitary; and that the Secretary was permitted to adjust the terms of the statute as he might deem proper "in the public interest or to avoid serious impairment of the conduct of Government business." It was expected that contract service employees were to be paid overtime rates, where appropriate, on the basis of the regular rate as determined under the FLSA. But, what exactly was a service employee ? The original McNamara-O'Hara Act (P.L. 89-286) defined a service employee to include the following: ... guards, watchmen, and any person engaged in a recognized trade or craft, or other skilled mechanical craft, or in unskilled, semiskilled, or skilled manual labor occupations; and any other employee including a foreman or supervisor in a position having trade, craft, or laboring experience as the paramount requirement .... It was not clear that every worker engaged in contract work, other than construction or in manufacturing, would be deemed a service worker; but, there did seem to be a consensus that the three acts, taken together, would cover the field of contract work. Controversy and Amendment Though the concept of the Service Contract Act (SCA) may have been clear, problems quickly arose as DOL commenced its implementation. As with Davis-Bacon, many of these complications stemmed from the absence of a more precise definition of terms used in the new statute. In 1972 and again in 1976, the act was amended, generally: (a) to expand coverage, (b) to improve administrative efficiency, (c) to help assure that the act would be enforced, and (d) to encourage greater stability within the service industry. But a primary focus of the various amendments was to define the terms of coverage. The 1972 Amendments After several years of experience, both employers and service workers seemed convinced that change in the statute was in order. Further, some Members of Congress—involved in the original enactment—expressed concern that implementation of the statute was not proceeding as they had expected. The legislation (P.L. 92-473), some estimated, would "benefit nearly two million employees of private service contractors on Federal installations." The " Five Man " Provision. Generally following the Walsh-Healey language, the SCA permitted the Secretary to make "such rules and regulations allowing reasonable variations, tolerances, and exemptions to and from any or all provisions of this Act as he may find necessary and proper ...." It also provided, apparently as a fall-back position, that not less than the minimum wage under the FLSA should be paid to covered workers. The intent of the provisions seems to have been to provide flexibility and to allow the Secretary time to develop a suitable wage rate determination methodology and machinery. During hearings in 1971 and 1972, it was disclosed that the Secretary, to a significant degree, had failed to make the requisite determinations and was relying upon the FLSA minimum wage as the locally prevailing rate for SCA purposes. Thus, Congress amended the act to require that the Secretary would actually make wage rate determinations for progressively smaller contracts. After July 1, 1976, they were to be made for "all contracts under which more than five service employees are to be employed." " Successorship " and Related Requirements (1972). In service contracts, labor cost is often a primary competitive element, with the workers, over time, likely to secure some improvement in wage and benefit levels. Thus, with each successive round of bidding, a competitor contractor, coming fresh to the job, would be almost certain to present a bid lower than that of a current contract holder based simply on lower wage and benefit rates. Where a contracting firm operated under a collective bargaining agreement, its displacement would be almost guaranteed—regardless of the quality of services provided. The implications, it was argued, were diverse. First . Wage-based competition resulted in a downward spiral so long as there were cheaper workers available. Second . Annual shifts in contractors created a lack of continuity and stability within the industry. Third . Low wages produced no real economy for government or the consumer since (a) cheaper workers were often less competent and responsible than more experienced and more highly paid workers and, (b) the annual rotation of contractors created an employer incentive to maximize profits for the short-term—with little thought for quality of performance. Fourth . Since service workers were, arguably, usually on the lower end of the pay scale even where prevailing scales were honored, they might pose a welfare burden to the community. And, were they displaced in a shift of contractors, the workers might be left destitute. Fifth . An annual change of contractors, if only because of the short duration of service, seemed to guarantee a non-union work environment. As modified, the act would require that a successor contractor, for substantially the same services in a locality, could not pay "any service employee ... less than the wages and fringe benefits" (including prospective increases resulting from "arm's length negotiations") to which he or she would have been entitled under the predecessor contract. The provision was contentious. Although the Secretary was granted authority to modify a contract if he found, after a hearing, that the wage and benefit rates were "substantially at variance" with those prevailing locally for similar services, the provision seemed, some argued, unduly to favor workers. Absent a discretionary intervention by the Secretary, wages and benefits would be unlikely to fall, downward economic pressures notwithstanding. Conversely, it could be argued, the requirement would somewhat remove wages and benefits from the competitive mix, encouraging employers to compete in other ways. Other Issue s . Concern had been expressed that direct federal employees could be disadvantaged through contracting out under potentially less costly service contracts. To insure comparability, Congress added language to the statute to provide: that each such service contract must contain a "statement of the rates that would be paid by the federal agency to the various classes of service employees" if the workers were direct federal employees; and, that the Secretary "shall give due consideration to such rates" in making wage and fringe benefit determinations. Finally, subject to any appropriations restraints, service contracts could be negotiated for up to five years rather than on an annual basis. The 1976 Amendments Interpretive questions continued to plague the act in the wake of the 1972 amendments. Coverage and definitional issues soon emerged. How far did the Service Contract Act reach? Was coverage confined to janitors, cleaning staff and immediately related workers; or, did it include white collar and technical workers as well? The act was not self-enforcing and some agencies, it was charged, let contracts without requesting wage rate determinations. Indeed, an informal coalition may also have developed between procurement officers and contractors, each for their own purposes, seeking to reduce labor costs and, thus, seeking the narrowest possible interpretation of coverage. When agencies disagreed, industry and labor were left without direction—and disputes ultimately ended up in the courts. When the courts ruled that the act was limited in its scope to blue collar employees, Congress reviewed the coverage issue in a series of hearings conducted intermittently through 1974, 1975 and 1976. The House Subcommittee on Labor-Management Relations reported as its intent that white collar workers (clerical workers along with "keypunch operators and others") were to be included under the terms of the SCA—and, that their inclusion had been the intent of Congress. During the fall of 1976, legislation to clarify that point (though intentionally worded in terms that would not be delimited by collar color) moved through Congress, becoming law in October 1976 ( P.L. 94-489 ). The definition of service employee , as might have been anticipated given the history of these statutes, was not entirely clarified by the 1976 amendments. Whatever the intent of Congress may have been, contract workers engaged in "the maintenance, calibration, and/or repair of ... automatic data processing equipment and office information/word processing systems," and related technical workers, would come to be exempt from Service Contract Act coverage. The exemptions, the Secretary of Labor found, "are necessary and proper in the public interest or to avoid serious impairment of the conduct of Government business ...." Still other definitional issues proved contentious. What was implied by the concept of principal purpose ? What would be the status of service employees, however numerous, under a contract the principal purpose of which was not to provide services? How should administrative or professional personnel, who also provide services, be treated? "This employee mixture," one observer affirmed, "subjects the contract to the 'incidental use' test," which he suggested was "a confusing 'guideline.'" After the 1976 amendments, further refinement of the act was left, largely, to administrative rulemaking, to litigation, and to initiatives in the area of procurement reform. That course, however, would not be smooth. Comparison of Existing Standards Through the years, each act—Davis-Bacon, Walsh-Healey, and McNamara-O'Hara—has been intermittently a focus of attention, most often sparked by critics. To some extent, the controversy surrounding each of these statutes may be a measure of its impact. Judged by the literature it has sparked and the frequency with which it has been an active part of the legislative agenda, the Davis-Bacon Act (1931) has been the most controversial of the three. At least two factors may be at work here. First . There are strong and articulate interest groups both defending and opposing the Davis-Bacon Act. Second . Aside from the act, per se, Davis-Bacon (prevailing wage) provisions have been included in numerous program statutes thereby expanding the impact of the act to groups of people (in government and in the contracting community) unfamiliar with its operation and requirements. As a result, when these program statutes have come up for review and/or reauthorization, Davis-Bacon is frequently called into consideration. McNamara-O'Hara (1965) was a subject of contention during the 1970s and 1980s. However, it would appear that, following a strong attack by certain segments of industry and by the General Accounting Office, it has largely disappeared from the legislative agenda. It does, however, resurface during discussions of general procurement policy and has been a subject of administrative rulemaking. While the Walsh-Healey Act (1936) may have been moderately controversial when it was adopted (and again in the 1950s and early 1960s), it appears to have been overshadowed by other more contentious New Deal statutes: for example, the Wagner-Connery Labor Relations Act (National Labor Relations Act, 1935) and the Fair Labor Standards Act (1938). Perhaps because its minimum wage and overtime standards have become co-equal with those of the Fair Labor Standards Act, it seems to be no longer a focus of attention—neither legislative nor administrative. Diverse Provisions but Similarity of Purpose Davis-Bacon was pre-New Deal and conceived prior to the Depression though enacted in 1931 as an economic stabilization measure. By 1936, when Congress took up the legislation that would become the Walsh-Healey Act, it had before it the experience with Davis-Bacon and, subsequently, with the National Industrial Recovery Act (NIRA). In each case (Davis-Bacon and Walsh-Healey), Congress acted in its role as consumer and carefully avoided extending labor standards to the private sector. In 1937, judicial attitudes toward wage/hour legislation involving the private sector changed. After decades of refusing to give constitutional sanction to labor standards regulation for the private sector, the Supreme Court modified its stance and seemed willing to allow Congress greater latitude in dealing with such issues. As a result, the FLSA was adopted in 1938. During consideration of the FLSA legislation, Congress seemed to focus on the experience with the NIRA. It was acutely aware of NIRA deficiencies—but that statute, through its demise, provided an indication of what the courts would accept. Now freer to deal directly with labor standards in the private sector, Congress was able to move beyond both Davis-Bacon and Walsh-Healey in crafting wage/hour legislation. The juxtaposition of McNamara-O'Hara (1965) and the expansion of the FLSA during the 1960s and 1970s is more puzzling. In reporting the initial legislation on McNamara-O'Hara, both the House and Senate committees noted that service employees "in many instances are not covered by the Fair Labor Standards Act or State minimum wage laws." The FLSA, beginning with a relatively narrow pattern of coverage, had gradually been extended to an ever wider segment of the workforce. However, the 1961 FLSA amendments expanded coverage "to about 3.6 million new workers ... primarily in the retail trades and the service sector" and, under the 1966 FLSA amendments, to about 9 million additional workers of whom perhaps 3.3 million were employed in education and service fields (for example, public and private hospitals and nursing institutions). Congress might have established wage/hour standards for workers employed under federal service contracts by amending the FLSA. Instead, after an interval of nearly 30 years, it chose to revisit the federal contract labor standards field and to adopt a new statute (a supplement to Davis-Bacon and Walsh-Healey)—while, almost simultaneously, expanding the FLSA to provide protection for many of the same workers. Thus, by the closing decades of the 20 th century, two separate, distinct, but often parallel, federal wage/hour structures had been developed. Minimum wage and overtime pay protections were provided to most private and public sector workers through the FLSA. For construction workers, employed on federal contract work, there was a super-minimum wage (the locally prevailing rate) under the Davis-Bacon Act. Service employees would similarly enjoy a super-minimum wage (not less than the locally prevailing standards) under the McNamara-O'Hara Act. And, in theory, workers engaged in the contract production of goods for the federal government would have to be paid not less than the locally prevailing minimum wage under the Walsh-Healey Act. At the same time, construction and service workers would have overtime pay protection under the Contract Work Hours and Safety Standards Act (1969)—initially more protective than the overtime pay requirements of the FLSA but, ultimately, co-equal with that statute. The provisions of the various statutes have been modified through the years by acts of Congress. Table 1 sets forth the contrasting (and, sometimes, overlapping) provisions of the FLSA and the federal contract labor standards statutes. Establishing Standards In retrospect, given the history of the federal contract labor standards statutes, it may appear that Congress was unduly optimistic about the ease with which they could be administered. When Davis-Bacon was adopted in 1931, there was little experience upon which to draw. But, as subsequent statutes were adopted, Congress attempted to resolve administrative issues by writing qualifying language into each new piece of legislation. Problems, however, continued to arise and to spark demands that the several statutes be either revised or repealed. Setting a Reasonable Wage Rate Establishing the minimum wage under the Fair Labor Standards Act proved to be relatively simple. Congress would conduct hearings and, at some point, would mandate a national wage floor. The rate (with certain variations) was set forth in the statute, leaving little to the discretion of the Secretary of Labor. There was no need to assess local standards or to develop a database from which to determine comparability. Congress passed legislation and the wage floor was set. Prevailing wage rates, however, have been quite a different matter. First . There were three different approaches: the locally prevailing wage (Davis-Bacon), the locally prevailing minimum wage (Walsh-Healey), and "the minimum monetary wages ... in accordance with prevailing rates for such employees in the locality" (McNamara-O'Hara). Second . In none of the statutes was the concept of minimum and/or prevailing actually defined. Nor did the statutes provide the Secretary with a precise formula for their calculation. As discussed above, the Walsh-Healey rate would become, by default, coequal with the federal minimum wage under the FLSA. Third . There were a variety of qualifiers that the Department had to take into account. For example, how was one to define the "various classes of laborers and mechanics" for Davis-Bacon purposes or the "various classes of service employees" for McNamara-O'Hara rates? In the case of the latter, the Secretary was directed to "give due consideration to" the "rates that would be paid by the Federal agency to" service employees had they chosen to use direct federal workers—but not necessarily to be bound by it. Ultimately, Davis-Bacon and McNamara-O'Hara rates would include a fringe benefit component: not an easy figure to determine. Fourth . The rates (for Davis-Bacon and McNamara-O'Hara) were to be associated with the individual crafts or types of work performed—notwithstanding the absence of "standardization of job titles and job content." The Locality Issue The concept of "locality" might be reasonably clear where Davis-Bacon was concerned. If one were building a dam, the work had a fixed site—unless, of course, portions of the work were to be fabricated at a distant location and transported to the actual "site of the work." Moreover, workers of the skill needed for a project might not be locally available. Both the Department in calculating a wage and the contractor when recruiting a workforce might need to look to an adjoining jurisdiction (perhaps a locality several states away) in order to find comparably skilled workers employed "on projects of a character similar ...." With Walsh-Healey, the process was more difficult. A contract for army uniforms, for example, might be let out for bids in Washington, D.C.; but the actual work might be performed anywhere: New Orleans, Grand Rapids, San Juan. The production location might not be known when bids were solicited. And, to add a dimension of complexity, a uniform might involve components from a variety of jurisdictions: buttons, zippers, braid. Under such circumstances, what was the locality for wage rate determination purposes? The concept of locality appears in the Walsh-Healey Act in the phrase, "... or groups of industries currently operating in the locality ...." Rudolf Modley, et al., explain that, because the Secretary has never used "groups of industries" as a basis for wage rate determination, "he always felt free to ignore the 'locality' language of the act." Further, they note, the Secretary "has taken the position that determinations are to be made on a nationwide or industrywide basis where an analysis of government procurement shows that bids are submitted, and contracts awarded, for delivery on a nationwide basis." Thus, a variety of geographical standards might apply. Under the Service Contract Act, the problems are similarly difficult. Wage rates for janitors, working under a McNamara-O'Hara contract to clean a federal building in downtown El Paso, could readily be identified through a local market survey. But, when service workers came to include diverse crafts, white collar and technical workers, the range of rates became equally diverse. Computer service workers, for example, could be sited almost anywhere. Competing or Complementary Structures Through the years, an elaborate structure of labor standards has been developed: each with its own body of implementing regulations and enforcement/compliance guidelines. There is the body of laws enacted to protect persons engaged in federal contract work: Davis-Bacon, Walsh-Healey and McNamara-O'Hara. Variously (and differently), these statutes deal with wages and hours of work (overtime pay rates). In the case of Walsh-Healey, there are concerns about child and prison labor, and industrial homework. To these must be added the Contract Work Hours and Safety Standards Act (CWHSSA, supplementing the Davis-Bacon Act and, in some cases, the McNamara-O'Hara Act). Most employers of workers, engaged on federal contract work, will also be subject to the Occupational Safety and Health Act. Separate from the federal contract labor standards statutes (but applicable to the same bodies of workers), there is the FLSA setting minimum wages, overtime pay rates, restraining child labor and industrial homework, etc. Most often, employers engaged in federal contract work will be subject to the FLSA and the CWHSSA—in addition to Davis-Bacon, Walsh-Healey and McNamara-O'Hara. Although not treated here (it is not directly a federal issue) there is a body of state labor standards that deal with minimum wages, overtime pay, and occupational safety laws (sometimes in conjunction with OSHA). Where work is conducted with mixed state and federal funding, the higher standard or a combination of requirements could apply. More recently, there has developed a new body of wage laws, largely at the municipal level: namely, the "living wage" laws. Though they vary among jurisdictions, they generally set minimum wage and related standards that must be met when contractors do business with local governmental units. The various labor standards laws are different, each from the other: in their requirements, the triggering mechanisms, their coverage, etc. Since they are living statutes, they can be expected to change from time to time. Concluding Comment Each of these protective legal structures—the federal contract labor standards statutes, the FLSA, and the state and local protective legislation—was enacted to protect workers and to assist, in some measure, in stabilizing industry and the workplace. Each, very largely, has developed in a separate pattern as legislators (responding to workplace realities: accommodating workers, employers and the public) have modified the statutes, adding technical corrective provisions and giving way to the need for flexibility. Hardly static, the statutes have been in a continuing state of evolution. Some have argued with respect to the federal structure, that it is dated, difficult to enforce and to comply with, and very much in need of updating. Is such updating worth considering? Could it be achieved without major change to the substance of protections that have been crafted through nearly a century? At the same time, some may question whether advocates of modernity (of flexibility, of bringing labor standards law into the 21 st century) want to update or to diminish the protective qualities of the statutes to the point of de facto repeal. Through the years, some have questioned a certain redundancy in the labor standards law structure and the continuing need for protective standards for federal contract workers separate from those applicable to the workforce at large. Might a consolidation of the statutes be useful? Were that attempted, how complex might that process become and what difficulties might be encountered? Are there areas in which reform is needed and where, through restructuring, the labor standards statutes could be rendered easier to enforce, more protective of workers and less burdensome for employers?

In the late 1920s, following action taken in a number of states in dealing with state contracts, the federal government began development of a body of labor standards protections for workers employed by private contractors in federal contract work. The first of these statutes, the Davis-Bacon Act (1931), set basic labor standards (primarily, prevailing wage rates) for workers engaged in construction work, under contract, for the federal government. Two other major contract labor standards statutes followed: the Walsh-Healey Public Contracts Act (1936) and the McNamara-O'Hara Service Contract Act (1965)—respectively dealing with labor standards for workers engaged in contracts for production of goods and the provision of services. These statutes, amended from time to time and supplemented by other enactments, deal only with federal contract work. They do not directly impact work performed for private sector entities. Clearly, however, there are economic implications from these primary federally contracting statutes for private sector work. In part, the thrust of the statutes was to establish the federal government as a model employer to be emulated by the private sector. More directly, they were intended to provide economic protections to the targeted groups of workers and to assist, in some measure, in stabilizing the industries directly involved. Both Davis-Bacon and Walsh-Healey were enacted prior to the more general Fair Labor Standards Act (FLSA, 1938) which has come to provide a structure of minimum wages, overtime pay requirements, restraints upon child labor and industrial homework, among other things, both for public and private workers. Indeed, the McNamara-O'Hara Act was shaped and, finally, adopted while FLSA amendments (those of 1961 and 1966) were being developed to bring wage/hour protections to service workers. Through the years, these statutes have been the focus of numerous hearings and an extensive literature. Their provisions have been added to various federal program statutes, usually by reference. And, they have sparked substantial debate, pro and con. This report presents a brief historical introduction to the three federal contract labor standards statutes—Davis-Bacon, Walsh-Healey, and McNamara-O'Hara—and suggests how the several enactments (with the FLSA) are similar and different. It will be updated from time to time as conditions warrant.

What Determines Exchange Rates? At times, the exchange rate is erroneously imagined to be an incidental value that can be sustained by the good intentions of government and undermined by the malevolence of greedy speculators. Economic theory holds it to be a value that is far more fundamental. It is the value at which two countries trade goods and services and the value at which investors from one country purchase the assets of another country. As such, it is dependent on the two countries' fundamental macroeconomic conditions, such as its inflation, growth, and saving rates. Thus, it is generally accepted that the value of the exchange rate cannot be predictably altered (for long) unless the country's macroeconomic conditions are modified relative to those of its trading partners. Many view the volatility of floating exchange rates as proof that speculation and irrational behavior, rather than economic fundamentals, drive exchange rate values. Empirical evidence supports the view that changes in exchange rate values are not well correlated with changes in economic data in the short run. But this evidence does not prove that economic theory is wrong. Although floating exchange rate values change frequently, and at times considerably, there are important economic conditions that change frequently in ways that cannot be measured. Factors such as investors' perceptions of future profitability and riskiness cannot be accurately measured, yet changes in these factors can have profound influence on exchange rate values. Economists have had more success at correlating long run exchange rate movements with changes in economic fundamentals. A decision by a government to influence the value of its exchange rate, therefore, is likely to succeed only if its overall macroeconomic conditions are altered. Government does have tools at its disposal to alter aggregate demand in the short run—fiscal and monetary policy. Fiscal policy refers to increasing or decreasing the government's budget surplus (or deficit) in order to increase or decrease the amount of aggregate spending in the economy. Monetary policy refers to increasing or decreasing short-term interest rates through manipulation of the money supply in order to decrease or increase the amount of aggregate spending in the economy. For example, other things being equal, lower interest rates lead to more investment spending, one component of aggregate spending. Furthermore, fiscal and monetary policy influence interest rates differently, and interest rates are the key determinant of the exchange rate. Expansionary fiscal policy is likely to raise interest rates and "crowd out" private investment while expansionary monetary policy, or reducing short-term interest rates, is likely to temporarily lower interest rates. Maintaining a fixed exchange rate requires continuous policy adjustment. Although perhaps theoretically feasible, it would be impossible in practice to operate a timely or precise enough fiscal policy to maintain a fixed exchange rate as long as fiscal policy must be legislated. Thus, maintaining a fixed exchange rate has been delegated to the monetary authority in practice. Intervening in foreign exchange markets directly is equivalent to changing monetary policy if the intervention is "unsterilized." When a central bank sells foreign currency to boost the exchange rate, it takes the domestic currency it receives in exchange out of circulation, decreasing the money supply. Often, it prints new money to replace the domestic currency that has been removed from circulation—referred to as sterilization—but economic theory suggests that when it does so, it negates the intervention's effect on the exchange rate. If a government wishes to alter a floating exchange rate or maintain a fixed exchange rate, it may do so by altering monetary policy but only if it is willing to abandon other macroeconomic goals such as providing stable economic growth, preventing recessions, and maintaining a moderate, stable inflation rate. The magnitude of response of the exchange rate to changes in monetary policy is not likely to be constant or predictable over time, but under most circumstances policy can eventually lead to the desired result if it is truly dedicated to achieving it. As discussed later, problems with exchange rates usually arise when a government's heart is not truly wedded to achieving its stated goal. Floating Exchange Rates The exchange rate arrangement maintained between the United States and all of its major trading partners is known as a floating exchange rate regime. In a floating exchange rate regime, the exchange rate is a price freely determined in the market by supply and demand. The dollar is purchased by foreigners in order to purchase goods or assets from the United States. Likewise, U.S. citizens sell dollars and buy foreign currencies when they wish to purchase goods or assets from foreign countries. The exchange rate is determined by whatever rate clears these markets. Monetary and fiscal policy are not regularly or systematically used to influence the exchange rate. Thus, when the demand for U.S. goods or assets rises relative to the rest of the world, the exchange rate value of the dollar will appreciate. This is necessary to restore balance or equilibrium between the dollar value exported and the dollar value imported. Dollar appreciation accomplishes this through two effects on the United States economy, all else being equal. First, it makes foreign goods cheaper for Americans, which increases the purchasing power of American income. This is known as the terms-of-trade effect. Second, it tends to offset the changes in aggregate demand that first altered the exchange rate by making U.S. exports dearer and foreign imports less expensive. The offset in demand may not be instantaneous or complete, but it helps to make macroeconomic adjustment possible if wages and prices are not completely flexible. When foreigners increase their demand for U.S. goods, aggregate demand in the United States increases. If the United States is in a recession, this increase in aggregate demand would boost growth in the short run. If economic growth in the United States is already robust, it would be inflationary—there would be too many buyers (domestic and foreign) seeking the goods that Americans can produce. Under a floating exchange rate, a substantial part of this increase in U.S. aggregate demand would be offset by the appreciation in the dollar, which would push U.S. exports and the production of U.S. import-competing goods back towards an equilibrium level. By reducing aggregate demand, an appreciating dollar reduces inflationary pressures that might otherwise result. Likewise, if the foreign demand for U.S. assets increased, foreign capital would flow into the United States, lowering interest rates and increasing investment spending and interest-sensitive consumption spending (e.g., automobiles). Absent exchange rate adjustment, this would boost U.S. aggregate demand. But because the greater demand for U.S. assets causes the dollar to appreciate, the demand for U.S. exports and U.S. import-competing goods declines, offsetting the increase in demand caused by the foreign capital inflow. Because floating exchange rates allow for automatic adjustment, they buffer the domestic economy from external changes in international supply and demand. A floating exchange rate also becomes another automatic outlet for internal adjustment. If the economy is growing too rapidly, the exchange rate is likely to appreciate, which helps slow aggregate spending by slowing export growth. While this is unfortunate for exporters, overall it may be preferable to the alternative—higher inflation or a sharp contraction in fiscal or monetary policy to stamp out inflationary pressures. If the economy is in recession with falling income, the exchange rate is likely to depreciate, which will help boost overall growth through export growth even in the absence of domestic recovery. The maintenance of a floating exchange rate does not require support from monetary and fiscal policy. This frees the government to focus monetary and fiscal policy on stabilizing the economy in response to domestic changes in supply and demand. Fiscal and monetary policy usually can be focused on domestic goals, such as maintaining price and output stability, without being constrained by the policy's effect on the exchange rate. The drawback to fiscal and monetary autonomy, of course, is that governments are free to pursue ill-conceived policies if they desire, a particular problem for developing countries historically. Many times, a floating exchange rate is forced to act as an outlet for internal adjustment because poor fiscal and monetary policy have made adjustment necessary, causing stress on the trade sector of the economy. This can be thought of as a political, rather than an economic, drawback to floating exchange rates. How valuable the macroeconomic adjustment mechanism that floating exchange rates provide depends on the economic independence of the country. For countries that are closely tied to others through trade and investment links, the ability to adjust policy independently has little value—whatever is affecting one economy is probably affecting its neighbors as well. For countries like the United States, whose economy is arguably more affected by internal factors than external factors, flexible exchange rates allow significant internal adjustment. Trade is still a relatively small portion of American GDP: exports are equivalent to about 10% of GDP, in comparison to a country like Malaysia or Singapore where exports exceed 100% of GDP. The economic drawback to floating exchange rates is that exchange rate volatility and uncertainty may discourage the growth of trade and international investment. Many developing countries, in particular, have pursued growth strategies that have focused on promoting trade and foreign investment. Exchange rate uncertainty can be thought of as placing a cost on trade and investment, and this cost discourages trade. For example, after an international sale has been negotiated, one party to the transaction will not know what price he will ultimately receive in his currency because upon payment the exchange rate may be higher or lower than when he made the trade. If the exchange rate has depreciated, he will receive lower compensation than he had expected. The cost of this uncertainty can be measured precisely—it is the cost of hedging, that is the cost to the exporter of buying an exchange rate forward contract or futures contract to lock in a future exchange rate today. Hard Pegs and Soft Pegs The alternative to floating exchange rates are exchange rate regimes that fix the value of the exchange rate to that of another country or countries. There are two broad types of fixed exchange rates. "Hard pegs," currency boards and currency unions, are considered first because they are the most stark example of a fixed exchange rate arrangement. The second category considered is fixed exchange rates, in which the link to the other currency or currencies is less direct, making them "soft pegs." Currency Boards or Currency Unions At the opposite end of the spectrum from floating exchange rates are arrangements where a country gives up its exchange rate and monetary freedom entirely by tying itself to a foreign country's currency, what former IMF Deputy Director Stanley Fischer calls "hard pegs." This can be done through a currency board or a currency union. A currency board is a monetary arrangement where a country keeps its own currency, but the central bank cedes all of its power to alter interest rates, and monetary policy is tied to the policy of a foreign country. For example, Hong Kong has a currency board linked to the U.S. dollar. Argentina had a similar arrangement which it abandoned in 2002, during its economic crisis. In Argentina, for every peso of currency in circulation the Argentine currency board held one dollar-denominated asset, and was forbidden from buying and selling domestic assets. Thus, the amount of pesos in circulation could only increase if there was a balance of payment surplus. In effect, the exchange rate at which Argentina competed with foreign goods was set by the United States. Because exchange rate adjustment was not possible, adjustment had to come through prices (i.e., inflation or deflation) instead. Domestically, because the central bank could no longer alter the money supply to change interest rates, the economy could only recover from peaks and valleys of the business cycle through gradual price adjustment. From an economic perspective, a currency union is very similar to a currency board. An example of a currency union is the euro, which has been adopted by 13 members of the European Union. The individual nations in the euro zone have no control over the money supply in their countries. Instead, it is determined by two factors. First, the European Central Bank (ECB) determines the money supply for the entire euro area by targeting short-term interest rates for the euro area as a whole. Second, how much of the euro area's money supply flows to, say, Ireland depends upon Ireland's net monetary transactions with the rest of the euro area. For this second reason, different countries in the euro area have different inflation rates despite the fact that they share a common monetary policy. In a currency union such as the euro arrangement, each member of the euro has a vote in determining monetary policy for the overall euro area. This is the primary difference from a currency board—the country that has adopted a currency board has no say in the setting of monetary policy by the country to which its currency board is tied. The countries of the euro also share in the earnings of the ECB, known as seigniorage, just as they would if they had their own currency. Not all currency unions give all members a say in the determination of monetary policy, however. For instance, when Ecuador, El Salvador, and Panama unilaterally adopted the U.S. dollar as their currency, they gained no influence over the actions and decisions of the Federal Reserve. From a macroeconomic perspective, a unilateral currency adoption and a currency board are indistinguishable. Between these two arrangements, there are only two minor differences of note. First, currency boards earn income on the dollar-denominated assets that they hold (another example of seigniorage) while currency adopters do not. Second, investors may view a currency union as a more permanent commitment than a currency board, particularly after the failure of Argentina's currency board. If this were the case, they would view the risks associated with investment in the former to be lower. Economic Advantages to a Hard Peg The primary economic advantage of a hard peg comes through greater trade with other members of the exchange rate arrangement. The volatility of floating exchange rates places a cost on the export and import-competing sectors of the economy. Greater trade is widely seen to be an engine of growth, particularly among developing countries. In a perfectly competitive world economy without transaction costs, the cost of exchange rate volatility could be very large indeed. For instance, U.S. exporters and domestic firms that compete with importers in 2000 faced one-third higher prices than in 1995 as a result of the (floating) dollar's one-third appreciation against its main trading partners. Until the domestic price level fell by one-third, U.S. producers would be uncompetitive, if all else is equal. (All else was not equal—exports continued to rise in the 1990s despite the dollar's appreciation.) Under a system of fixed exchange rates, U.S. exporters would not have been placed at this price disadvantage, all else being equal. Between small countries, a hard peg is also thought to promote more efficient and competitive markets through lower barriers to entry and greater economies of scale. Hard pegs also encourage international capital flows. The encouragement of international capital flows can enhance a country's welfare in a couple of ways. First, it allows more investment to take place in areas where saving is relatively scarce and rates of return are high, and investment is key to sustainable growth. This makes both the borrower and the investor better off; the former because more investment, and hence growth, is possible than otherwise would be, the latter because they can now enjoy higher rates of return on their investment for a given amount of risk than if limited to home investment. For developing countries, these investment gains can be quite large. Because these countries have much lower capital-labor ratios than the developed world, capital investment can yield relatively high returns for some time if a friendly economic environment is constructed. On the other hand, international capital flows can change rapidly in ways that can be destabilizing to developing countries, as will be discussed below. Weighed against the gains of higher trade and international investment is the loss of the use of fiscal and monetary policy to stabilize the economy. For countries highly integrated with their exchange rate partners, this loss is small. For example, in the euro area, the business cycle of many of the "core" economies (e.g., Germany and the Netherlands, or Belgium and France) have been highly correlated. As long as Belgium does not face separate shocks from France, it does not lose any stabilization capabilities by giving up the ability to set policy independently of France. By sharing a currency, their fiscal and monetary policy can still be adjusted to respond jointly to shared shocks to their economies, even if these shocks are not shared by the rest of the world—the euro is free to adjust against the rest of the world's currencies. Troubles only arise if shocks harm one of these countries, but not its partners in the euro. In that case, there cannot be policy adjustment for that country to compensate for the shock. Political Advantages to a Currency Board or Union The previous explanation described the economic reasons for establishing currency boards or currency unions. But it is probable that the primary reason for establishing them in developing countries is based more on political reasons. As has been shown, these monetary arrangements tie the hands of their country's policymakers. For some countries, this is precisely what their policymakers are trying to achieve—a way to prevent the reinstatement of policies from the "bad old days." The most stark example of the "bad old days" is the hyperinflation that many developing countries experienced. For instance, in 1990, the year before Argentina adopted a currency board, its inflation rate reached 2,314%. Stable growth is impossible when the price mechanism has broken down in this way. The currency board quickly brought the inflation rate in Argentina down to single digits. Whenever a country's inflation rate gets extremely high, it is a reflection of its fiscal policy. Large budget deficits cannot be financed through the sale of debt instruments, so they are instead financed through the printing of money. Thus, a currency board prevents irresponsible fiscal policy by preventing monetary policy from supporting it. Similarly, Ecuador "dollarized" in 2000—adopting the U.S. dollar and largely discontinuing the use of its own currency—at a time of economic crisis with the hope that it would renew investor confidence. Although extremely high inflation had not yet become a problem, events leading up to dollarization appeared to be pointing in that direction. The country's banking system had collapsed, its economy had shrunk by more than 7% in 1999, low oil prices and natural disaster had caused budget financing problems, and it had defaulted on some of its sovereign debt. Investors had become very concerned that inflationary monetary policy would be used to solve its fiscal problems, and dollarization quelled these fears by eliminating that policy option. Economic analysis sheds little light on the choice between floating exchange rates and a currency board arrangement when the decision is motivated by the desire to find a political arrangement that will prevent the pursuit of bad policies. Economic analysis can identify bad policy; it cannot explain why it is pursued or how to prevent its recurrence. A currency board is not the only way to tie the hands of policymakers; various rules and targets have been devised to eliminate policy discretion that could be used with a floating exchange rate. A currency board may be a more final commitment, and hence harder to renege on, than rules and targets, however. Then again, Argentina proved that even currency boards are not permanent. In any case, the political problem of countries monetizing budget deficits seems to be waning. Since 2000, the annual inflation rate in developing countries has averaged about 6%. If current trends continue, in the future there may be fewer countries who find it advantageous to accept the harsh medicine of hard pegs to solve their political shortcomings. Hard pegs are also seen by both proponents and opponents as a means to foster political integration, a topic beyond the scope of this report. This was a primary consideration behind the adoption of the euro. Fixed Exchange Rates In a traditional fixed exchange rate regime, the government has agreed to buy or sell any amount of currency at a predetermined rate. That rate may be linked to one foreign currency or (unlike a currency board) it may be linked to a basket of foreign currencies. In theoretical models, where capital is perfectly mobile and investors consider all countries to be alike, fixed exchange rates would necessarily be functionally equivalent to a currency board. Any attempt to unilaterally influence one's interest rates, through monetary or fiscal policy, would be unsustainable because capital would flow in or out of the country until interest rates had returned to the worldwide level. In reality, results are not quite so stark. There are transaction costs to investment. Investors demand different risk premiums of different countries, and these risk premiums change over time. There is a strong bias among investors worldwide, particularly in developed countries, to keep more of one's wealth invested domestically than economic theory would suggest. Due to these factors, interest rate differentials, which should be theoretically impossible, are abundant. For instance, interest rates in France and Germany should entail similar risks. Thus, anytime French interest rates exceeded German rates, capital should flow from Germany to France until the rates equalized again. Yet the commercial interest reference rate, as measured by the OECD, between these two countries has varied by as much as 1.61 percentage points between 1993 and the adoption of the euro in 1999. As a result, countries with fixed exchange rates have limited freedom to use monetary and fiscal policy to pursue domestic goals without causing their exchange rate to become unsustainable. By contrast, countries that operate currency boards or participate in currency unions have no monetary or fiscal autonomy. For this reason, fixed exchange rates can be thought of as "soft pegs," in contrast to the "hard peg" offered by a currency board or union. But compared to a country with a floating exchange rate, the ability of a country with a fixed exchange rate to pursue domestic goals is highly limited. If a currency became overvalued relative to the country to which it was pegged, then capital would flow out of the country, and the central bank would lose reserves. When reserves are exhausted and the central bank can no longer meet the demand for foreign currency, devaluation ensues, if it has not already occurred before events reach this point. The typical reason for a fixed exchange rate to be abandoned in crisis is due to an unwillingness by the government to abandon domestic goals in favor of defending the exchange rate. Interest rates can almost always be increased to a point where capital no longer flows out of the country, but a great contraction in the economy may accompany those rate increases. It is not uncommon to see interest rates reach triple digits at the height of an exchange rate crisis. Crises ensue because investors do not believe that the government will have the political will to accept the economic hardship required to maintain those interest rates in defense of the currency. Economic Advantages of a Fixed Exchange Rate As with a hard peg, a fixed exchange rate has the advantage of promoting international trade and investment by eliminating exchange rate risk. Because the arrangement may be viewed by market participants as less permanent than a currency board, however, it may generate less trade and investment. As with a hard peg, the drawback of a fixed exchange rate compared to floating exchange rates is that the government has less scope to use monetary and fiscal policy to promote domestic economic stability. Thus, it leaves countries unable to defend themselves against idiosyncratic shocks not shared by the country to which it has fixed its currency. As explained above, this is less of a problem than with a hard peg because imperfect capital mobility does allow for some deviation from the policy of the country or countries to which you are linked. But the shock would need to be temporary in nature because a significant deviation could not last. The scope for the pursuit of domestic goals is greater for countries that fix their exchange rate to a basket of currencies—unlike a hard peg, the country is no longer placed at the mercy of the unique and idiosyncratic policies and shocks of any one foreign country. One method for creating a currency basket is to compose it of the currencies of the country's primary trading partners, particularly if the partner has a hard currency, with shares set in proportion to each country's proportion of trade. If the correlation of the business cycle with each trading partner is proportional to the share of trade with that country, then the potential for idiosyncratic shocks to harm the economy should be considerably reduced when pegged to a basket of currencies. On the down side, baskets do not encourage any more bilateral trade and investment than a floating exchange rate because they reintroduce bilateral exchange rate risk with each trading partner. There is a popular perception that the advantage of a fixed exchange rate is that it allows countries to set their exchange rate below market value in order to boost exports and curb imports. For example, this claim is often leveled against China. Economists would disagree that an artificially low exchange rate is in a country's self interest. Although it has the benefit of boosting a country's trade balance, it also has costs. By making imports more expensive, it reduces consumers' purchasing power. And by distorting market signals, it funnels resources away from their most efficient use. Finally, an undervalued exchange rate confers no permanent trade advantage because it will eventually cause domestic prices to rise, canceling out the price advantage offered by the exchange rate. Political Advantages of a Fixed Exchange Rate In previous decades, it was believed that developing countries with a profligate past could bolster a new commitment to macroeconomic credibility through the use of a fixed exchange rate for two reasons. First, for countries with inflation rates that were previously very high, the maintenance of fixed exchange rates would act as a signal to market participants that inflation was now under control. For example, inflation causes the number of dollars that can be bought with one peso to decline just as it causes the number of apples that can be bought with one peso to decline. Thus, a fixed exchange rate can only be maintained if large inflation differentials are eliminated. Second, a fixed exchange rate was thought to anchor inflationary expectations by providing stable import prices. For a given change in monetary policy, economy theory suggests that inflation will decline faster if people expect lower inflation. After the many crises involving fixed exchange rate regimes in the 1980s and 1990s, this argument has become less persuasive. Unlike a currency board, a fixed exchange rate regime does nothing concrete to tie policymakers' hands and prevent a return to bad macroeconomic policy. Resisting the temptation to finance budget deficits through inflation ultimately depends on political will; if the political will is lacking, then the exchange rate regime will be abandoned, as was the case in many 1980s exchange rate crises. Thus burnt in the past, investors may no longer see a fixed exchange rate as a credible commitment by the government to macroeconomic stability, reducing the benefits of the fixed exchange rate. Furthermore, some currency board proponents claim that this lack of credibility means that investors will "test" the government's commitment to maintaining a soft peg in ways that are costly to the economy. By contrast, they claim that investors will not test a currency board because they have no doubt of the government's commitment. For this reason, many economists who previously recommended fixed exchange rates on the basis of their political merits have shifted in recent years towards support of a hard peg. This has been dubbed the "bipolar view" of exchange rate regimes: growing international capital mobility has made the world economy behave more similarly to what models have suggested. As capital flows become more responsive to interest rate differentials, the ability of "soft peg" fixed exchange rate regimes to simultaneously pursue domestic policy goals and maintain the exchange rate has become untenable. As a result, countries are being pushed toward floating exchange rates (the freedom to pursue domestic goals) or "hard pegs" (policy directed solely toward maintaining the exchange rate). In this view, while "soft pegs" may have been successful in the past, any attempt by a country open to international capital to maintain a soft peg today is likely to end in an exchange rate crisis, as happened to Mexico, the countries of Southeast Asia, Brazil, and Turkey. Empirically, the trend does appear to be moving in this direction. In 1991, 65% of the world's 55 largest economies used "soft peg" exchange rate arrangements; in 1999, the number had fallen to 27%. Although the international trend has been towards greater capital mobility and openness, it should be pointed out that there are still developing countries that are not open to capital flows. The "bipolar view" argument may not hold for these countries: without capital flows reacting to changes in interest rates, these countries may be capable of maintaining a soft peg and an independent monetary policy. For a fixed exchange rate to work, the relative supply and demand for a country's currency must remain stable over time, or the government must adjust the value at which the exchange rate is fixed whenever supply and demand significantly change. In practice, the primary problem with fixed exchange rates has been that countries have faced frequent changes in economic conditions that put pressure on the fixed exchange rate to change, but countries have proven unwilling to change the exchange rate promptly. (Of course, frequent changes undermine many of the economic and political rationales for using fixed exchange rates.) Some countries have faced economic pressures to raise the value of the exchange rate, others to lower it. An undervalued exchange rate can be maintained indefinitely, as long as the country is willing to accumulate foreign exchange reserves. But it may lead to political tensions with trading partners, as has been the case recently between China and the United States. When the exchange rate is overvalued, it frequently results in economic crisis, as will be discussed in the next section. What Have Recent Crises Taught Us About Exchange Rates? The previous discussion summarizes the textbook advantages and disadvantages of different exchange rate regimes. As such, it abstracts and simplifies from many economic issues that may bear directly on real policymaking. In particular, it neglects the possibility that crisis could be caused or transmitted through international goods or capital markets, and the transmission role exchange rates can play in crisis. The remainder of the report will be devoted to trying to glean some general lessons from the international crises of the 1990s, which featured rapidly falling exchange rates and asset prices, international capital flight, and financial unrest, to enrich our understanding of how different exchange rate regimes function. The primary lesson seems to be that fixed exchange rate regimes are prone to crisis, while a crisis caused by international capital movements is extremely improbable under floating regimes. Unlike the crises of the 1980s, most of the countries involved in 1990s crises—particularly Southeast Asia—had relatively good macroeconomic policies in place (e.g., low inflation, balanced budgets, relatively free capital mobility). Thus, these crises cannot be blamed simply on policy errors. Fixed exchange rate regimes are prone to crisis because investors are compelled to remove their money from a country before it devalues. It is similar to a fire in a crowded theater: although everyone easily entered the theater in an orderly fashion, if everyone tries to rush out at once, the doors jam and the fire becomes a catastrophe. Proponents of fixed exchange rate regimes often argue that they can be adjusted if they "get out of line." But the weakness of fixed exchange rate regimes is that when economic fundamentals change in such a way that devaluation becomes necessary, there is no mechanism to devalue except crisis. Even if a government wanted to announce a planned devaluation to avoid crisis, the announcement would likely spur anticipatory capital flight as investors tried to withdraw their investments before the new exchange rate was implemented. Corruption, "crony capitalism," and "greedy speculation" are not needed to explain why fixed exchange rates collapse. The countries forced to devalue during the Asian Crisis (Thailand, Malaysia, Philippines, Indonesia, and South Korea) had very different economic structures and political systems, and were at different stages of economic development, ranging from a per capita GDP of $15,355 in South Korea to $4,111 in Indonesia. What they all had in common was their exchange rate peg to the U.S. dollar. The Asian crisis was instigated by the fact that the appreciating U.S. dollar, to which the crisis countries were fixed, had made their exports less competitive and encouraged imports, particularly compared to China (which had devalued its exchange rate in 1994) and Japan. Investment bubbles, notably in property markets, seemed to be present in all of the crisis countries, although there is no accepted method to identify them even after the fact. Some argue that the bursting of these bubbles played a key role in instigating the crises. Theories for why the bubbles formed include widespread state allocation of capital, poor local financial regulation, and simple misguided exuberance on the part of investors. Whether the bursting of such a bubble could have instigated the crisis under a floating exchange rate is debatable. Some sharp declines in asset prices have sparked serious crises and downturns, as was the case in Japan in the early 1990s. Other times, sharp asset price declines have not caused crisis and have had little lasting effect on the economy, as was the case with the United States in 1987. But what is clear is that an asset bubble and a fixed exchange rate can interact in ways more virulent than their individual parts. To the extent that asset prices would have fallen in Asia to return to their fundamental levels anyway, the presence of a fixed exchange rate ensured that it would happen suddenly because of the "fire in a theater" principle. To the extent that a devaluation would have been necessary anyway, the presence of an asset bubble assured that the outflows would be larger, placing more of a strain on the countries' financial systems. When investors recognize a situation where devaluation becomes likely, even though they may have had no intention of leaving a country otherwise, they have every incentive to remove their money before the devaluation occurs because devaluation makes the local investment worth less in foreign currency. Because the central bank's reserves will always be smaller than liquid capital flows when capital is mobile, devaluation becomes inevitable when investors lose faith in the government's willingness to correct the exchange rate's misalignment. To an extent, the phenomenon then takes on the aspect of a self-fulfilling prophecy. The reason the depreciation of a currency in crisis is typically so dramatic is because at that point investors are no longer leaving because of economic fundamentals, but simply to avoid being the one "standing when the music stops." Notice that in the textbook explanation, a currency depreciation is expected to boost growth through an improved trade balance. In a currency crisis, this does not happen at first, although it does happen eventually, because resources cannot be reallocated towards increased exports quickly enough to compensate for the blow to the economy that comes through the sudden withdrawal of capital. In the Asian crisis, businessmen told of export orders they were unable to fill following devaluation because their credit line had been withdrawn. The shock of the capital outflow is exacerbated by the tendency for banking systems to become unbalanced in fixed exchange rate regimes. When foreigners lending to the banking system start to doubt the sustainability of an exchange rate regime, they tend to shift exchange rate risk from themselves to the banking system in two ways. First, foreign investors denominate their lending in their own currency, so that the financial loss caused by devaluation is borne by the banking system. Before devaluation, a bank's assets might exceed its liabilities. With devaluation, the foreign currency liabilities suddenly multiply in value with the stroke of a pen without any physical change in the economy, and the banks become insolvent. Second, foreign lending to the banking system is done on a short-term basis so that investments can be repatriated before devaluation takes place. This is problematic because most of a bank's investments are longer term. The banks then enter a cycle where the short-term debt is rolled over until crisis strikes, at which point credit lines are cut. Both of these factors lead to a situation where a currency crisis causes a banking crisis, which is a much more significant barrier to economic recovery than the devaluation itself. These two characteristics both tend to be present when lending to developing countries even in good times; the tendencies are accelerated when booms look unsustainable. An exception may have been Brazil, which some economists have suggested recovered so quickly from its devaluation because its banking system had few short-term, foreign currency denominated assets. It is not necessarily illogical for the banking system to accept financing on a short term basis or denominated in foreign currency when credit conditions tighten. If it did not accept all forms of financing available to it, it could face insolvency at worst and a significant contraction in business at best. If the banks believe that the downturn is temporary and the episode will pass without a currency devaluation, then the banks will be able to repay the loans once conditions improve. If devaluation causes them to fail, they may expect the government to bail them out, perhaps explaining their willingness to accept these currency risks. These factors make it clear that once a country enters a currency crisis, there is no policy response that can avoid significant economic dislocation. A policy to lower interest rates to boost aggregate demand and add liquidity to the financial system causes the currency to devalue further, increasing the capital outflow and exacerbating the banking system's insolvency. A policy to raise interest rates in support of the currency exacerbates the economic downturn brought on by crisis by reducing investment demand further. This too can feed through to the banking system and capital markets by bankrupting significant portions of the private sector. And it may not quell the currency crisis. In a textbook analysis, interest rates can always be increased to attract back the capital leaving. In reality, after a certain point higher interest rates increase default risk, perhaps causing more capital flight than lower interest rates would bring. Both the Mexican crisis and the East Asian crisis were exacerbated by contagion effects where crisis spread from country to country in the region. This cannot be explained by an irrational (and degrading) assumption by investors that "all Asians/South Americans are crooks." Rather, it reflects the regional interdependence of these economies. Although there is no a priori evidence that South Korea's currency was overvalued, it became overvalued once its neighbors were forced to devalue. That is because its exports competed with its neighbors, and exports accounted for a large fraction of its GDP. After its neighbors devalued, South Korean exporters, already struggling because the Japanese yen had been depreciating, could no longer offer competitive prices. Simultaneously, it appears that investors' perception of the riskiness of emerging markets in general greatly increased, curtailing lending to South Korea, which placed pressure on interest rates and investment. At this point, the deterioration in economic fundamentals caused the Korean won to become overvalued, and currency crisis spread. One may ask why the Bretton Woods fixed exchange rate system that fixed the currencies of the major western economies from 1945 to 1971 was not prone to crisis (at least before it collapsed). The reason is that capital mobility was largely curtailed under the Bretton Woods system. Without capital mobility, central banks could use their reserves to accommodate small changes in fundamentals and could respond to large changes in fundamentals with a (relatively) orderly devaluation. As long as capital remains mobile—and almost nobody has supported a return to permanent capital controls—the Bretton Woods arrangement cannot be replicated. It was not long after capital controls were removed that the Bretton Woods system experienced a growing number of currency crises in the 1960s and 1970s, leading to its eventual demise. Some economists argue that if short-term, foreign-currency denominated debt is the real culprit in recent crises, then it makes more sense to address the problem directly, rather than through the indirect approach of making it more costly through a floating exchange rate. The problem could be addressed directly through various forms of capital controls, financial regulations, or taxes on capital flows. They argue that capital controls are necessary until financial markets become well enough developed to cope with sudden capital inflows and outflows. Capital controls would also allow countries to operate an independent monetary policy while maintaining the trade-related benefits of a fixed exchange rate, similar to how the Bretton Woods system operated. Yet capital controls deter capital inflows as well as capital outflows, and rapid development is difficult without capital inflows. Capital controls may make crises less likely, but they are also likely to reduce a country's long run sustainable growth rate. That is not to argue that floating exchange rates are stable and predictable, as some economists claimed they would be before their adoption in the 1970s. Rather, it is to argue that their volatility has very little effect on the macroeconomy. For example, the South African rand lost half of its value against the U.S. dollar between 1999 and 2001. Yet GDP growth averaged 2.8% and inflation averaged 5.4% in those years. To be sure, when exchange rates change their value by a significant amount in a few years, exporting and import-competing sectors of the economy suffer. Manufacturing and farming are among those sectors in the United States. But there is very little evidence to suggest that in a well-balanced economy such as the United States, other sectors of the economy cannot pick up the slack when the currency appreciates, especially when monetary policy is applied prudently. The one-third appreciation of the dollar and record trade deficits between 1995 and 2000 did not prevent the U.S. economy from achieving stellar growth and unemployment that at one point dipped below 4%. While floating exchange rates sometimes move by substantial amounts in a couple of years, they do not move by substantial amounts overnight, as happens in fixed exchange rate crises. And that is the key reason why floating exchange rates are not prone to financial and economic crises. Floating and fixed exchange rates both impose costs on economies. Floating exchange rates impose a cost by discouraging trade and investment. Fixed exchange rates impose a cost by limiting policymakers' ability to pursue domestic stabilization, thereby making the economy less stable. But there is a fundamental difference in the types of costs they impose. In most countries, the cost of floating exchange rates is internalized and can be managed through the market in the form of hedging. (Developing countries with undeveloped financial systems may not be able to adequately hedge exchange rate risk, however.) Part of the cost of fixed exchange rates is an externality and cannot be hedged away. In other words, society as a whole bears some of the costs of fixed exchange rate regimes, so that market participants do not take that cost into account in their transactions. The costs that society bears are threefold. First, to the extent that a country faces unique shocks to its economy, it gives up the ability to protect its economy against these shocks. Those involved in international trade and investment do not compensate society at large for the fact that the volatility of aggregate unemployment and inflation has been increased. Second, the fixed exchange rate regime is more prone to crisis, which further increases the probability of high unemployment episodes. Even if floating exchange rates were to lead to lower growth because they dampen the growth of trade and foreign investment, risk averse individuals may prefer that outcome if it leads to fewer crises. Third, in some historical instances, fixed exchange rates have weakened the banking system through their incentives to take on debt that cannot be repaid in the event of devaluation. Of the three factors, the last is the only one that could theoretically be rectified through regulation, although implementing such regulation in practice could be difficult, particularly in the developing world. This is not to argue that fixed exchange rate regimes are never superior to floating regimes. The United States would not be better off with 50 separate currencies for each state even though it would ameliorate regional recessions. When countries economies are interdependent enough, the benefits of fixed exchange rates outweigh the costs: regions experience fewer unique shocks, labor mobility improves, product markets may benefit from greater competition and economies of scale, and capital market integration increases. But few countries meet this criterion. Whether the countries of the euro zone become interdependent enough to make the euro sustainable remains to be seen. At the time the euro was introduced, growth between the "core" (countries like Germany and Italy) and the "periphery" (countries like Ireland and Finland) were widely divergent, although they seem to have narrowed since the euro was introduced. But many developing countries that have adopted (or have considered adopting) fixed exchange rates are not well integrated with the economy to which they are linked (see Appendix ). That is because these countries are looking to link to the world's major "hard" currencies, the U.S. dollar, the euro, the Japanese yen, the British pound, or the Swiss franc. Because they are often choosing to fix their exchange rate to gain credibility (e.g., after an episode of high inflation), only a hard currency would provide that credibility. But because the economies of most developing countries are not closely tied to these hard currency economies, they are likely to face very different economic shocks from the hard currency economy. Therefore, they will not be able to adjust policy in response to the shock because of the fixed exchange, nor will they receive any policy adjustment from the country they are fixed to, because the hard currency country, facing no shock, has no need to adjust its policy. This makes these countries more prone to boom and bust than they would be with a (responsibly run) floating exchange rate. Certainly, Russia and the countries of East Asia and Latin America that were struck by currency crises in the 1990s were not closely enough integrated with the U.S. economy to make a dollar peg sustainable. Of these countries, only Mexico and the Philippines experienced growth that was positively correlated with U.S. growth in the 1990s. Proponents of currency boards argue that they do not suffer the vulnerabilities of traditional fixed exchange rates because devaluation becomes too costly an option for the government to consider. For that reason, they argue, investors have no qualms about the safety of their money, and speculators know they cannot undermine the currency, so they do not try. The example of Argentina's currency board demonstrates why this argument is unpersuasive. In making this argument, currency board proponents are only focusing on the political advantage to a currency board—it makes profligate fiscal and monetary policy impossible. But this is not the only factor that makes economies grow and investors choose them as an investment location. A currency board eliminates currency risk, but it does nothing to eliminate a country's macroeconomic risk, to which investors are just as sensitive. For example, there are good reasons why the overall U.S. economy would not be significantly affected by the dollar's one-third appreciation since 1995, but there is no reason why the Argentine economy would be unaffected. It had not received the large capital inflows or experienced the rapid economic growth that made the dollar's appreciation sustainable—some would argue, desirable—for the United States despite its implication for exporters. Thus, Argentine's exporters and import-competing industries became uncompetitive in the last five years with no countervailing factors to make other sectors of the economy competitive. In fact, developments to the Argentine economy suggest a floating exchange rate would have naturally depreciated in recent years to offset negative factors. The prices of commodities (which are important exports for Argentina) had been falling, foreign investment to developing nations had fallen since the Asian crisis, and Argentina's largest trading partner, Brazil, underwent a significant devaluation in 1998. Although the currency board may have lowered political risk in Argentina, for these reasons, it greatly increased macroeconomic risk, and that is why the currency board collapsed in 2002. In the face of macroeconomic risk and political upheaval, Argentina proved that no currency arrangement is permanent. It is beyond the scope of this report to explore the question of whether developing countries with a profligate economic past can make a credible new start without fixing their exchange rates. Some economists go farther and suggest that in today's globalized economy, fixed exchange rates are no longer viable, and adopting a foreign currency becomes necessary for a country trying to make a new start. In those few cases where a natural currency union partner already exists, a fixed exchange rate offers considerable economic advantages, particularly for a country trying to overcome a profligate past. For all other countries, after considering the experience of recent years, the economic advantages to floating exchange rates seem considerable. Appendix. How Interdependent Are International Economies? The statement that some international economies are naturally suited for floating exchange rate regimes while some economies are naturally suited for a fixed exchange rate with a major trading partner is an uncontroversial statement among economists. It is based on the insights first provided by economist Robert Mundell's model of an optimum currency area, which outlines the criteria that determine under what circumstances a fixed exchange rate would succeed. This model underlines the discussion of advantages and disadvantages presented in the first part of this report. Controversy arises among economists on two points. First, it arises on the political question of how important the political benefits of fixed exchange rates should be, which cannot be addressed by the model. Second, it arises from the fact that the empirical parameters of the optimum currency area model are not well established, with economists disagreeing about how much integration is actually needed for a fixed exchange rate to succeed. This appendix attempts to offer some empirical evidence on the latter question. It approximates a country's interdependence with its largest trading partner based on two key criteria from the optimum currency area model: How closely linked the two countries are through trade, measured as exports to the trading partner as a percentage of total exports in 2005. The degree of correlation between the two countries' business cycles, measured as correlation of economic growth from 1997 to 2006. The results are presented for selected developed countries and areas in Table A-1 . Using any specific cutoff point to define two economies as interdependent vs. independent for either measure would be arbitrary, but some countries do not achieve even the bare minimum of interdependence. Negative growth correlation means that, overall, the business cycle in the largest trading partner was typically moving in the opposite direction of the country for any given year in the sample. Typically, this would put pressure on their exchange rates to move in opposite directions as well. Similarly, it would be difficult to argue that the largest trading partner was closely tied to the country economic well-being if it did not receive a large share of the country's exports. By these measures, of the countries in Table A-1 , Australia and New Zealand seem poorly suited for a fixed exchange rate on both measures. Both countries are relatively physically isolated and not overly reliant on any particular trading partner. A case could be made for a fixed exchange rate for the other countries in the table; a strong case could be made for Canada and Switzerland. But a closer look at Canada suggests that a successful floating exchange rate may not be incompatible even with a country as closely interdependent with its neighbor as Canada is with the United States. Despite its interdependence, Canada has maintained robust growth and low inflation with a floating exchange rate. Because commodities are a larger percentage of its output than that of the United States, its economy responds to changes in commodity prices differently than the United States does. As a result, its currency has appreciated as commodity prices have risen.

Congress is generally interested in promoting a stable and prosperous world economy. Stable currency exchange rate regimes are a key component to stable economic growth. This report explains the difference between fixed exchange rates, floating exchange rates, and currency boards/unions, and outlines the advantages and disadvantages of each. Floating exchange rate regimes are market determined; values fluctuate with market conditions. In fixed exchange rate regimes, the central bank is dedicated to using monetary policy to maintain the exchange rate at a predetermined price. In theory, under such an arrangement, a central bank would be unable to use monetary policy to promote any other goal; in practice, there is limited leeway to pursue other goals without disrupting the exchange rate. Currency boards and currency unions, or "hard pegs," are extreme examples of a fixed exchange rate regime where the central bank is truly stripped of all its capabilities other than converting any amount of domestic currency to a foreign currency at a predetermined price. The main economic advantages of floating exchange rates are that they leave the monetary and fiscal authorities free to pursue internal goals—such as full employment, stable growth, and price stability—and exchange rate adjustment often works as an automatic stabilizer to promote those goals. The main economic advantage of fixed exchange rates is that they promote international trade and investment, which can be an important source of growth in the long run, particularly for developing countries. The merits of floating compared to fixed exchange rates for any given country depends on how interdependent that country is with its neighbors. If a country's economy is highly reliant on its neighbors for trade and investment and experiences economic shocks similar to its neighbors', there is little benefit to monetary and fiscal independence, and the country is better off with a fixed exchange rate. If a country experiences unique economic shocks and is economically independent of its neighbors, a floating exchange rate can be a valuable way to promote macroeconomic stability. A political advantage of a currency board or currency union in a country with a profligate past is that it "ties the hands" of the monetary and fiscal authorities, making it harder to finance budget deficits by printing money. Recent experience with economic crisis in Mexico, East Asia, Russia, Brazil, and Turkey suggests that fixed exchange rates can be prone to currency crises that can spill over into wider economic crises. This is a factor not considered in the earlier exchange rate literature, in part because international capital mobility plays a greater role today than it did in the past. These experiences suggest that unless a country has substantial economic interdependence with a neighbor to which it can fix its exchange rate, floating exchange rates may be a better way to promote macroeconomic stability, provided the country is willing to use its monetary and fiscal policy in a disciplined fashion. The collapse of Argentina's currency board in 2002 suggests that such arrangements do not get around the problems with fixed exchange rates, as their proponents claimed. This report does not track legislation and will be updated as events warrant.

Brief History of Post-War U.S.-Vietnam Relations and the Agent Orange Issue From 1975 to about 2000, although the Agent Orange issue was on Vietnam's agenda, it was generally pushed into the background. There are many reasons for this, including Vietnam's desire for greater trade opportunities with the United States, the U.S. desire for a more complete accounting for U.S. soldiers still listed as "missing in action" (MIA) in Vietnam, Vietnam's invasion of Cambodia in 1978, and the rising tide of Vietnamese "boat people." In 1975, following North Vietnam's victory over South Vietnam, President Gerald Ford severed diplomatic relations and imposed a trade embargo on Vietnam. Although Vietnam sought to normalize relations, it was predicated on the United States honoring President Richard Nixon's "secret promise" of $3.25 billion in reconstruction assistance, which the United States was unwilling to do. Although President Jimmy Carter signaled a willingness to discuss normalization soon after his inauguration, the emotional issue of U.S. prisoners of war/missing in action (POW/MIAs), the migration of Vietnam's so-called "boat people," Vietnam's 1978 invasion of Cambodia (known at that time as Democratic Kampuchea), and Vietnam's border conflict with China made any significant warming of relations politically impossible. U.S.-Vietnamese relations became even more frosty following the signing of a mutual defense treaty between Vietnam and the Union of Soviet Socialist Republics (USSR) on November 3, 1978. These circumstances pushed the issue of Agent Orange effectively off the bilateral agenda despite Vietnamese efforts to raise the subject. President Ronald Reagan was generally opposed to any move towards normalizing relations with Vietnam so long as Vietnamese forces remained in Cambodia and the Vietnamese government had not provided a "full accounting" of U.S. POW/MIAs. In addition, the Reagan Administration, which repeatedly expressed a skepticism about U.S. veterans claiming medical problems related to Agent Orange exposure, was generally unwilling to discuss the issue of Vietnamese nationals with similar medical conditions supposedly caused by Agent Orange exposure. Following Vietnam's withdrawal from Cambodia in 1989, President George H. W. Bush reopened communication with Vietnam. In April 1991, President Bush announced a U.S. "roadmap" for normalization of relations that included greater cooperation in locating and returning the remains of approximately 2,200 U.S. soldiers and civilians who were still unaccounted for at that time. Vietnam responded by allowing the United States to open an MIA office in Hanoi and offering greater cooperation and assistance in locating the remains of U.S. personnel. On February 6, 1991, President Bush said, I am pleased today to sign into law H.R. 556 [ P.L. 102-4 ], the "Agent Orange Act of 1991." This legislation relies on science to settle the troubling questions concerning the effect on veterans of exposure to herbicides—such as Agent Orange—used during the Vietnam era. However, President Bush's approval of assistance for U.S. veterans exposed to Agent Orange did not extend to Vietnamese veterans and civilians; Vietnamese efforts to discuss the issue were generally rebuffed by the United States. President William Clinton built on the general thaw in bilateral relations by signaling the end of U.S. opposition to Vietnam receiving international financial assistance. On February 3, 1994, President Clinton announced the end of the U.S. trade embargo on Vietnam. In April 1994, Congress passed the Foreign Relations Authorization Act, Fiscal Years 1994 and 1995 ( P.L. 103 - 236 ) that expressed the Senate's support for the normalization of relations with Vietnam. Despite some congressional efforts to tie normalization to the POW/MIA issue, President Clinton continued to advance U.S. relations with Vietnam by appointing the first post-war ambassador to Vietnam in 1996 and signing the U.S.-Vietnam bilateral trade agreement (BTA) in 2000. Towards the end of the Clinton Administration, the United States signaled an increased willingness to address the Agent Orange issue. In March 2000, then Defense Secretary William Cohen pledged greater U.S. cooperation with Vietnam's Agent Orange problems during a trip to Hanoi. Eight months later, during President Clinton's five-day trip to Vietnam, the United States and Vietnam agreed to set up a joint research study on the effects of dioxin/Agent Orange. In March 2002, the United States and Vietnam signed a memorandum of understanding (MOU) that specified future collaborative research on the human health and environmental effects of Agent Orange and dioxin, as well as created a Joint Advisory Committee (JAC) to oversee such collaboration. However, there continued to be clear limits on U.S. willingness to provide assistance. In August 2000, then U.S. Assistant Deputy Under Secretary of Defense Gary Vest traveled to Hanoi for bilateral meetings on environmental security, which included discussions of the Agent Orange issue. Following those meetings, Vest stated, "It is very important to emphasize we were not here to discuss a U.S. government cleanup of contamination." Vest went on to explain that it was his understanding that under current international and U.S. law the U.S. military could only undertake contamination cleanup activities outside of the United States if there is a clear liability under an international agreement or if specifically authorized by Congress. Progress towards the resumption of normal bilateral relations continued during the Bush Administration. Congress ratified the U.S.-Vietnam BTA in October 2001; the new agreement went into effect on December 10, 2001. Under the BTA, the United States granted Vietnam conditional normal trade relations (NTR). Vietnam's conditional NTR status was renewed every year until December 2006, when Congress passed P.L. 109 - 432 , a comprehensive trade and tax bill, that granted Vietnam permanent NTR status as part of a wider agreement that saw Vietnam become a member of the World Trade Organization (WTO) on January 11, 2007. Following the lifting of the trade embargo and the granting of NTR status, U.S. trade with Vietnam grew rapidly (see Figure 1 ). In addition, a rising number of U.S. companies invested in manufacturing facilities in Vietnam. Between 2001 and 2011, total bilateral trade between the two nations rose from $1.5 billion to $21.8 billion, according to official U.S. trade statistics. Relations between Vietnam and the United States have also improved on matters of national security. In 2005, the United States and Vietnam signed an international military education training (IMET) agreement. Since then, a number of Vietnamese military officials have participated in training programs in the United States, and U.S. naval vessels have been allowed to make port of call visits to Vietnam. In August 2010, the two nations conducted week-long joint naval exercises in the South China Sea, as part of the celebration of 15 years of renewed diplomatic relations. Joint naval exercises were held again in July 2011 and April 2012, off the coast of Da Nang. Despite the general improvement in bilateral relations during the Bush Administration, the joint U.S.-Vietnamese studies of the effects of Agent Orange on Vietnam fell apart among claims of failure to act in good faith by both parties. In a "sensitive" (but not classified) dispatch of February 16, 2003, from the U.S. Embassy in Hanoi to the Secretary of State, a State Department official wrote that the Vietnamese government was unwilling to accept internationally recognized scientific methods because the results may not support their claims of widespread environmental damage and severe health effects. The Vietnamese government claimed that U.S. officials were instructed to prevent the completion of the exposure studies by senior government officials. In March 2005, the United States unilaterally terminated the research project. Moreover, the Bush Administration was reluctant to provide direct assistance to people with health problems related to exposure to dioxin. During an April 2006 trip to Vietnam, then U.S. Secretary of Veterans Affairs James Nicholson was pressed by Vietnamese journalists to explain why the United States offered compensation to U.S. Vietnam veterans with Agent Orange-related medical conditions, but not to Vietnamese veterans and civilians. In June 2006, then U.S. Secretary of Defense Donald Rumsfeld reportedly stated that the United States would not compensate supposed Vietnamese Agent Orange victims, but would be willing to provide scientific information and technical advice on the effects of dioxin. There have been modest efforts to revitalize joint research on Agent Orange exposure and the effect of dioxin on the people of Vietnam. These studies frequently involve non-government organizations (NGOs) in addition to agencies from both the U.S. and Vietnamese governments. In general, the participation of the NGOs has been welcomed by both the U.S. and Vietnamese government. The first meeting of the Joint Advisory Committee (JAC) on Agent Orange and dioxin was held on June 5 and 6, 2006—more than four years after its creation. Since then, the JAC has met every year. U.S. Government Assistance Since the resumption of diplomatic relations, the U.S. government has maintained a comparatively consistent policy on the issue of Agent Orange/dioxin contamination in Vietnam. On the one hand, the U.S. government has been willing to offer some assistance with scientific research to evaluate the extent and severity of dioxin contamination, and, in locations where serious contamination has been found, provide financial and technical assistance with the containment and cleanup effort. On the other hand, the U.S. government has repeatedly reiterated that it "does not recognize any legal liability for damages alleged to be related to Agent Orange." In addition, the U.S. government has continually questioned the credibility of Vietnam's evidence that the dioxin contained in Agent Orange and other herbicides sprayed during the war are responsible for the various illnesses, health problems, and birth defects prevalent in the Vietnamese population. For example, then U.S. Ambassador to Vietnam Michael W. Marine responded to a question regarding U.S. assistance to "Agent Orange victims," by saying, "But honestly, I cannot say whether or not I have myself seen a victim of Agent Orange. The reason for that is that we still lack good scientific definitions of the causes of disabilities … that have occurred in Vietnam…. We just don't have the scientific evidence to make that statement with certainty." As a result, the United States government has demonstrated a willingness to participate in programs designed to assess, contain, and clean up dioxin found in Vietnam's physical environment. However, it has been comparatively reluctant to support or assist programs designed to address the health problems of Vietnamese nationals attributed to Agent Orange/dioxin. To date, Congress has directly or indirectly appropriated $63.4 million for Agent Orange/dioxin remediation and related health care activities in Vietnam. Of this amount, $3.9 million was allocated for these purposes by the State Department out of funds appropriated for more general purposes, such as the Economic Support Fund (ESF). Funding levels were relatively low prior to 2007, but have noticeably increased since then. Most of the appropriated funds continue to be directed towards environmental remediation, with smaller amounts being provided for "related health activities." Assistance Through 2007 U.S. government assistance was almost exclusively in the form of cooperative efforts to identify, contain, and remove dioxin contamination related to the spraying of Agent Orange. According to the testimony of a State Department official before a House subcommittee in May 2008, examples of U.S.-Vietnamese cooperation on Agent Orange include: The creation of a Joint Advisory Committee (JAC) to review possible joint activities related to dioxin contamination; Joint workshops conducted by the U.S. Department of Defense and the Vietnamese Ministry of National Defence to share historical information on U.S. military operations in Vietnam related to Agent Orange handling and storage; A five-year, $2 million project—involving the U.S. Environmental Protection Agency (EPA) and the Vietnamese Academy of Science and Technology and the Ministry of National Defence—to enhance Vietnam's ability to conduct laboratory analysis of soil and tissue samples; and $400,000 in financial support from the Department of State and the EPA for dioxin mitigation planning assistance in Da Nang. The U.S. government has provided assistance to health-related programs in Vietnam that were associated with other types of medical conditions, including war-related conditions. For example, Vietnam is one of 15 "focus countries" and is the only Asian country to receive related assistance through the President's Emergency Plan for AIDS Relief (PEPFAR). Similarly, the United States—via the Agency for International Development and the Leahy War Victims Fund—has provided Vietnam with financial support for assistance programs for people disabled by landmines and unexploded ordnance. According to the Department of State, the United States provided $40 million in support for "mine-action programs" from 1993 to 2007 and $43 million in disability assistance from 1989 to 2007 through the Leahy War Victims Fund. Funding for Agent Orange related projects up to 2007 amounted to $2 million. Although the State Department did not provide an itemization of the use of the $2 million, apparently most of the funds were used for technical and scientific activities. Confidential sources report that all of these funds were expended by U.S. government officials or their contractors—none of the funds went to the Vietnamese government or Vietnamese citizens. The primary forum for U.S. consultation with the Vietnamese government on the issue of Agent Orange has been the JAC. The first JAC meeting was held in Hanoi on June 5 and 6, 2006, during which the Vietnamese delegation "proposed to accelerate cooperation" on the topics of environmental cleanup, care and treatment of dioxin victims, and scientific research. According to the official minutes of the meeting, the first two topics were deemed "outside the scope" of the JAC's activities. At the second JAC meeting—held on August 14 and 15, 2007, again in Hanoi—the U.S. co-chair stated that JAC was not a "policy making body," but was a "scientific advisory committee" created to "provide expert scientific consultation to inform AO/dioxin related programs in Vietnam." The third JAC meeting was held September 8-11, 2008, in Hanoi. The meeting focused on various environmental remediation efforts in Vietnam, as well as presentations from various donor organizations working on the Agent Orange/dioxin issue in Vietnam. During its third meeting, the JAC agreed to establish two task forces—one to focus on environmental issue and another to focus on health issues. Assistance Since 2007 In May 2007, Congress passed the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007 ( P.L. 110 - 28 ) that appropriated $3 million for assistance to Vietnam for environmental remediation of dioxin-contaminated storage sites and to support health programs in communities near those sites. For various reasons, it took over a year for the State Department to determine how to use these funds. After much consultation, the State Department decided that the administration of the $3 million would be handled by the U.S. Agency for International Development (USAID). Approximately $500,000 of the initial $3 million was to be budgeted to hire and support a full-time environmental health and remediation advisor for two years to be posted at the U.S. Embassy in Hanoi. This position was filled in December 2008. Half of the $3 million has been budgeted for environmental containment and remediation planning at the Da Nang airport. Preliminary USAID plans on how to allocate those funds were approved by the U.S. government and presented to representatives of Office 33, Vietnam's Ministry of Defense, and the Vietnamese Academy of Science and Technology (VAST). In February 2009, Office 33 and the United Nations Development Program (UNDP) co-sponsored a roundtable meeting on remediation standards and technology. Also attending the meeting were representatives of the U.S. State Department, USAID, and the U.S. Environmental Protection Agency. During the roundtable, the attendees agreed on two goals—immediate containment of dioxin-contaminated soil at the three major known "hot spots" (Bien Hoa, Da Nang, and Phu Cat); and a longer-term goal of dioxin destruction to completely eliminate dioxin from contained soil and sediment. They also discussed a short list of possible technologies (including bioremediation) to pilot test at the identified "hot spots." The 111 th Congress appropriated a total of $18 million for dioxin cleanup in Vietnam and related health services. In addition, the State Department and USAID allocated $1.9 million in Development Assistance funds for FY2010 for environmental remediation at Da Nang airport. In March 2009, the 111 th Congress appropriated $3 million for Agent Orange/dioxin remediation and health care assistance in the vicinity of the Da Nang "hot spot" in the Omnibus Appropriations Act, 2009 ( P.L. 111-8 ). In December 2009, Congress passed the Consolidated Appropriations Act, 2010 ( P.L. 111-117 ), which included $3 million for dioxin cleanup and related health services in Vietnam. In July 2010, Congress included $12 million in the Supplemental Appropriations Act, 2010 ( P.L. 111-212 ). On April 15, 2011, the 112 th Congress appropriated in the Department of Defense and Full-Year Continuing Appropriations Act 2011 ( P.L. 112-10 ) $15.5 million for remediation activities at dioxin contaminated sites in Vietnam, and $3 million for related health activities—the first time it explicitly divided the funds between the two uses. An additional $20.0 million was appropriated by the 112 th Congress in the Consolidated Appropriations Act, 2012 ( P.L. 112-74 ), with not less than $15.0 million allocated for "environmental remediation of dioxin contamination at the Da Nang and Bien Hoa airports and other severely contaminated sites," plus not less than $5.0 million for "health/disability activities in areas of Vietnam that were targeted with Agent Orange or remain contaminated with dioxin." P.L. 112-74 was the first legislation to explicitly appropriate funds for dioxin contaminated locations other than the Da Nang airport. The conference report accompanying P.L. 112-74 also endorsed language in a Senate Report associated with the Department of State, Foreign Operations, and Related Programs Appropriations Act, 2012 ( S. 1601 ) directing USAID, in consultation with the Senate Appropriations Committee, the Department of State, the Government of Vietnam, and "other interested parties" to develop a "comprehensive, multiyear plan" for Agent Orange-related activities in Vietnam within 180 days of the enactment of the law. Obligations According to information provided by USAID, $16.5 million of the available funds have been obligated as of June 2012, with plans to obligate an additional $45.1 million (see Table 2 ). Of the $16.5 million already obligated, $11.9 million went to environmental remediation and $3.1 million was allocated to related health services. Also included in the $16.5 million in obligations was $1.5 million allocated to USAID for administration and technical oversight of the appropriated funds. USAID has plans to obligate $33.4 million for environmental remediation efforts at Da Nang airport, $8.0 million for "environmental health activities," $2.3 million for an environmental assessment of Bien Hoa airport, and $1.4 million for administrative oversight. Since providing CRS the data contained in Table 2 , USAID has awarded an additional $25.3 million in contracts for dioxin remediation, and has announced plans to award $9 million for health-related activities in dioxin contaminated sites in Vietnam. A portion of the obligated funds have been used by USAID to hire and support a full-time environmental health and remediation advisor to be posted at the U.S. Embassy in Hanoi, as well as finance the administrative expenses associated with the project. Most of the funds have been awarded as grants to non-government organizations to provide services related the project. CDM International, Inc. has been the main contractor used by USAID to assess the extent and severity of dioxin contamination at Da Nang Airport. It was awarded a $1.69 million contract in 2009 to conduct an environmental assessment of the site to determine practical options for the decontamination of the affected areas around the airport. The assessment was concluded in June 2010, and determined that thermal treatment was the most cost-effective method for removing the residual dioxin from the contaminated soil. The total cost of thermal treatment is estimated at $43 million. On December 30, 2010, the two governments signed a memorandum of intent (MOI) for the environmental remediation of dioxin contamination at the Da Nang airport. In March 2012, USAID contracted TerraTherm , a Massachusetts-based environmental remediation company, to design the thermal remediation project to be used at Da Nang airport, as agreed to in the MOI. In June 2012, USAID awarded two contracts related to the dioxin cleanup at Da Nang airport. CDM Smith , a Massachusetts-based company, was awarded an $8.34 million contract for construction management and oversight of the thermal remediation project, in coordination with Vietnam's Ministry of National Defence. Incremental funding of $6 million was made for FY2012, with the balance to be obligated at a later date still to be determined. Tetra Tech , a California-based company, was awarded a $17.00 million contract for the excavation and construction components of the project. An initial $13.4 million was obligated at the time the contract was awarded; the balance will be obligated at a later date still to be determined. A groundbreaking ceremony for the thermal remediation project was held at Da Nang airport on August 9, 2012, with U.S. Ambassador to Vietnam David Shear in attendance. In his remarks, Ambassador Shear stated that the goal is to complete the Da Nang airport cleanup by late 2016. He also indicated that the two governments would continue their cooperation on cleaning up dioxin "hot sports" by carrying out an environmental assessment of Bien Hoa airport. In addition, Ambassador Shear announced a three-year, $9 million health and disability program during the Da Nang event. An initial $8 million is to be obligated, possibly in FY2012 if the contract is awarded before September 30, 2012. The remaining $1 million is to be obligated on a yet-to-be-determined date. As of the date of this report, USAID had not reported any obligations of funds for this purpose. The East Meets West Foundation was awarded a $500,000 grant to improve the quality of life for persons living with disabilities in Da Nang Province, particularly children with disabilities. Funds were used for medical and social screening for people with disabilities, corrective surgery, physical therapy and rehabilitation services, scholarships for children with disabilities, and community-based rehabilitation. Information provided by USAID describes the program as follows: Supports improvement of the well being of people with disabilities (PWDs) and children with disabilities (CWDs) in Danang. Specifically, activities provide: 1) medical and social scanning for PWDs and CWDs; 2) corrective surgery; 3) physical therapy and rehabilitation services for non-surgery cases; 4) scholarships to CWDs; 5) the establishment of community-based rehabilitation units, and 6) training to improve skills of medical personnel treating PWDs. Save the Children was provided a grant in 2009 to expand employment and income-generating activities for people with disabilities and their families living in Da Nang. Information provided by USAID describes the program as follows: Program provides technical assistance to empower people with disabilities (PWDs) with skills and training to engage successfully in Vietnam's economic transformation and to lead productive and self-sufficient lives. PWDs learn how to access services and resources, obtain reliable and gainful employment, start a business, increase their awareness of the demand-supply dynamics of the market and the availability of entrepreneurial services. Activities also aim to increase the support and engagement of local government, private sector, and communities to create livelihood opportunities and a disability friendly business environment. The Vietnam Assistance for the Handicapped was provided a grant in 2009 to help people with disabilities and their families improve their social and economic status and integration, and help local authorities, health service providers, disabled organizations, and others develop and enforce programs that increase resources for disability. Information provided by USAID describes the program as follows: USAID assistance for people with disabilities (PWDs) in Danang aims to improve their well being and livelihoods by increasing their integration into society through comprehensive rehabilitation services and socio-economic support. The program also strengthens the ability of local service providers and organizations to serve the disabled population. Key activities include: 1) establishing a model for rehabilitation services and a community-based support system to increase access to quality services for PWDs; and 2) improving capacity of self-help groups to access to health and social services, and economic support. The Effects of Agent Orange on Vietnam Virtually every aspect of the effects of Agent Orange on Vietnam is infused with uncertainty and/or controversy. There is some question about the amount of Agent Orange and other herbicides sprayed in Vietnam, as well as the amount of dioxin contained in the Agent Orange used. It is also unclear exactly where the herbicides were sprayed and the amount sprayed at each location. Nor is it known who was exposed to Agent Orange and its dioxin, and for what duration they were exposed. Finally, there is limited information about the long-term effects of Agent Orange on the environment and people of Vietnam. The uncertainty and controversies are in part attributable to the general "fog of war." At the time the herbicides were used, there was little consideration within the U.S. military about potential long-term environmental and health effects of the widespread use of Agent Orange in Vietnam. Similarly, both the South Vietnamese and North Vietnamese governments were not keeping detailed troop deployment information in anticipation of future claims of health problems associated with exposure to Agent Orange and dioxin. In addition, after the war ended, many Vietnamese combatants returned to their home towns, far away from the jungles where they once were sprayed with herbicides from U.S. military aircraft. Given that direct information about Agent Orange exposure is not available, the alternative generally used has been to seek indirect evidence of dioxin exposure. Soil samples taken from supposedly sprayed and unsprayed locations can be analyzed to determine the amount and extent to which Vietnam has been contaminated with dioxin due to Operation Ranch Hand. At the same time, blood and tissue samples can be taken from Vietnamese nationals across the country to determine how much dioxin is present in their systems. To date, relatively few of these studies have been done, in part because of the cost associated with the research, and in part because of the political implications of the findings of such studies. Although the research on the use of Agent Orange and other herbicides in Vietnam—and the resulting exposure of the people of Vietnam to dioxin—is limited in scale, it is possible to draw a few tentative conclusions from existing studies. First, numerous areas of southern Vietnam were sprayed with Agent Orange and other herbicides during the Vietnam War, with widely varying levels of contamination with dioxin. Some locations were sprayed repeatedly; other locations only once. Second, millions of Vietnamese were directly exposed to dioxin at the time the herbicides were sprayed, and millions more have been exposed to dioxin that remains in the soil and in the sediment of waterways of southern Vietnam. Third, blood and tissue studies of Vietnamese nationals provide some evidence of higher than normal levels of dioxin in the systems of people presumed to be have been exposed to Agent Orange, but methodological problems make interpretation of the data difficult and open to debate. Fourth, research in Vietnam on the long-term health effects of exposure to varying levels of dioxin is limited, making it difficult to firmly establish the connection between dioxin exposure and a variety of health problems occurring among the Vietnamese people with unusually high frequency. Brief History of the Use of Agent Orange in Vietnam Agent Orange was a chemical herbicide used from 1961 to 1971 by the U.S. military in the then Republic of Vietnam (a.k.a.—South Vietnam) and portions of the then Democratic Republic of Vietnam (a.k.a.—North Vietnam) to deny their military enemy cover in Vietnam's dense foliage. An approximately 50-50 mix of two chemicals—2,4,-D (2,4, dichlorophenoxyacetic acid) and 2,4,5-T (2,4,5 trichlorophenoxyacetic acid)—Agent Orange derived its name from the orange band painted on the side of the 55-gallon drums in which the herbicide was delivered. Agent Orange was manufactured under Department of Defense (DOD) contracts for military-use in Vietnam by several companies, including Diamond Shamrock Corporation, Dow Chemical Company, Hercules Inc., Monsanto Company, T-H Agricultural & Nutrition Company, Thompson Chemicals Corporation, and Uniroyal Inc. Agent Orange was one of 15 herbicides used during the Vietnam War, principally as part of Operation Ranch Hand, the key component of the U.S. military's overall herbicide program, Operation Trail Dust. Other herbicides used in Vietnam included Agent Blue, Agent Green, Agent Orange II (a.k.a. Super Orange), Agent Pink, Agent Purple, Agent White, Bromacil, Dalapon, Dinoxol, Diquat, Diuron, Monuron, Tandex, and Trinoxol. However, Agent Orange was the most extensively used herbicide during the war. A contaminant of the manufacture of Agent Orange (as well as Agents Pink and Purple) was 2,3,7,8-tetrachlorodibenzo-p-dioxin (TCDD), a dioxin thought to be responsible for most of the medical problems associated with exposure to Agent Orange. Because TCDD was an unwanted byproduct, its concentration varied by production run, manufacturer, and the proportion of 2,4,5-T in the formulation. A 1978 General Accounting Office (GAO, now known as Government Accountability Office) report indicated that a 1971 DOD analysis of its remaining Agent Orange inventory found TCDD contamination levels ranging from 0.05 to 47.0 parts per million (p.p.m.). Various studies made during and soon after the Vietnam War found lower ranges for TCDD concentration levels in stockpile samples, ranging from 0.05 to 17.0 p.p.m. Estimates of Vietnamese Exposure to Agent Orange In general, research into the level of Vietnamese exposure to Agent Orange and dioxin has followed two different approaches. One approach has attempted to determine how much Agent Orange was sprayed in Vietnam, where and when it was sprayed, and who was in the area when the herbicide was sprayed. From this data, researchers can then determine the level of exposure to Agent Orange and dioxin. The second approach examines the amount of dioxin in blood and tissue samples taken from people in Vietnam, and then infers each person's level of exposure. Because of data and other methodological problems, neither approach has been able to provide conclusive information on the general pattern of Agent Orange and TCDD exposure in Vietnam. Amount Used Precise information on how much Agent Orange was sprayed in Vietnam during the war is difficult to find, though several studies estimate the amount in the range of 11 million-12 million gallons. A 1978 GAO report states that 18.85 million gallons of herbicide were applied during the Vietnam War, of which 11.22 million gallons were Agent Orange. According to William Buckingham's calculations, Operation Ranch Hand sprayed about 19 million gallons of herbicide, of which 11 million gallons were Agent Orange. Dale Robinson reports that Operation Ranch Hand dispensed between 17.7 million and 19.4 million gallons of herbicide, of which approximately 10.6 million to 11.7 million gallons were Agent Orange. A 2003 study of the extent of use and distribution patterns for herbicides based on DOD records estimated between 19.3 million and 20.3 million gallons of herbicide were used in Vietnam, of which up to 12.1 million gallons were Agent Orange. A study by H. Lindsey Arison found that 19.4 million gallons of herbicides were used in Vietnam, of which 11.7 million gallons were Agent Orange. Exposure Data on exposure to Agent Orange for Vietnamese nationals are even more difficult to determine for several reasons. First, while official records for Operation Ranch Hand are available, it is difficult to be certain about how much herbicide was sprayed on what locations due to mitigating combat conditions. Second, in addition to the areas intentionally exposed to Agent Orange, an unknown amount of herbicide was leaked or spilled on military bases. Third, it is difficult to correlate the presence of Vietnamese nationals in exposed areas during or soon after the distribution of Agent Orange in a location. Fourth, while the average U.S. Vietnam veteran served for six months in Vietnam, Vietnamese nationals have been living and working in potentially dioxin contaminated areas for years. Fifth, the scientific tests on soil and tissue samples are expensive. The typical cost of determining the dioxin level in one person is $1,000. The Vietnamese government states it lacks the financial resources to conduct comprehensive exposure studies. Exposure studies generally fall into two types: (1) estimates of the concentration of Agent Orange applied or found at studied locations; and (2) tests to determine the concentration of dioxin in the tissue samples of persons who may have been exposed to Agent Orange during the Vietnam War. In part because of difficulties in determining where, when and how much Agent Orange was distributed in different locations in Vietnam, there are also varying estimates on the number of Vietnamese nationals who were exposed. Concentrations A 2005 study of the concentration of Agent Orange distribution in Vietnam determined that an estimated 1.7 million hectares (4.2 million acres) were sprayed with herbicides containing 2,4,5-T, and by extension, containing TCDD. Figure 2 shows the sprayed areas. According to the Vietnamese government, about 12,000 square miles (9.6%) of the nation was sprayed with herbicides during the war. Over 10,000 square miles were sprayed more than twice and over 1,300 square miles were sprayed more than 10 times. Sprayed areas are distributed across much of southern Vietnam, ranging from Quang Tri to the north to Ca Mau in the South. A 2005 article cited evidence of Agent Orange distribution levels ranging from 185 liters per hectare (l/ha) to 21,007 l/ha. Another study concluded "the residual levels of wartime Agent Orange dioxin (TCDD) in soils of southern Vietnam are generally at or below background levels found in industrialized nations of North America." However, several researchers maintain that Vietnam's frequent and heavy rains have probably washed most of the dioxin out of the soil of Vietnam during the 40-50 years since Agent Orange was sprayed. There are specific locations where measured TCDD concentrations remain high, despite the passage of over three decades. The main "dioxin hot spots" are located in and around the military bases that served as hubs for Operation Ranch Hand, including the airbases at Bien Hoa, Da Nang, Nha Trang, and Phu Cat. In addition, the A Luoi (or A Shau) Valley, south of Quang Tri and west of Da Nang, was considered an important segment of the Ho Chi Minh Trail and was therefore heavily sprayed. The former U.S. military base in the A Luoi Valley has been identified as another "hot spot." One study of Da Nang airbase found soil concentrations of "TCDD toxic equivalents" (TEQ) of up to 365 parts per billion (p.p.b.)—365 times the international maximum level of 1.0 p.p.b. Seventeen out of the 23 soil samples taken at Da Nang airbase exceeded the international maximum standard. A study of soil samples from the Bien Hoa airbase found one sample with a TEQ concentration at over 1,000 p.p.b. By comparison, the maximum concentration of TCDD found at Love Canal, NY, was 17,200 p.p.b.; at Times Beach, MO, the maximum concentration was 1,750 p.p.b. Both U.S. communities were evacuated after evidence of dioxin contamination was found. Tissue Samples Another method of determining exposure levels to Agent Orange and TCDD is to take tissue samples—usually blood, breast milk, or adipose tissue —from people who may have been exposed and compare the presence of TEQ to a control group who presumably were not exposed. A 1995 study of over 3,200 Vietnamese nationals living in sprayed and unsprayed areas of Vietnam found elevated TEQ levels for people residing in southern Vietnam and presumably more heavily exposed to Agent Orange when compared to residents of northern Vietnam who were less likely to have been exposed to Agent Orange. Average blood levels of TEQ were nearly six times higher among the people from sprayed areas, average breast milk levels were nearly four times higher, and average adipose levels were over 24 times higher. A separate study of blood dioxin levels of Da Nang residents reported TCDD concentrations "more than 100 times globally acceptable levels." Elevated TCDD concentrations were also found in blood samples of Bien Hoa residents. Studies of U.S. Vietnam War veterans to determine dioxin concentrations in their bodies have obtained seemingly contradictory results. A 2006 study of U.S. Army Chemical Corps Vietnam War veterans revealed statistically significant elevated TCDD levels in blood samples for veterans who reported spraying Agent Orange when compared to veterans who reported they had not sprayed Agent Orange. A 1988 study of blood and adipose tissue sample from Vietnam veterans found higher TCDD levels when compared to a control group, leading the authors to conclude, "it is likely that the elevated TCDD levels arose from wartime exposure." However, other studies failed to find elevated TCDD levels among Vietnam veterans. A second 1988 study, which compared U.S. veterans who served in part of Vietnam "heavily sprayed" with Agent Orange to veterans who did not serve in Vietnam, found the TCDD levels in the two groups were "nearly identical." A third 1988 study, which compared TCDD levels in adipose tissue from Vietnam veterans, non-Vietnam veterans, and non-veterans, also revealed no significant difference between the three study groups. Some scientists maintain that the apparent contradictions in the study results may reflect differences in the circumstances surrounding Vietnam veterans' exposure to Agent Orange. There seems to be a general pattern that veterans who handled or sprayed Agent Orange have elevated levels of TCDD. Results are less consistent for veterans who operated in areas sprayed with Agent Orange. Some studies find elevated TCDD levels, others do not. Some scientists speculate that studies comparing Vietnam veterans to other control groups fail to find differences in the TCDD levels because the Vietnam veterans include people who were exposed to Agent Orange as well as people who were not exposed. Studies have also examined food produced in contaminated areas to determine if they contain significantly elevated levels of TCDD or other dioxins. One study of various food crops and livestock from the A Luoi Valley revealed negligible TCDD levels in rice, manioc, and vegetable oil samples, but exceptionally high TCDD levels in some duck fat and fish fat samples. It is thought that the higher levels in fish and ducks are an indication that TCDD remains in the sediment of Vietnam's rivers, streams, lakes, and ponds. Other studies have also found evidence of elevated dioxin levels in Vietnamese immigrants from non-sprayed areas and children born after the war, as well as elevated TCDD levels in food and soil samples from the study area. Number of Vietnamese Exposed Determining how many Vietnamese nationals were exposed to Agent Orange during and after the Vietnam War is both complicated and controversial. One study estimated the number of Vietnamese nationals exposed to Agent Orange and/or dioxin ranged from 2.1 million to 4.8 million. Vietnam Association of Victims of Agent Orange/Dioxin (VAVA) estimates that 2.1 million to 4.8 million Vietnamese were exposed to Agent Orange during the war and at least 3 million suffer serious health problems due to that exposure. According to MOLISA, over 365,000 Vietnamese veterans and their children and grandchildren have medical conditions attributed to exposure to dioxin. Vietnam's Health Claims The Vietnamese government maintains that TCDD is harming the health of its people in several ways. It asserts that Vietnamese civilians and soldiers who were directly exposed to Agent Orange during the war are experiencing certain diseases and health problems at a rate higher than the nation's unexposed population. Additionally, it maintains that people living in areas with residual TCDD in the soil and water are also suffering from health complications related to the aftereffects of Operation Ranch Hand. Finally, it argues that the children and grandchildren of people exposed to dioxin have an unusually high level of birth defects and/or health problems. In 1998 and again in 2000, the Vietnam Red Cross (VRC) compiled lists of diseases it associated with Agent Orange/dioxin exposure (see textbox on previous page). In March 2008, Vietnam's Ministry of Health reportedly compiled a confidential list of 17 diseases and deformities that it maintained were related to exposure to dioxin. The VRC list contained many of the same diseases identified by the U.S. Department of Veterans Affairs (VA) as being related to exposure to Agent Orange, including bronchial carcinoma, tracheal cancer, laryngeal neoplasm, prostate cancer, and type 2 diabetes (see textbox on the previous page). Other diseases on the VRC's list are not recognized by the U.S. government as being related to dioxin exposure. The Ministry of Health also considers a number of congenital deformities and mental disorders in the children of those exposed to TCDD as being dioxin-related, but are not found on the VA list. In the last few years, much of the Vietnamese government's concern about the effects of Agent Orange has focused on the affected children and their families. Because the deformities and disorders are frequently quite severe, the children often require continual care. Given the current status of Vietnam's health care system, it is not possible to place many of the children in managed-care facilities. As a result, most of the children are cared for by their families. This not only creates a financial burden for the families, it typically means a significant loss of household income as at least one person must remain at home with the affected child or children. Cleanup Efforts The prospects for cleaning up the dioxin in Vietnam distributed by the spraying of Agent Orange and other herbicides are complicated by the area sprayed, the passage of time, and a general lack of resources. There is a supposition that sunlight, Vietnam's episodic heavy rains and the passage of time have probably removed most of the dioxin from sprayed areas or lowered concentration levels below the danger level, but there are no definitive studies to verify this notion. In addition, political and other considerations have tended to shift the focus on Agent Orange cleanup efforts towards the confinement and cleanup of dioxin from the identified "hot spots" with elevated levels of dioxin in the soil, such as the airbases used by Operation Ranch Hand. Both the Vietnamese and U.S. governments have had reasons to avoid or delay consideration of the topic of Agent Orange cleanup. It is thought that Vietnam avoided raising the issue prior to its obtaining NTR in 2002 and "permanent normal trade relations" (PNTR) status with the United States in 2006 and membership in the World Trade Organization (WTO) in 2007. The U.S. government purportedly also has avoided the issue because of concerns about potential liability issues and/or presumptions of responsibility. However, since Vietnam obtained PNTR status and joined the WTO, the issue of Agent Orange and its cleanup has risen in prominence in bilateral relations. In February 2007, the United States announced it would provide $400,000 to support mitigation planning for the dioxin cleanup of the Da Nang airbase. In June 2007, the DOD presented the Vietnamese Ministry of Defense with a detailed map of herbicide storage locations from 1962 to 1971 during a Hanoi workshop on chemical herbicide use during the Vietnam War. The official entity responsible for the bilateral efforts to address the environmental and health effects of dioxin in Vietnam is the Joint Advisory Committee (JAC). Although the two nations agreed to form the JAC in 2002, it did not hold its first meeting until 2006 due to disagreements between the United States and Vietnam over the role of the JAC. The seventh meeting of the JAC was held in September 2012 in Hanoi. The U.S. delegation to the JAC consists of representatives from the Department of Defense, the Department of State, the Environmental Protection Agency, the U.S. Centers for Disease Control and Prevention (CDC), and USAID. The Vietnamese delegation includes representatives from Office 33, the Ministry of Defense, the Ministry of Foreign Affairs, the Ministry of Health, the Ministry of Natural Resources and the Environment, and the Vietnam Association of Science and Technology. In addition, a group called the U.S.-Vietnam Dialogue Group on Agent Orange/Dioxin (Dialogue Group), established by the Ford Foundation, is regularly consulted on the cleanup process. The cost and scope of cleaning up Vietnam's dioxin "hot spots" have gradually increased over time. In 2006, the Vietnamese government estimated the cost for the detoxification of the Da Nang and the Bien Hoa airbases could reach $10 million. In November 2008, the estimated cost of cleaning up the Da Nang airbase was raised to $17 million. According to then-Acting Deputy Assistant Secretary, Bureau of East Asian and Pacific Affairs Matthew Palmer in his July 2010 testimony before the Subcommittee on Asia, the Pacific, and the Global Environment of the House Committee on Foreign Affairs, USAID has estimated the remediation of Da Nang will cost at least $34 million. In his testimony at the same hearing, USAID Director of Technical Support John Wilson stated that the current plan was to use thermal desorption destruction technology to remove the dioxin from the affected soil at the Da Nang airport. According to USAID, the cost of remediating the Da Nang airport has been increased to $43 million. As the cost and size of the cleanup efforts have risen, the estimated time for their completion has been delayed. The Voice of Vietnam , a Vietnamese government-run radio station, reported on February 15, 2008, that the cleanup of the Da Nang airbase was expected to be completed by the end of 2008. However, issues concerning the manner by which to decontaminate the soil, as well as the recent identification of a new "hot spot" at the Da Nang airbase by the U.S. Department of Defense, have delayed completion of the cleanup effort. In 2010, USAID projected the cleanup at Da Nang would be completed by the end of FY2013, if sufficient funding was made available. As of August 2012, the estimated date of completion of the thermal remediation of Da Nang airport has been moved to late 2016. While the total cost and timing of the cleanup of the Da Nang airport remains uncertain, the two governments have agreed on the method to remove the dioxin from the contaminated soil. After consideration of several different methods, thermal remediation using in-pile thermal desorption (IPTD) technology was chosen as being the most cost-effective, reliable, and practical method for the Da Nang airport project. TerraTherm, the company awarded the remediation contract, intends to use a combination of conductive thermal heating elements and negative pressure (partial vacuum) to circulate heat throughout the contaminated soil to break down the dioxin into non-toxic compounds. TerraTherm reportedly will excavate and treat 72,900 cubic meters of soil in two stages in an above-ground, covered pile located at the airport. The estimated size of the thermal pile is 100 meters long, 70 meters wide, and 8 meters tall. To break down the dioxin, the contained soil will be heated to 335°C (635°F) until such time as the soil's concentration of dioxin is less than 150 parts per trillion (ppt). A groundbreaking ceremony for the remediation project was held in August 2012. Information on the status of cleanup projects on hot spots other than Da Nang airport is limited. The Vietnamese military has begun cleanup operations at the Bien Hoa airbase, with an estimated cost of $4 million-$5 million. There is limited evidence of detoxification efforts undertaken in areas heavily sprayed with Agent Orange. One area where the Vietnamese government—with the assistance of international agencies such as the Asian Development Bank and other contributors—has attempted to address the long-term damage caused by Agent Orange is the rehabilitation of affected forestland. The Vietnamese government asserts it lacks the financial resources to undertake the cleanup projects on their own. In addition, other war-related projects—such as the removal of unexploded ordnance and care of Vietnam's war veterans—require significant financial resources, making it difficult to allocate more resources to Agent Orange and dioxin. The United Nations Development Program (UNDP) announced in August 2007 it would provide $350,000 in financial support for the cleanup of the airbases at Da Nang, Bien Hoa, and Phu Cat. The Czech government has also offered assistance with the remediation of Phu Cat. According to UNDP estimates, it will cost nearly $51 million to clean up all three hotspots. The Dialogue Group's Plan of Action In June 2010, the Dialogue Group—with the assistance of the Aspen Institute—released a proposed 10-year "Declaration and Plan of Action" to address the legacy of Agent Orange in Vietnam. The proposed plan would be carried out in three phases, with an estimated cost of $300 million. The plan is divided into remediation efforts and services for people with disabilities linked to dioxin. The remediation efforts are projected to cost $97.7 million; the services to people with disabilities are estimated at $202.3 million. The first phase of the remediation plan would last three years with an estimated cost of $29.7 million, and would focus on the cleanup of the Da Nang site. The second phase would last four years and cost an estimated $50.0 million, and clean up the hot spots at Phu Cat and Bien Hoa, as well as reforest affected areas in A Luoi, Ma Da, and Ngoc Hien. The third and final phase would last three years with an estimated cost of $18.0 million, and would primarily address the remediation and reforestation of secondary hot spots. The Dialogue Group's proposed plan for services for people with disabilities is also divided into three phases. The first phase would be three years in duration, costing $68.3 million, involving a national survey of disabilities in Vietnam and training of health care providers to improve services to people with disabilities. The second phase would run for four years with an estimated cost of $125 million to establish a bio-monitoring program for people living near hot spots and a district-level early identification/early intervention program for children with disabilities. The third phase would last three years and cost $9.0 million, and would center on evaluating the various service programs being provided to people with disabilities. The Dialogue Group did not stipulate how the Plan of Action was to be funded. It did, however, state that "the U.S. government should play a key role in meeting these costs, along with public and private donors, supplementing an appropriate continuing investment from the government and people of Vietnam." In May 2012, the Dialogue Group released its Second Year Report on the Declaration and Plan of Action. The report reviewed the developments of the year, including congressional appropriations, funding provided by the Vietnamese government, and private contributions. It also updated the projected costs of environmental remediation of dioxin "hot spots." The Dialogue Group projects the cost of dioxin cleanup at Da Nang at $43 million; at Bien Hoa at $85 million; at Phu Cat at $5 million; and at lesser sites at $17 million—raising the total remediation cost to $150 million. Similarly, costs of health-related services to Agent Orange/dioxin victims were increased from $200 million to $300 million. The Dialogue Group suggested that the U.S. government provide $65 million each year for five years ($325 million), and other groups provide an additional $17 million per year. Vietnam's Assistance to the Victims102 There is little publicly available information on Vietnam's assistance program for people exposed to Agent Orange, and what is available is often contradictory. In addition, there are differing views within the Vietnamese government on the importance of the Agent Orange/dioxin issue. In general, Vietnam's Ministry of Defense, MOLISA, veterans, and victims support groups would like to see more help from the United States, while MOFA and the Ministry of Agriculture and Rural Development (MARD) do not want the AO issue to cause problems in bilateral relations with the United States or with agricultural exports. The following summary represents the best compilation of information possible given the current level of disclosure about Vietnam's assistance programs. Office 33 works with Vietnam's Ministry of Health (MOH) and Ministry of Health and the Ministry of Labour, War Invalids, and Social Affairs (MOLISA) to provide special assistance to Vietnamese presumed to be suffering from conditions related to exposure to Agent Orange. People who have certain medical conditions are eligible to receive a disability stipend from Vietnam's AO Central Payments Programme (see details below) of up to 300,000 Vietnamese dong ($20) per month. According to one source, the Vietnamese government categorizes people eligible for income supplements into three groups: (1) those who have partially or totally lost the ability to work; (2) children with deformities or who have lost the ability to work; and (3) orphans with deformities or who are unable to work. One study estimated the total Vietnamese budget for Agent Orange income supplements in 2000 at $41 million. Another source reports that the Vietnamese government is paying about $76 million per year in income supplements to people with disabilities caused by Agent Orange/dioxin. The annual cost of providing a $20 per month stipend to all of Vietnam's estimated 2.1 million-4.8 million "victims" of Agent Orange would be $500 million to $1.2 billion. Vietnam's central government also works closely with private and provincial government agencies providing assistance to people with medical conditions associated with Agent Orange/dioxin exposure. On July 24, 1998, the VRC established the Agent Orange Victims Protection Fund. Various national organizations, such as Vietnam Association of Veterans, Confederation of Vietnam Labour Unions, Vietnam Farmers Association, Vietnam Women's Union, Vietnam Lawyers Association, and the Ho Chi Minh Youth Union, contributed to the central fund. In addition, there are 57 Agent Orange Victims Protection Funds at the provincial level. Between 1998 and 2004, the VRC fund raised 23 billion dong ($1.4 million) and provincial funds raised 50 billion dong ($3.1 million) for programs to provide aid to people who were exposed to dioxin. Government Support On June 1, 2012, Prime Minister Nguyễn Tấn Dũng approved the "National Action Plan to Overcome Fundamental Consequences of Toxic Chemicals Used by the U.S. in the War in Vietnam to 2015 and Oriented to 2020." The main objectives of the plan are to decontaminate the most heavily contaminated areas, plant trees on 300,000 hectares of decontaminated land, provide assistance to all dixoin victims who are relatives of people who "took part in the resistance war," offer allowances and health insurance for people with disabilities, and enhance research of toxic chemicals. The decision also assigns specific tasks to Office 33, the government ministries, and the local governments as part of the implementation of the national action plan. Office 33 is responsible for the coordination of the national effort. A recent focus of the Vietnamese government's efforts on Agent Orange/dioxin is the identification of people affected by Agent Orange/dioxin and ensuring that they receive their monthly stipend from the AO Central Payments Programme. Identifying those with diseases or disabilities directly related to dioxin is done at the local level according to standards put in place by MOLISA. The Medical Test Boards of cities, provinces, and branches "determine the extent to which the victims have been infected, their deformities and damages to their health." The district files the paperwork with MOLISA and, if approved, the funds for the stipends are distributed. According to a 2006 MOLISA report, approximately half of the households with disabled members were receiving either direct income support through the AO Central Payments Programme, free medical treatment, and/or a Health Insurance Card. AO Central Payments Programme The Vietnamese government's main effort in assisting those affected by Agent Orange is the AO Central Payments Programme. Established in 2000, it offers monetary benefits to veterans, civilians, and children exposed to Agent Orange. More than 200,000 individuals receive a monthly allowance, totaling 60 billion dong ($4 million) a month. According to Vietnam's official news agency, the program costs the government approximately $50 million a year. According to a representative of Office 33, the amount of the monthly stipend depends on several factors, including whether or not the person is a veteran and if the family has more than one affected person. Veterans reportedly receive 1 million dong ($56) per month; non-veterans receive 240,000 dong ($13.50) per month for the first victim and an additional 120,000 dong ($6.75) per month for each additional victim. The program also covers the survivors of Vietnamese war veterans who died as a direct result of AO-associated diseases. Individuals who served with the Army of the Republic of Vietnam (ARVN) are not considered veterans. There are no AO Central Payment Programme formal provisions made for non-monetary benefits except for humanitarian center assistance and medical treatment for orphans. Furthermore, persons able to work or study and those already receiving state benefits (such as the Health Insurance Card) are excluded from the program. Health Insurance Card The Vietnamese government has created a Health Insurance Card, which provides free or low-cost access to health care. People on government assistance, such as victims of Agent Orange/dioxin, are provided a health insurance card and free medical care. There are also voluntary health insurance cards that require city residents pay an annual premium of 280,000 dong ($17), and rural residents, 200,000 dong ($12.50). The goal of the Ministry of Health's Health Insurance Department is to provide 70%-80% of the population with health insurance by 2010 and all students, as well as all children under the age of six, with health insurance by 2008. In the first six months of 2007, 14.5 million people were granted Health Insurance Cards. By the end of 2010, 53 million people, or about 62% of the population, had health insurance cards. In addition, coverage may infringe on the recipient's right to receive monetary compensation from the AO Central Payments Programme. Agent Orange Day The government has also set aside August 10 as "Agent Orange Day," an official commemoration in support of the "victims" of Agent Orange/dioxin. August 10, 1961, was the date of the first usage of Agent Orange defoliant on Vietnamese forests. In 2008, the Vietnam Red Cross organized a "month of action" to support Agent Orange/dioxin victims, running from August 10 to September 9. U.S. Civil Suit for Compensation The Vietnamese government has also been supportive of a U.S. civil suit, Vietnam Association for Victims of Agent Orange/Dioxin v. Dow Chemical Co. , seeking compensation for the Vietnamese exposed to Agent Orange from the manufacturers of the herbicide. According to sources close to the case, the Vietnamese government was initially reluctant to support the suit because it might have undesirable implications for diplomatic relations with the United States. However, the suit had influential supporters with the Ministry of Defense (including Vietnam's war hero, General Vo Nguyen Giap) who were concerned about the possible expiration of statute of limitations. On March 10, 2005, the U.S. District Court for the Eastern District of New York dismissed the case, concluding that the government contractor defense—which protects government contractors from state tort liability under certain circumstances when they provide defective products to the government—applied to the manufacturers of Agent Orange and other herbicides used during the Vietnam War. The court also ruled that the use of the herbicides was not a violation of international law because they were not intended to be used as a poison against humans. The District Court ruling was appealed to the United States Court of Appeals for The Second Circuit in New York City. On February 22, 2008, the Second Circuit Court upheld the decision of the District Court. The Vietnamese government and various Vietnamese organizations reacted strongly to the U.S. Court of Appeals decision. The Vietnam Association for Victims of Agent Orange/Dioxin (VAVA) called the decision "irrational, biased, and unfair." The Vietnam Association of War Veterans termed the decision "legally and morally erroneous." Foreign Ministry spokesman Le Dung said, "It is particularly regretful that the ruling came in a time that the U.S. government has started cooperating with Vietnam to resolve the consequences caused by Agent Orange/dioxin." On October 6, 2008, the plaintiffs filed a petition with the U.S. Supreme Court requesting a reconsideration of the Appeal Court's decision. The Supreme Court decided on March 2, 2009, not to review the case, effectively ending the claimants' appeal process. Vietnam's response to the Supreme Court decision was again strong. Foreign Ministry spokesperson Le Dung said, "The Vietnamese people are extremely indignant at the wrong and unjust decision." VAVA responded to the decision by stating it "greatly regrets the decision." VAVA also noted, "It is ironic that the U.S. Supreme Court decided not to review this lawsuit at a time when the U.S. Congress and government have recently demonstrated certain preliminary steps in resolving the consequences of Agent Orange/dioxin in Vietnam." The civil suit mirrors one submitted on behalf of U.S. Vietnam veterans in the same U.S. District Court in 1979. Although the District Court also dismissed the claim in the 1979 case, there was an out-of-court settlement in which the manufacturers of Agent Orange agreed to pay $180 million to Vietnam veterans who claimed that exposure to Agent Orange caused them numerous health problems. It was also thought that the court case and the out-of-court settlement contributed to the passage of the various laws providing Vietnam veterans with medical coverage and disability compensation for conditions attributed to Agent Orange and dioxin. The Vietnamese plaintiffs may have hoped that their court case would have resulted in a similar out-of-court settlement and/or passage of federal laws granting them assistance or compensation. Vietnamese Americans and Agent Orange There are an estimated 1.6 million Vietnamese Americans in the United States. Approximately half of the Vietnamese Americans left Vietnam either immediately after the end of the war or as part of the "boat people" migration of the late 1970s and early 1980s. Some of those Vietnamese emigres were soldiers for the Army of the Republic of Vietnam (ARVN), and may have handled Agent Orange and other herbicides during the Vietnam War. It is likely that some of them may have been exposed to Agent Orange and may have health problems related to that exposure. Information about possible dioxin-related medical problems among the Vietnamese American population is not readily available. Because much of the Vietnamese American community is unfriendly towards the current Vietnamese government, some Vietnamese Americans may be reluctant to publicize their medical problems that may be potentially related to exposure to Agent Orange. However, this attitude may be changing with the younger generation of Vietnamese Americans. Other Sources of Assistance Prior to the early 1990s, there was little domestic or international non-governmental involvement in assisting those with AO-related diseases. In recent years, support specifically for people exposed to AO/dioxin has grown, mostly provided by non-governmental organizations (NGOs). Inside Vietnam, several Agent Orange-related organizations have been formed to raise funds via charity events and celebrity concerts. In addition, a number of Vietnamese programs for people with disabilities or the handicapped have provided medical assistance to people with conditions associated with exposure to Agent Orange/dioxin, as well as advocacy work for the rights of the disabled. Outside of Vietnam, a variety of NGOs have offered technical assistance and financial support for the provision of medical care for Agent Orange victims. Vietnamese Non-Governmental Assistance Vietnam Red Cross Fund to Support Agent Orange Victims In 1998, the Prime Minister of Vietnam announced the establishment of a fund to support Agent Orange victims under the Vietnam Red Cross (VRC). The VRC's Fund to Support Agent Orange Victims has chapters in 64 cities and provinces across the country. It receives financial and material support from both domestic and foreign donors, as well as special fundraising events. The VRC claims it raised over 1.5 trillion dong ($93.75 million) in 2010 for Agent Orange/dioxin victim programs. The VRC provides treatment, rehabilitation, literacy and vocational training programs, and monetary support for AO victims. Since its creation, it has assisted more than 667,000 people, with almost 87,000 having received startup capital for new businesses reportedly employing more than 150,000 people. The VRC plans on raising at least 10 billion dong ($602,000) annually and will contribute at least 1 billion dong ($60,000) to provincial funds. One major contributor to the VRC's Agent Orange programs is the Rare Antibody Antigen Supply, Inc. (RAAS)—a blood plasma company founded in the United States, but now also operating in China and Vietnam. RAAS has donated over 17 billion dong ($1 million) to the VRC, and over 71 billion dong ($4.4 million) in various forms of assistance. On December 9, 2010, the VRC and VAVA signed a joint activity agreement to foster greater collaboration in advising the Vietnamese government on Agent Orange related policies and implementing aid programs for victims of Agent Orange/dioxin. Vietnam Association for Victims of Agent Orange/Dioxin (VAVA) According to their own literature, VAVA is "a social organization formed by Vietnamese AO/dioxin victims themselves and individuals or groups who volunteer to contribute their part in helping our victims in overcoming chemical consequences left behind by the U.S. military forces." At present, there are VAVA chapters in 53 provinces with over 60,000 members. VAVA is a self-supporting non-government organization (NGO), reliant on private, mostly domestic contributions; it has received over $4 million in contributions over the last five years. Hundreds of districts and communes in Vietnam have benefitted from contributions from VAVA. VAVA was originally established to organize the filing the lawsuit in the United States, which sought compensation for Vietnamese nationals exposed to Agent Orange. VAVA's work subsequently expanded to social services and assistance, including encouraging people exposed to Agent Orange in overcoming the difficulties of daily life; providing monetary and social assistance; raising public awareness; managing donations from individuals, organizations, and businesses; and organizing volunteer activities. VAVA is arguably the leading Vietnamese organization for raising the profile of the Agent Orange/dioxin issue in Vietnam and the United States over the last few years. Inside Vietnam, VAVA has continued to exert pressure on various ministries and agencies to press for greater efforts to clean up Vietnam's environment and provide assistance to the purported Agent Orange victims. In the United States, representatives from VAVA have been among the most active proponents of greater U.S. assistance to Vietnam to address the Agent Orange/dioxin war legacy. Charity Events In the past decade, various organizations and groups have held multiple charity events to benefit those affected by Agent Orange, ranging from walks to raise awareness, benefit concerts, sports tournaments, and auctions, and have raised a considerable amount of money for aid. The amount of funds brought in has been substantial, with the most for a single event reportedly being around $1 million-$2 million. The charity events frequently feature well-known Vietnamese pop stars and/or international celebrities. For example, fund-raising concerts have been given by Vietnamese artists Trong Tan and Khanh Linh, as well as Peter Yarrow of the folk group Peter, Paul, and Mary, and Irish folk musician Mick Moloney. Peace Villages With the support of government assistance, a network of special schools, or "Peace Villages," have been set up across the country for children suffering from disabilities, many said to be caused by AO/dioxin. Many of the villages have been set up near dioxin "hot spots." The Hoa Binh Peace Village and Vietnam Friendship Village, two of the more well-known centers, are residential facilities with health care services for orphaned children, elderly or disabled adults, and children affected by dioxin poisoning and other mental and physical disabilities. Although they are privately run and funded, the Vietnamese government has given them land grants, including 27,000 square meters for the Vietnam Friendship Village. Thousands of victims, particularly children with disabilities, have been cared for and treated in the aforementioned villages and other centers around the country. However, such support activities "only meet a small part of [the] very large and long-term demand of Agent Orange/dioxin victims." International Sources of Assistance According to an Aspen Institute table summarizing non-U.S. government and non-Vietnamese government sources of assistance for dioxin remediation and related health care services in Vietnam, a total of nearly $40 million had been contributed by February 2012 (see Table 3 ). While some of the funding has come from other governments, the United Nations—via the United Nations Children Fund (UNICEF) and the United Nations Development Program (UNDP)—and various private foundations have made the most significant contributions. A brief summary of the assistance programs of some of the larger non-government sources follows. The Ford Foundation A philanthropic organization that funds humanitarian efforts around the world, the Ford Foundation has been involved with both the environmental and health legacy of Agent Orange/dioxin in Vietnam since 2000. In 2006, a Special Initiative on Agent Orange was established, seeking to address the healthcare services offered to disabled Vietnamese, reduce exposure to at-risk communities, aid in "hot spot" cleanup efforts, and encourage dialogue between Vietnam and the United States about the legacy of the Vietnam War. The Ford Foundation is working closely with both the Vietnamese and U.S. governments on its Special Initiative on Agent Orange, as well as UNICEF and the UNDP. Since 2000, the Ford Foundation has funded a wide variety of programs and initiatives aimed at addressing the impact of Agent Orange and dioxin on post-war Vietnam. These include assisting in the development of scientific facilities to assess the impact of dioxin on the people of Vietnam, contributing to the cleanup efforts at the Da Nang airbase, supporting health care facilities for people with medical conditions associated with dioxin, disability rights advocacy, and organizing the U.S.-Vietnam Dialogue Group on Agent Orange. Through February 2012, the Ford Foundation had made grants of over $17 million to Agent Orange/dioxin related projects in Vietnam. The Ford Foundation has also been instrumental in mobilizing funding from various other sources, including the Atlantic Philanthropies, and the Bill and Melinda Gates Foundation. The Ford Foundation is the largest international contributor of assistance to Vietnam's efforts to clean up dioxin. From 2000 to 2007, the Ford Foundation gave grants totaling more than $4.8 million to government agencies, NGOs, and universities to promote the study of Agent Orange/dioxin related diseases, the creation of adequate healthcare services for children and the disabled, environmental cleanup projects, and scientific research. In September 2007, the Ford Foundation pledged $7.5 million in support for the Dialogue Group. Since November 2006, the Ford Foundation has supported the work of the Aspen Institute in establishing the Dialogue Group's effort to bring key individuals in both the United States and Vietnam together to develop practical responses to the health and environmental consequences of the use of herbicides during the Vietnam War. The United Nation's Children's Fund (UNICEF) In April 2008, UNICEF launched a project to provide healthcare and education to children with disabilities in Vietnam. In close cooperation with the government of Vietnam, UNICEF started a pilot program in Da Nang to train health workers, educators, parents, and other caregivers how to properly monitor the health and nutrition of children with disabilities. In addition to the pilot program, UNICEF has organized a fund-raising campaign that matches dollar for dollar a $1 million grant from the Ford Foundation, with the goal of implementing similar programs all over Vietnam. The United Nations Development Program (UNDP) In 2007, the United Nations Development Program (UNDP) provided $350,000 to a dioxin cleanup program in cooperation with Vietnam's Ministry of Natural Resources and Environment and Ministry of National Defense. Preliminary plans called for the funds to be used to assess dioxin contamination in Bien Hoa and Phu Cat. The Bill and Melinda Gates Foundation and the Atlantic Philanthropies The Gates Foundation and the Atlantic Philanthropies have combined efforts with MONRE to finance a $6.75 million high-resolution dioxin testing laboratory in Vietnam. The two U.S. foundations are providing $5.50 million; MONRE is contributing $1.25 million. The new laboratory will be the first facility in Vietnam capable of accurately measuring very low concentrations of dioxin or other chemicals in food and human tissue samples. The laboratory is expected to lower the cost of conducting more extensive dioxin contamination and exposure studies in Vietnam. Implications for Bilateral Relations Over the last 10 years or so, economic and security trade issues have gained priority over war legacy issues in U.S.-Vietnam relations. Although war legacy issues in the United States complicated and held up efforts to normalize relations between the two countries, the perceived mutual benefits of bilateral trade currently exert more influence on overall U.S.-Vietnam relations. However, there still remains the risk that the mismanagement of war legacy issues—such as the status of Vietnam's "victims" of Agent Orange—could derail or delay further progress in bilateral relations. For the Vietnamese government, it appears that economic and strategic considerations will continue to take priority over U.S. assistance in cleaning up dioxin and providing assistance to people with illnesses thought to be related to dioxin exposure. Vietnam is actively seeking acceptance into the U.S. Generalized System of Preference (GSP) program, which would remove tariffs on U.S. imports of selected goods from Vietnam, and is a party to the ongoing Trans-Pacific Partnership (TPP) negotiations. Additionally, since the middle of the decade, Vietnam has been seeking to expand its security relations with the United States, perhaps due to China's growing influence in Southeast Asia. Within Vietnam, however, there is widespread concern about the living conditions of its estimated 2.1 million-4.8 million people who were exposed to Agent Orange and the already identified 3 million people with medical conditions the Vietnamese government attributes to that exposure. Much of that concern is focused on the physical problems of Vietnam's children who have medical conditions associated with direct or indirect exposure to dioxin. Some observers think the Vietnamese people's generally positive attitude about the United States could change for the worse if the U.S. government is perceived to be insensitive or intransigent about Agent Orange and its associated problems. For the U.S. government, the past policy was to deny legal responsibility for any health effects of Agent Orange/dioxin while providing some assistance with the assessment, containment, and cleaning up of any Agent Orange-related dioxin found in Vietnam. As a result, the United States has been unwilling to provide medical or financial assistance to programs specifically targeted at purported victims of Agent Orange. For the present, the governments of both nations apparently welcome U.S. involvement in the identification, containment, and cleanup of dioxin "hot spots." At the current pace of funding, it could take several more years before all of the major dioxin "hot spots" have been remediated. It is likely public attention will shift to caring for people exposed to Agent Orange once the cleanup is done, raising the risk of the emergence of bilateral tensions. The Vietnamese government would like to see greater U.S. support for upgrading social services to people with disabilities associated with exposure to Agent Orange/dioxin. The Vietnamese government and people see some inconsistencies between the U.S. government's reluctance to provide aid to Vietnamese victims of Agent Orange and its generous support programs for U.S. veterans who claim their medical problems are Agent Orange related. Whereas U.S. Vietnam veterans are presumed to have been exposed to Agent Orange, and thereby automatically qualify for various benefits for a range of medical conditions, the U.S. government continues to claim that there is insufficient evidence to demonstrate that the medical conditions of Vietnamese who were exposed to Agent Orange are a consequence of their exposure to the herbicide and its dioxin. In the same vein, the willingness of the United States to provide aid to Vietnamese who lost limbs to land mines while refusing to provide help directly to people exposed to Agent Orange can be difficult to explain to Vietnamese officials and civilians. These apparent inconsistencies in U.S. policy could pose future problems for bilateral relations. Conversely, there is a concern in the United States that if the U.S. government were to seemingly accept some legal or moral responsibility for the Vietnamese "victims" of Agent Orange, it could have undesirable implications for future military conflicts. In this view, for the U.S. government, it remains important that any and all assistance being provided to address the aftereffects of the use of Agent Orange in Vietnam be seen as a humanitarian act, and not an admission of culpability. Issues and Options for Congress For over three decades, the effects of Agent Orange and its accompanying dioxin, TCDD, on the people and the environment of Vietnam have remained in the background of U.S.-Vietnamese relations. Currently, through fora such as the Joint Advisory Committee (JAC) and the Dialogue Group, U.S. and Vietnamese officials, as well as prominent citizens of both countries, are meeting and discussing ways to jointly address the "war legacy" issues of Agent Orange, including scientific research, environmental remediation, public awareness, and health care. Assuming that recent patterns of economic and security issues taking precedence over war legacy issues continue, as well as the comparatively positive dynamics in the JAC and the Dialogue Group, it could be argued that there is no need for congressional involvement at this time. Pending Legislation At least two bills have been introduced in the 112 th Congress that would directly or indirectly result in the appropriation of additional funds to finance the cleanup of Agent Orange/dioxin in Vietnam and/or provide assistance to Vietnamese victims of Agent Orange/dioxin. The Victims of Agent Orange Relief Act of 2011 ( H.R. 2634 ) would require the Secretary of State to develop a plan to address the health care needs of Vietnamese nationals exposed to Agent Orange during the designated exposure period, or their progeny. The Department of State, Foreign Operations, and Related Programs Appropriations Act, 2013 ( S. 3241 ) would appropriate not less than $20 million for "remediation of dioxin contaminated sites in Vietnam," and not less than $5 million for "health/disability activities in areas sprayed or otherwise contaminated with dioxin." In S.Rept. 112-172 associated with S. 3241 , the Senate Committee on Appropriations recommended the appropriation of not less than $20,000,000 for site analysis and environmental remediation of dioxin contamination at the Bien Hoa and Phu Cat hot spots, and not less than $5,000,000 under the GHP [Global Health Programs] heading for disability surveys, monitoring, and related health activities in areas that were heavily sprayed with Agent Orange or are otherwise contaminated with dioxin.… The House version of the appropriations bill, H.R. 5857 , contains no provisions pertaining to either environmental remediation or health and/or disability activities in areas of Vietnam sprayed or contaminated with dioxin. Both H.R. 5857 and S. 3241 were approved by their respective committees of jurisdiction in May 2012, but neither of them have been passed by their respective chambers of Congress. General Issues If Congress addresses the issues related to Agent Orange, there are several aspects of U.S. policy it could examine and consider. The most immediate issue may be to obtain more information on how the appropriated and obligated funds have been and will be used. Although the State Department and USAID have released information on the grants awarded out of those funds, they have not provided detailed information on how these funds are being used and to what extent the grantees have achieved their expected results. One option for Congress is to exercise oversight to ascertain the status of USAID's progress, including requesting that the Government Accountability Office (GAO) conduct an audit of U.S. agent orange assistance in Vietnam. In addition, Congress may choose to consider the appropriation of additional funds for exposure assessment research, dioxin remediation, and/or humanitarian assistance to Vietnamese nationals allegedly suffering from medical conditions related to exposure to Agent Orange. Although past cooperative efforts in exposure assessment research encountered problems, more research can be done and the estimated cost of such research would exceed Vietnam's current budgetary capacity. Similarly, the projected cost of containing and removing the residual dioxin in and around Vietnam's Agent Orange "hot spots" is beyond the Vietnamese government's resources. According to USAID, the estimated cost of decontaminating the Da Nang airport site exceeds the amount already appropriated. The precedent for U.S. financial and technical assistance with dioxin remediation is already established, making the appropriation of additional funding potentially less problematic. Appropriations for medical assistance specifically for purported Agent Orange "victims" in Vietnam may be more problematic. Although there exists a precedent, critics remain concerned about the possible implications for future conflicts. In addition, Cambodia and Laos may insist on similar treatment for their purported Agent Orange "victims" (given that parts of their nations were also sprayed during the Vietnam War), raising the potential overall cost and the administrative difficulties of addressing this war legacy issue. However, past and existing humanitarian aid programs in Vietnam, addressing victims of land mines and HIV/AIDS, demonstrate the provision of aid need not imply legal or moral responsibility. One potentially less contentious area for medical assistance may be technical support with the development of a national birth defects registry and other efforts to develop a more comprehensive assessment of the size and scope of Vietnam's disabled population. Another alternative for Congress would be the development of a multi-year policy on the general issue of Agent Orange and dioxin in Vietnam. This policy could take the form of legislation that addresses all aspects of the issue—research on the level of dioxin in Vietnam, general population studies to determine the level of dioxin exposure in Vietnam, dioxin containment and remediation, and medical care for people with medical conditions related to dioxin exposure. One model multi-year plan has been proposed by the Dialogue Group. The development of such a program would likely necessitate consultation with the Obama Administration, as well as the Vietnamese government, in order to ensure its effective implementation. One potential benefit of the development of a comprehensive policy on Agent Orange in Vietnam could be the enhancement of U.S. "soft power" in Southeast Asia. To some analysts, U.S. global influence is being challenged by China (and other nations) by the use of non-military engagement—"soft power"—to encourage other countries to adopt policies or stances consistent with the goals and objectives of the nation employing these policies. It has been postulated that the U.S. military interventions in Afghanistan and Iraq have undermined its global image, and that to restore its image, the United States should more actively engage in "soft power" exercises, such as humanitarian assistance to Vietnam to address its "war legacy" problems. In addition, relations between China and Vietnam since 1975 have ranged from hostile to cool, but more recently China has sought to foster more friendly ties with its neighbors. Increased U.S. assistance for Vietnam's Agent Orange "victims" could strengthen U.S.-Vietnam relations, and encourage Vietnam to be a stronger partner to the United States in other diplomatic and security areas.

Since the end of the Vietnam War in 1975, there has been a gradual warming of bilateral relations between the United States and Vietnam, culminating in the appointment of the first U.S. ambassador to Vietnam in 1996 and the granting of permanent normal trade relations (PNTR) to Vietnam in 2007. Over the last three decades, many—but not all—of the major issues causing tension between the two nations have been resolved. One major legacy of the Vietnam War that remains unresolved is the damage that Agent Orange, and its accompanying dioxin, have done to the people and the environment of Vietnam. For the last 35 years, this issue has generally been pushed to the background of bilateral discussions by other issues considered more important by the United States and/or Vietnam. With most of those issues presently resolved, the issue of Agent Orange/dioxin has emerged as a regular topic in bilateral discussions. In the last few years, the United States has shown a greater willingness to fund environmental remediation activities in Vietnam. Since 2007, Congress has appropriated $59.5 million for dioxin removal and related health care activities in Vietnam. In 2012, the Senate has proposed providing an additional $20 million in the Department of State, Foreign Operations, and Related Programs Appropriations Act, 2013 (S. 3241), but the House of Representatives has not included dioxin remediation funding in its corresponding appropriations bill, H.R. 5857. The Vietnamese government and people would like to see the United States do more to provide help for victims of Agent Orange, as well as assist with the cleanup of other Agent Orange "hot spots." According to various estimates, the U.S. military sprayed approximately 11 million-12 million gallons of Agent Orange over nearly 10% of then-South Vietnam between 1961 and 1971. One scientific study estimated that between 2.1 million and 4.8 million Vietnamese were directly exposed to Agent Orange. Vietnamese advocacy groups claim that there are over 3 million Vietnamese suffering from health problems caused by exposure to the dioxin in Agent Orange. The people of Vietnam have become increasingly concerned about the issue of Agent Orange. Various non-government organizations are placing more pressure on the Vietnamese government to remove the dioxin from the environment and provide better care to the people exposed to Agent Orange. Some government ministries are comparatively sympathetic to the public concern about Agent Orange, but other ministries are apprehensive that highlighting the dangers of dioxin could have undesired consequences for bilateral relations or for Vietnam's economy. This report examines various estimates of the effects of Agent Orange on Vietnam's people and environment, the history of U.S. policy on the issue, the current cleanup efforts in Vietnam, the various forms of assistance—including U.S. governmental assistance—provided to people with medical conditions associated with dioxin exposure, and the implications for bilateral relations. It concludes with a brief discussion of possible congressional responses to the issue. This report will be updated as conditions warrant.

History and Precedent At the end of the 20 th century, the Centers for Disease Control and Prevention (CDC) published its list of the "Ten Great Public Health Achievements" for the United States from 1900 to 1999. Number one on the list was vaccination. Vaccination has resulted in the eradication of smallpox worldwide, and in the control of many other vaccine-preventable diseases. Mandatory vaccination programs, such as school immunization requirements, have played a major role in controlling rates of vaccine-preventable diseases in the United States. Historically, the preservation of the public health has been the primary responsibility of state and local governments, and the authority to enact laws relevant to the protection of the public health derives from the state's general police powers. With respect to the preservation of the public health in cases of communicable disease outbreaks, these powers may include the institution of measures such as quarantine and isolation or the enactment of mandatory vaccination laws. Mandatory vaccination laws were first enacted in the early 19 th century, beginning with Massachusetts' smallpox vaccination law in 1809. Jacobson v. Massachusetts is the seminal case regarding a state or municipality's authority to institute a mandatory vaccination program as an exercise of its police powers. In Jacobson , the Supreme Court upheld a Massachusetts law that gave municipal boards of health the authority to require the vaccination of persons over the age of 21 against smallpox, and determined that the vaccination program instituted in the city of Cambridge had "a real and substantial relation to the protection of the public health and safety." In upholding the law, the Court noted that "the police power of a State must be held to embrace, at least, such reasonable regulations established directly by legislative enactment as will protect the public health and the public safety." The Court added that such laws were within the full discretion of the state, and that federal powers with respect to such laws extended only to ensure that the state laws did not "contravene the Constitution of the United States or infringe any right granted or secured by that instrument." The Court addressed constitutional concerns raised by the petitioner in Jacobson , but remained unconvinced that his rights were "contravened" by the mandatory vaccination program. The petitioner argued that "a compulsory vaccination law is unreasonable, arbitrary and oppressive, and, therefore, hostile to the inherent right of every freeman to care for his own body and health in such way as to him seems best; and that the execution of such a law against one who objects to vaccination, no matter for what reason, is nothing short of an assault upon his person." The Court rejected the petitioner's constitutional challenge and noted that "the liberty secured by the Constitution of the United States to every person within its jurisdiction does not import an absolute right in each person, to be, at all times and in all circumstances wholly free from restraint." However, the Court did acknowledge limits to the state's power to protect the public health and set forth a reasonableness test for public health measures: [I]t might be that an acknowledged power of a local community to protect itself against an epidemic threatening the safety of all, might be exercised in particular circumstances and in reference to particular persons in such an arbitrary, unreasonable manner, or might go so far beyond what was reasonably required for the safety of the public, as to authorize or compel the courts to interfere for the protection of such persons. State Mandatory Vaccination Laws School Vaccination Requirements Every state and the District of Columbia has a law requiring children entering school to provide documentation that they have met the state immunization requirements. In 1827, Boston was the first city to require vaccination against smallpox for public school students. Other cities and states adopted the policy, and state statutes were amended as new vaccines were introduced. Many modern school vaccination laws are the result of measles outbreaks in the 1960s and 1970s. Generally, states use the Centers for Disease Control and Prevention's schedule of immunizations as a guide, and require children to be vaccinated against a number of diseases on the schedule, including diphtheria, measles, rubella, and polio. Various state laws also require vaccination against hepatitis B and meningococcal disease for incoming college and university students. In addition, Virginia and the District of Columbia require female students to be vaccinated against the Human Papillomavirus (HPV). Recently, some states and cities have begun requiring young children in preschool or daycare to receive influenza vaccinations. Despite the wide-spread imposition of school vaccination requirements, many states provide exemptions for medical, religious, or philosophical reasons. These provisions vary state by state, with medical exemptions for children who may suffer adverse effects from the vaccine being the most common. Thus, all states allow medical exemptions for those whose immune systems are compromised, who are allergic to vaccines, are ill at the time of vaccination, or have other medical contraindications to vaccines. Generally, for a medical exemption, parents or guardians must provide documentation from a physician. Nearly all states grant exemptions for persons who oppose immunizations for religious reasons. Exemptions based on philosophical or moral convictions in opposition to immunization are less common but are provided by 19 states. Some states specify that religious or philosophical beliefs be "sincere" or "conscientiously held." The statutes allowing religious exemptions vary, with some requiring only a statement of dissent from the student, parent, or guardian, and others requiring a more specific statement regarding the child's membership in a religious denomination that opposes immunizations. In addition, states that require the HPV vaccination offer broad opt-outs for parents who simply apprise themselves of HPV's risks, without a medical exemption or religious objection requirement. Compulsory vaccination laws as a prerequisite for school enrollment have been the subject of numerous court cases. In Zucht v. King , the Supreme Court upheld a local ordinance requiring vaccinations for schoolchildren. The Court invoked Jacobson for the principle that states may use their police power to require vaccinations, and noted that the ordinance did not bestow "arbitrary power, but only that broad discretion required for the protection of the public health." In turn, most lower courts have given considerable deference to the use of the states' police power to require immunizations to protect the public health. For example, West Virginia does not offer a religious exemption from school vaccination requirements, but the United States Court of Appeals for the Fourth Circuit has rejected free exercise, equal protection, and substantive due process challenges to the law. Nonetheless, when states do offer religious exemptions, they generally may not be limited to "recognized religious organizations," as some courts have invalidated such provisions as violating both the Establishment and Free Exercise Clauses. Courts often construe these exemptions broadly, and prevent the state from inquiring into the sincerity of a parent's religious objections. However, some courts have found that certain parents' objections are personal, rather than religious in nature, and have upheld the denial of exemptions on these grounds. Health Care Workers A number of states have laws requiring employees of certain health care facilities, such as hospitals and nursing homes, to be vaccinated against diseases such as measles, mumps, and rubella. Such laws, which vary widely, generally contain opt-out provisions where a vaccine is medically contraindicated or if the vaccine is against the individual's religious or philosophical beliefs. A few states have laws pertaining to influenza vaccination of health care workers, and most that do provide for voluntary influenza immunization programs and staff education measures for employees; however, a few states have mandatory requirements for influenza vaccinations for health care workers. During the 2009 influenza A(H1N1) pandemic, despite an extensive public education campaign, less than half of health care workers were vaccinated against pandemic influenza. In August 2009, the New York State Health Department amended its regulations to require that health care workers at hospitals, in home health care agencies, and in hospice care be immunized against influenza viruses as a precondition to employment and on an annual basis. This regulation, issued on an emergency basis, did not permit any exceptions to the influenza vaccination mandate except for medical contraindications. Lawsuits were filed challenging the regulation's validity, and on October 16, 2009, a state judge issued a temporary restraining order suspending its application to New York health care workers. On October 22, 2009, Governor David A. Paterson announced the suspension of the flu shot mandate for health care employees due to the current shortage of both the seasonal flu vaccine and the pandemic flu vaccine. However, effective July 31, 2013, New York state requires health care workers not immunized against influenza to wear a surgical or procedure mask during times the Health Commissioner determines influenza is prevalent. New Hampshire has a similar requirement which has been challenged under the Due Process Clause in federal district court. In the private sector, employers sometimes require health care workers to be vaccinated against communicable diseases as a condition of employment, unless a state law applies which permits employees to opt out. A number of professional organizations, including the Infectious Diseases Society of America and the American College of Physicians, endorse the proposition that health care workers have a professional and ethical responsibility to help prevent the spread of infectious pathogens among patients and themselves, and that health care workers should receive annual influenza vaccinations as a condition of employment and professional privileges. In 2004, Virginia Mason Hospital in Seattle, WA, became the first hospital in the nation to make vaccination a condition of employment for all of its employees. Within three years, the hospital reported 98% staff coverage, except for 2% of the staff who refused for medical or religious reasons. Staff who refuse the vaccine are required to wear surgical masks when in the hospital. Other hospitals in the private sector have instituted similar mandatory flu vaccination policies, and some policies have been the subject of lawsuits. News reports have highlighted health care workers fired for refusing to be vaccinated against influenza. Challenges have been brought to such requirements on several grounds. For example, the Washington State Nurses Association filed suit against Virginia Mason Hospital in 2007 alleging that implementing the mandatory flu vaccination policy without first negotiating with the nurses' union violated the Labor Management Relations Act. The Court of Appeals for the Ninth Circuit upheld an arbitrator's decision prohibiting Virginia Mason Hospital from unilaterally implementing the vaccination policy without bargaining with the nurses' union. In addition, an employee terminated by a children's hospital for refusing to receive an influenza vaccination brought suit alleging religious discrimination in violation of Title VII of the Civil Rights Act. The plaintiff's views were rooted in "veganism," but the judge denied the defendant's summary judgment motion because it was "plausible that Plaintiff could subscribe to veganism with a sincerity equating that of traditional religious views." Elsewhere, a hospital employee discharged for refusing to take an influenza vaccination filed a claim in South Carolina for unemployment benefits. An administrative board found that the hospital's failure to grant an exemption was unreasonable, but a South Carolina state court of appeals vacated this decision. It explained that "a determination of how to protect patients from life-threatening illnesses such as influenza is a complicated medical and scientific evaluation that should be made by hospitals, not the Department of Employment and Workforce, the ALC, or this court." In 2008, the Department of Defense (DOD) issued a policy directive requiring "all civilian health care personnel who provide direct patient care in DOD military treatment facilities to be immunized against seasonal influenza infection each year as a condition of employment, unless there is a documented medical or religious reason not to be immunized." The Department of Veterans Affairs has an influenza vaccination program for patients and employees of the Veterans Health Administration that encourages, but does not mandate, yearly influenza vaccinations. Vaccination Orders During a Public Health Emergency Many states also have laws providing for mandatory vaccinations during a public health emergency or outbreak of a communicable disease. Generally, the power to order such actions rests with the governor of the state or with a state health officer. For example, a governor may have the power to supplement the state's existing compulsory vaccination programs and institute additional programs in the event of a civil defense emergency period. Or, a state health officer may, upon declaration of a public health emergency, order an individual to be vaccinated "for communicable diseases that have significant morbidity or mortality and present a severe danger to public health." In addition, exemptions may be provided for medical reasons or where objections are based on religion or conscience. However, if a person refuses to be vaccinated, he or she may be quarantined during the public health emergency giving rise to the vaccination order. State statutes may also provide additional authority to permit specified groups of persons to be trained to administer vaccines during an emergency in the event insufficient health care professionals are available for vaccine administration. Model State Emergency Health Powers Act In addition to the current laws, many states have considered the provisions set forth in the Model State Emergency Health Powers Act (Model Act). The Model Act was drafted by The Center for Law and the Public's Health at Georgetown and Johns Hopkins Universities. It seeks to "grant public health powers to state and local public health authorities to ensure strong, effective, and timely planning, prevention, and response mechanisms to public health emergencies (including bioterrorism) while also respecting individual rights." It is important to note that this is intended to be a model for states to use in evaluating their emergency response plans; passage of the Model Act in its entirety is not required, so state legislatures may select the entire act, parts of it, or none at all. Many states have used sections of the Model Act while tailoring their statutes and regulations to respond to unique situations that may arise in their jurisdiction. The Model State Emergency Health Powers Act addresses a number of issues likely to arise during a public health emergency and offers guidelines for states with respect to what powers may be necessary during such an emergency. With respect to vaccinations, the Model Act includes provisions similar to the current laws discussed above. Under the Model Act, during a public health emergency, the appropriate public health authority would be authorized to "vaccinate persons as protection against infectious disease and to prevent the spread of contagious or possibly contagious disease." The Model Act requires that the vaccine be administered by a qualified person authorized by the public health authority, and that the vaccine "not be such as is reasonably likely to lead to serious harm to the affected individual." The Model Act recognizes that individuals may be unable or unwilling to undergo vaccination "for reasons of health, religion, or conscience," and provides that such individuals may be subject to quarantine to prevent the spread of a contagious or possibly contagious disease. State adoption of the Model Act's provisions has varied. Some statutes delegate power to the state to require vaccinations in a public health emergency, or to impose quarantine requirements. In contrast, other states provide that individuals may refuse vaccinations. Role of the Federal Government Federal jurisdiction over public health matters derives from the Commerce Clause, which states that Congress shall have the power "[t]o regulate Commerce with foreign Nations, and among the several States...." Thus, under the Public Health Service Act, the Secretary of the Department of Health and Human Services has authority to make and enforce regulations necessary "to prevent the introduction, transmission, or spread of communicable diseases from foreign countries into the States or possessions, or from one State or possession into any other State or possession." With regard to interstate commerce, the Public Health Service Act deals primarily with the use of quarantine and isolation measures to halt the spread of certain communicable diseases. No mandatory vaccination programs are specifically authorized, nor do there appear to be any regulations regarding the implementation of a mandatory vaccination program at the federal level during a public health emergency. With regard to foreign countries, the Secretary has the power to restrict the entry of groups of aliens for public health reasons. This power includes the authority to issue vaccination requirements for immigrants seeking entry into the United States. Currently, certain vaccines specified in statute, and other vaccines recommended by the CDC Advisory Committee on Immunization Practices for the general U.S. population, are required for immigrants who seek permanent residence in the United States, and people currently living in the United States who seek to adjust their status to become permanent residents. CDC has determined that two diseases for which vaccines are recommended for routine use by the ACIP—for human papillomavirus (HPV) and zoster (shingles)—do not have the potential to cause outbreaks, and are therefore not required for admission. Vaccination requirements may be waived when the foreign national receives the vaccination, if the civil surgeon or panel physician certifies that the vaccination would not be medically appropriate, or if the vaccination would be contrary to the foreign national's religious or moral beliefs. Likewise, the military has broad authority in dealing with its personnel, both military and civilian, including the protection of their health. Military regulations require American troops to be immunized against a number of diseases, including tetanus, diphtheria, influenza, hepatitis A, measles, mumps, rubella, polio, and yellow fever. Inoculations begin upon entry into military service, and later vaccines depend upon troop specialties or assignments to different geographic areas of the world. Courts have upheld the legality of military mandatory vaccination orders. For example, in United States v. Chadwell , two U.S. Marines refused to be vaccinated against smallpox, typhoid, paratyphoid, and influenza because of their religious beliefs. In upholding the convictions, the Navy Board of Review court (now the Navy-Marine Corps Court of Criminal Appeals) stated that religious beliefs were not above military orders and that "to permit this would be to make the professed doctrines of religious belief superior to military orders, and in effect to permit every soldier to become a law unto himself." Federal courts do not appear to contradict this reasoning. One district court, in reviewing a denial of a discharge decision of the Commandant of the Marine Corps under an "arbitrary and capricious standard," noted the lawfulness of the military's anthrax vaccination program, and noted military commanders' "overriding responsibility to protect the health and safety of American military personnel by administering appropriate vaccines when faced with the growing threat of biological and chemical weaponry." Likewise, the Court of Appeals for the District of Columbia Circuit upheld a Department of Defense policy of using unapproved, investigational drugs on military members in combat situations without their consent. Finally, in two recent cases the plaintiffs were discharged from the military for refusing to receive anthrax vaccinations. They brought claims challenging the Secretary of the Air Force's denial of their requests to correct the disciplinary records on the matter from their files. In both cases, the District Court for the District of Columbia ruled that the decision of the Board for the Correction of Military Records was not arbitrary and capricious. As noted above, state and local governments have primary responsibility for protecting the public health, and this has been reflected in the enactment of various state laws requiring that school children be vaccinated against certain diseases before enrolling in school and that health care workers be vaccinated as a condition of employment, as well as laws providing for mandatory vaccination procedures during a public health emergency. Any federal mandatory vaccination program applicable to the general public would likely be limited to areas of existing federal jurisdiction, i.e., interstate and foreign commerce, similar to the federal quarantine authority. This limitation on federal jurisdiction acknowledges that states have the primary responsibility for protecting the public health, but that under certain circumstances, federal intervention may be necessary.

Historically, the preservation of the public health has been the primary responsibility of state and local governments, and the authority to enact laws relevant to the protection of the public health derives from the state's general police powers. With regard to communicable disease outbreaks, these powers may include the enactment of mandatory vaccination laws. This report provides an overview of the legal precedent for mandatory vaccination laws, and of state laws that require certain individuals or populations, including school-aged children and health care workers, to be vaccinated against various communicable diseases. Also discussed are state laws providing for mandatory vaccinations during a public health emergency or outbreak of a communicable disease. Federal jurisdiction over public health matters derives from the Commerce Clause of the United States Constitution, which states that Congress shall have the power "[t]o regulate Commerce with foreign Nations, and among the several States...." Congress has enacted requirements regarding vaccination of immigrants seeking entry into the United States, and military regulations require American troops to be immunized against a number of diseases. The Secretary of Health and Human Services has authority under the Public Health Service Act to issue regulations necessary to prevent the introduction, transmission, or spread of communicable diseases from foreign countries into the states or from state to state. Current federal regulations do not include any mandatory vaccination programs; rather, when compulsory measures are needed, measures such as quarantine and isolation are generally utilized to halt the spread of communicable diseases.

Introduction This report examines legislative efforts in Congress to delay the gradual phase-out of subsidized flood insurance premiums, which is required under Sections 100205 and 100207 of P.L. 112-141 , the Biggert-Waters Flood Insurance Reform and Modernization Act of 2012. This new law extended the authorization for the National Flood Insurance Program (NFIP) for five years, through September 30, 2017, while requiring significant program reforms affecting flood insurance, flood hazard mapping, and floodplains management. The law also produced widespread policy concerns about affordability and, more broadly, the feasibility of balancing program solvency concerns against the marketability of actuarial full-risk rates policies that now consider the elevation or height of the structure. After a brief discussion of the circumstances surrounding the nation's increasing exposure to flood risk that led to changes in the NFIP's premium rate structure, the report examines the NFIP's rate-making process, including the elevation rating components required to rate policies, and summarizes key relevant rate structure reform and solvency provisions required by the Biggert-Waters Act. The report focuses specifically on key relevant differences between Sections 100205 and 100207 of the Biggert-Waters Act that affect the transition of subsidized rates for certain properties to risk premium rates, more commonly known as full-risk or actuarial rates. It also examines the Homeowner Flood Insurance Affordability Act of 2014 ( S. 1926 ) that passed the Senate on January 31, 2014, H.R. 3370 (the legislative substitute bill), and Section 572 of the FY2014 Consolidated Appropriations Act ( P.L. 113-76 ) that President Barack Obama signed into law on January 17, 2014. Background In 1968, after several decades of continuous effort to control flood losses with flood control infrastructure (primarily levees), Congress enacted the National Flood Insurance Act of 1968 to establish a federal program to identify and communicate flood hazards and risks and to offer flood insurance to property owners and businesses in communities that agree to adopt flood mitigation measures (i.e., land use planning and construction standards). Currently, the NFIP has about 5.6 million policies providing over $1.2 trillion in coverage in almost 22,000 communities in 56 states and jurisdictions that participate in the program. The program collects about $3.5 billion in annual premium revenue. According to FEMA, the program saves the nation an estimated $1.6 billion annually in flood losses avoided because of the NFIP's building and floodplain management regulations. Flood insurance premium rates were initially set "based on consideration of the risk involved and accepted actuarial principles." In 1973, Congress amended the 1968 Act to: (1) authorize FEMA to set rates at less than full-risk rates, which FEMA refers to as subsidized rates, and (2) prohibit FEMA from offering subsidized rates to properties that were constructed or substantially improved after December 31, 1974, or after the date upon which FEMA published the first Flood Insurance Rate Map (FIRM) for the community, whichever was later. Therefore, by statute, premium rates charged on pre-FIRM structures are explicitly lower than what would be expected to cover expected costs. The availability of subsidized flood insurance was intended to allow floodplain residents to contribute in some measure to pre-funding their recovery from a flood disaster instead of relying solely on federal disaster assistance. In essence, insurance could distribute the financial burden among those protected by flood insurance and the public. However, the statute's provision creates an inability to collect the full risk-based premiums on about 1.1 million of the program's 5.6 million policies and has, arguably, eroded the program's long-term ability to pay future claims made by all policyholders. The actuarial shortfall from charging less than full-risk (or actuarial premiums) has drawn greater scrutiny as a result of (1) the catastrophic flood events from 2005 through 2012, (2) uncertainty surrounding future flood risk, especially in coastal hazard areas, and (3) the budgetary consequences of frequent ad-hoc emergency supplemental appropriations for disaster relief on the deficit and the program's solvency. Prior to Hurricane Katrina in 2005, the NFIP had been able to cover its cost, borrowing relatively small amounts from the U.S. Treasury to pay claims, and then repaying the loans with interests. However, in the wake of the unexpected need for significant intergovernmental borrowing from the U.S. Treasury to pay claims, and the recognition among policymakers of the nation's increasing vulnerability to hurricane-induced catastrophic flood events in coastal hazard areas, Congress passed legislation in 2012 to address the program's long-term solvency. A Nation Exposed to Flood Risk The nation is currently experiencing a new era of frequent and severe extreme weather and climatic events that have produced more frequent catastrophic flood events. From the early 1990s through 2012, policy makers faced the challenges associated with the nation's increasing vulnerability to flood risks, as evidenced by the series of catastrophic flood events, including Hurricanes Andrew and Iniki in 1992, Katrina, Rita, and Wilma in 2005, Ike in 2008, Irene in 2010, and Sandy in 2012, that required significant levels of NFIP borrowing from the U.S. Treasury to meet NFIP's contractual obligations with respect to residential and small business flood damage losses. According to FEMA, pre-FIRM subsidized properties have accounted for a disproportionate share of total flood losses under the NFIP. At the end of 2013, the NFIP had about $24 billion in debt. Perceptions of the nation's growing exposure to coastal flooding and concerns that the federal government flood-risk management program was both in debt and fiscally unsound drove efforts in Congress to reform and modernize the NFIP after the program expired on September 30, 2008. Since then, Congress has sought a long-term reauthorization of the NFIP and to find ways to strengthen the program's long-term financial sustainability. These efforts have largely taken the form of the gradual elimination of pre-FIRM premium subsidies and grandfather policies. The key issues of contention have been what to do about the nation's increasing exposure to flood risks, the cost and consequences of flooding, premium rate structure changes designed to strengthen the financial solvency of the NFIP, and the affordability of flood insurance coverage in the aftermath of the phase-out of premium subsidies on pre-FIRM properties and policies "grandfathered" into the program. The Biggert-Waters Act On July 6, 2012, Congress passed and the President signed into law P.L. 112-141 , the Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters Act) that reauthorized the NFIP for five years while requiring significant program changes designed to make the program more financially sustainable and to ensure that flood insurance rates more accurately reflect the real risk of flooding. Three sections of the Biggert-Waters Act changed the NFIP's premium rate structures and authorized a draft the affordability framework study: Section 100205 (pre-FIRM subsidy), Section 100207 (grandfathered rates), and Section 100236 (studies and reports). The Premium Rate Structure of the NFIP The NFIP's risk assessment and pricing model is based on a hydrologic model for estimating the expected average annual flood damage and insurance rate originally developed in the 1960s by the U.S. Army Corp of Engineers. The rating methodology is applied on a structure-by-structure basis within flood maps that link different risk categories and associated insurance risk zones to floodplain management regulations, particularly in high-risk areas where there is at least a 1% annual chance of flooding—the so-called "base flood." FEMA uses three primary key characteristics to classify properties based on flood risks. Structures are categorized by (1) specific risk zone, (2) the elevation of the structure relative to the Base Flood Elevation (BFE), and (3) occupancy type (e.g., single family, 2-4 family, other residential, non-residential and mobile/manufactured homes), along with other specific determinants of risk. The flood risk zones—based on return periods that cover a wide range of flooding events—are modeled using national topographical maps, hydrological data, digital terrain (elevation) models, extreme flood scenarios, and flood vulnerability data, including flood hazard data and historical flood loss data. Owners of property with a mortgage from a federally regulated lender and living in a Special Flood Hazard Area (SFHA)—that is, a high-risk zone —are subject to a mandatory purchase requirement. Flood insurance is optional for residents living in low-risk, non-SFHAs. Residents outside of SFHAs typically voluntarily purchase a low-cost Preferred Risk Policy (PRP). Table 1 shows flood-risk zones that are depicted on FIRMs. FEMA is responsible for undertaking Flood Insurance Studies (FISs) nationwide to identify areas within the United States having special flood, mudslide, and flood-related erosion hazards; assess the flood risk; and designate insurance zones. FEMA consults with local officials to determine BFEs throughout the community. Communities are required to submit pertinent data concerning flood hazards, flooding experience, mitigation plans to avoid potential flood hazards, and estimates of historical and prospective economic impacts on the community. Actuarial vs. Subsidized Premium Rates Prior to the enactment of the Biggert-Waters law, FEMA used two types of premium rate structures and five risk categories to determine rates charged each policyholder in the NFIP. The rate structures are (1) subsidized rates and (2) actuarial full-risk rates based on the probability of a given level of flooding, damage estimates based on that level of flooding, and accepted actuarial principles. Subsidized rates are available to properties constructed or substantially damaged or improved before either December 31, 1974, or the effective date of the initial FIRM, whichever is later. Subsidized rates are countrywide rates based on broad occupancy type classifications, which produce a premium income less than the expected expense and loss payments for the flood insurance policies issued on that basis. FEMA also offered grandfathered rates on properties in SFHA built in compliance with the flood map in effect at the time of construction that kept rates that reflected that compliance even if a later flood map would increase their premium. Grandfathered rates were also available for structures built outside of the SFHA and later remapped into a high-risk insurance zone in which case they were eligible to purchase insurance based on an average cross-subsidized rate. With respect to grandfathered properties, FEMA says they are not subsidized; instead, the agency establishes cross subsidies within classes of structures to maintain the actuarial integrity of the rate structure. Actuarial rates , which are used to estimate actual loss exposure in flood-prone areas as part of the rating of post-FIRM construction (i.e., properties built after the issuance of a community's FIRM), are based on the hydrologic method of ratemaking that uses data on the occurrence of floods and damage—and consideration of the risk involved and accepted actuarial principles. Flood Risk Assessment Methods FEMA's overall rate-setting methodology is based on a hydrologic/financial model originally developed by the U.S. Army Corps of Engineers, as described in a 1966 report by the Department of Housing and Urban Development (HUD). The basic logic of the model is to combine estimated flood risk probabilities with expected flood damage and set rates for a property according to its risk of being flooded—that is, the expected value calculation based on measures of the frequency (flood risk probability) and severity (expected flood damage) of floods. FEMA estimates the probabilities that floods of different severities—that is, probability of elevation (PELV) values—relative to BFE, which will occur in a given year. The flood risk data are generated on the basis of detailed engineering studies, available flood insurance data, simulations, and professional judgments. Probabilities differ because the degree to which flood waters will reach above or below the BFE will vary across risk zones. PELV tables provide detailed information, by flood zone, about the frequency with which floods of all possible water surface elevations can be expected to occur. FEMA also calculates the amount of structural damages that occurs when a flood occurs. Estimates are made of the percentage of the value of a structure expected to be damaged. This is the depth-percentage-damage relationship or the damage by elevation (DELV) values, which are presented by 1-foot increments of flood level within the structure and expressed as the average percentage of the property's value that will be damaged due to a flood of that elevation. Data on elevation-frequency and depth-damage relationships allow a summation of the range of flood probabilities and their associated damage to property and contents. The NFIP's current system takes expected damages and converts it to expected loss per $100 of property value covered by insurance. Below is the formula for pricing flood insurance: PELV is the probability that floodwaters reach a certain depth (frequency) DELV is the ratio of the flood damage to the value of the insurable properties (severity) LADJ, DED converts from expected flood damage to expected loss and loss adjustment dollars paid UINS is an underinsurance factor EXLOSS is the loading for expenses and contingency Actuarial Full-Risk Rates and Affordability Concerns According to FEMA, pre-FIRM premium subsidized properties typically pay less than actuarial premium rates. Pre-FIRM subsidized properties were not required to submit elevation certificates because the base elevation of the structure was not a rating factor. After the enactment of Biggert-Waters, FEMA pursued an "elevation rating" process that considers for the first time the elevation of all structures, including pre-FIRM structures. This means owners of pre-FIRM structures must now provide FEMA with elevation certificates to ensure that their rates accurately reflect the actual risk of flood damage. The key to understanding the underlying affordability issues of contention surrounding the reforms made to the NFIP's premium rate structure is to recognize that, in the context of the phase-out of pre-FIRM premium subsidies and grandfathered policy discounts authorized under Section 100205 and Section 100207 of Biggert-Waters, FEMA now considers the expected flood damage or DELV factor (elevation relative to lowest floor of the house) when setting rates for pre-FIRM subsidized and grandfathered properties. Because pre-FIRM properties are statistically at greater risk (probability) of flooding because of their elevation relative to the BFE, their new rates could be large and presumably unaffordable to the average consumer. For others, the sharp and immediate increase in premiums has made it difficult for them to sell their homes. The response by some Members of Congress to the effects of the removal of pre-FIRM premium subsidies and grandfathered policies on policyholders and the affordability of flood insurance policies for those that truly cannot afford the increases is to consider legislative measures that would roll back the premiums or lengthen the time policyholders would have to move to full-risk premium rates. The latter option is possible by linking rate increases to FEMA's issuance of the mandated affordability study and possible affordability framework. Overview of Key Premium Rate Structure Reform Provisions: P.L. 112-141 and P.L. 113-76 (Section 572) Section 100205—Pre-FIRM Premium Structures Section 100205(a)(1)(A) of the Biggert-Waters Act identifies the types of properties subject to the phase-out while Section 100205(c)(3) sets the permissible rate for premium increases. Together, these two sections authorized FEMA to phase-out certain pre-FIRM premium subsidies by increasing subsidized premiums 25% each year until rates reach the full-risk rate for certain types of pre-FIRM properties. The type of structures affected by this change include Non-primary (non-principal) residential property; Business properties (non-residential occupancy); Severe repetitive loss (SRL) properties; Properties that have incurred NFIP claim payments exceeding the fair market value of the property; and Properties that, on or after July 6, 2012, have experienced or sustained substantial damage or improvement exceeding 50% and 30%, respectively, of the fair market value of such property. FEMA is prohibited from offering subsidized rates for pre-FIRM subsidized policies that are new, lapsed, or assigned, which were previously eligible for subsidized rates. FEMA now requires owners of these properties, at the time of renewals effective on or after October 1, 2013, to submit an Elevation Certificate (EC) including photographs to determine full-risk rating using the current FIRM. The following pre-FIRM policies are affected: Subsidized policies written on properties not insured by the NFIP as of July 6, 2012, but before October 1, 2013. Subsidized policies that were written as new business or as an assigned policy as a result of the property being purchased on or after July 6, 2012, but before October 1, 2013. Subsidized policies under the NFIP that have lapsed, and coverage is reinstated following the lapse (for reasons other than community suspension), where the reinstatement date is effective on or after October 4, 2012, and before October 1, 2013. Prospective insured who refuse to accept an offer for mitigation assistance by the FEMA. Timeline on the Implementation of Section 100205 On January 1, 2013, FEMA began phasing out subsidized premium rates for all non-primary residential properties. Rate increases for new policies and renewal policies became effective January 1, 2013. On October 1, 2013, FEMA began phasing out pre-FIRM premium subsidies on businesses, severe repetitive loss (SRL) properties, and any property that has incurred flood-related damage in which the cumulative amounts of NFIP flood insurance claim payments equaled or exceeded the fair market value of the property. This means that, as of October 1, 2013, pre-FIRM subsidized policies that renewed after that date began experiencing premium rate increases 25% annually until their average risk premium rate is equal to the average of the risk premium rates for actuarially rated policies. Section 100205(a)(2) provides that, except for properties not covered by an NFIP policy or purchased after the Biggert-Waters Act's enactment date, the amendments made by Biggert-Waters (amending §4014(a)(2) and adding subsections (g)(3)-(4) and (h)) shall become effective 90 days after the act's date of enactment. Primary residences with policies in place at the time the Biggert-Waters Act was enacted will keep their subsidized premiums until the property is sold or the property lapses in coverage as a result of deliberate choice. If the property is sold or a new policy is purchased, FEMA will charge these policyholders the full-risk rates. Policyholders covered by a Preferred Risk Policy (PRP)—those grandfathered when the property moved from low to moderate risk zones to a high-risk zone—are not affected by Section 100205(B). Section 100207—Grandfathered Policy Eligibility Section 100207 of the Biggert-Waters Act requires FEMA to phase-in full-risk rates over a five-year period for any policyholder located in an area with a revised or updated FIRM. The changes made by Section 100207 were intended to essentially eliminate FEMA's practice of offering discounted rates to properties subject to changing risk based on revised FIRMs. Premiums for pre-FIRM subsidized primary residency properties affected by map changes will increase 20% annually over five years until it reaches full-risk rates. According to FEMA, the elimination of subsidies for some pre-FIRM policies does not affect grandfathered procedures except as noted below. Although Section 100207 of the Biggert-Waters Act does have provisions that will change FEMA's grandfathered policy eligibility rules and change rates, recently enacted law prohibits the agency from implementing those changes until after FY2015. (See discussion below.) 1. There is no change to current NFIP grandfathered procedures as a result of the October 1, 2013, program changes. New and assigned policies may continue to use "built-in-compliance" and "continuous coverage" grandfathered procedures, except where a new policy or an assigned policy is associated with the new purchase of a building constructed on or before December 31, 1974, or before the community's initial FIRM, that was previously rated using pre-FIRM subsidized rates. The pre-FIRM subsidized rates are those in the October 1, 2012, edition of the NFIP Flood Insurance Manual. 2. There is no change to the NFIP grandfathered procedures as a result of the October 1, 2013, program changes for any post-FIRM or non-subsidized pre-FIRM buildings that are rated using the "continuous coverage" NFIP grandfathered procedure. In addition, there is no change to the NFIP grandfathered procedures for buildings that were "built-in-compliance" with the FIRM in effect at the time of construction. This applies to all post-FIRM buildings and to those pre-FIRM buildings constructed on or before December 31, 1974, but after a community's initial FIRM date. 3. The NFIP grandfathered procedure for "continuous coverage" cannot be used in the case of a policy assignment in connection with the purchase of a pre-FIRM property located in Zone A, AE, A1-A30, AO, AH, V. VE, V1-30, or D that was rated using pre-FIRM subsidized rates. If the property is located in a Special Flood Hazard Area (SFHA) and was previously rated with a zone other than B,C, X, A99, AR, or AR Dual Zones without elevation information, an Elevation Certificate and photographs must be obtained (in V and D zones, only photographs are required). The current FIRM information must be used to rate the policy. On January 17, 2014, President Barack Obama signed into law the Consolidated Appropriations Act, 2014, that prohibits FEMA from implementing Section 100207 (the "grandfather" provision) of the Biggert-Waters Act, codified at Section 1308(h) of the 1968 Act. The Omnibus requires FEMA to cease any current planning and development for Section 100207. However, according to FEMA, because Section 100207 does not relate to changes to flood insurance rates that have already taken place, and the Omnibus does not roll back any rate increases that have already occurred, the effect of Section 572 of the Omnibus is that FEMA would not implement Section 100207 until 12 to 18 months after the start of FY2015. FEMA indicated that the agency will continue to map flood risk as authorized by current law. Section 100236(a)(3)—Affordability Study and Report Sections 100231 through 100237 of the Biggert-Waters Act authorized several studies and corresponding reports. Section 100236 requires FEMA to conduct a study and issue a report to Congress assessing "methods for establishing an affordability framework for [NFIP], including methods to aid individuals to afford risk-based premiums under [NFIP] through targeted assistance rather than generally subsidized rates, including means-tested vouchers." Specifically, FEMA is required to contract with the National Academy of Sciences (NAS) to conduct "an economic analysis of the costs and benefits of a flood insurance program with full risk-based premiums, combined with means-tested federal assistance to aid individuals who cannot afford coverage, through an insurance voucher program." FEMA is also required to submit a report that includes the study and policy analysis to committees of the House of Representatives and the Senate 270 days after the enactment of the Biggert-Waters Act. On January 30, 2014, an ad hoc committee of the NAS began Phase 1 of the study— Analysis of Costs and Benefits of Reforms to the National Flood Insurance Program —to design alternative approaches that could be used to conduct a cost-benefit analysis of the NFIP, as mandated by Section 100236. The study, according to the Biggert-Waters Act, will compare benefits and costs to the federal government of: (1) an insurance program with risk-based premiums combined with means-tested federal assistance, through a voucher program for example, to aid individuals who cannot afford coverage, and (2) the current system with discounted rates and federally funded disaster relief for those without coverage. Phase 1 of the NAS affordability study is expected to produce a report that designs alternative frameworks that could be used for conducting the benefit-cost analysis (the subject of Phase 2 of the study). Specific issues that will be addressed in the Phase 1 study and report include (1) methods for establishing an affordability framework, including means-tested vouchers, for the NFIP; (2) data issues such as needs, availability, quality, and quantity; (3) appropriate and necessary assumptions and definitions, including "affordability," "full risk-based premiums," and impacts on participation rates; and (4) appropriate analytical methods and related considerations, including models, computing software, and geographic areas to be analyzed. In Phase 2 of the study, researchers are expected to consider the entire federal costs of flooding when comparing the NFIP affordability program to one with vouchers. For example, if a voucher program creates greater participation in the NFIP than subsidies, then the subsidized scenario will need to account for FEMA's individual assistance, Small Business Administration subsidized loans, etc. In addition to considering costs and benefits to the federal government, the design alternatives will consider costs and benefits as they relate to individuals and communities. The approximate issue date for the Phase 1 report is the end of 2014. The Effects of Removing Pre-FIRM Premium Subsidies and Grandfathered Rates As mentioned previously, FEMA's rate-setting process has allowed the agency to set rates below the full cost for some structures built before the community's initial FIRM. Recognizing the increasing frequency and severity of hurricane-induced coastal flooding, and the NFIP's increasing debt owed to the U.S. Treasury, which now stand at about $24 billion, and Congress approved changes under Biggert-Waters to make flood rates more accurately reflect the true risk of flooding. According to FEMA, approximately 19% (or 1,075,248) of the NFIP's 5.6 million total policyholders receive subsidized premium rates, as of December 31, 2012. about 5% of all NFIP policies (252,851 policies)—that is, non-primary residences, businesses, and severe repetitive loss properties—will see immediate rate increases under the Biggert-Waters law. 10% of all policies cover subsidized primary residences (578,312), which will remain subsidized unless or until sold to new owners or the policy lapses. 4% of the total NFIP policies include subsidized condominiums and non-condo multifamily structures (244,085) that will keep their subsidies until FEMA develops guidance for their removal. The remaining 4,480,669 policyholders are post-FIRM properties subject to actuarial rates. The effects of charging full-risk (actuarial) rates for pre-FIRM properties are that owners of these properties must, for the first time, obtain Elevation Certificates (ECs) that show the elevation (height) of the lowest floor of a building relative to the community's base (1-percent-annual-chance) flood. When the elevation level becomes a rating factor for pre-FIRM structures, the resulting full-risk rates could become unaffordable for many property owners. Table 2 and Table A-1 provide a rough illustrative comparison of premium rates before and after implementation of Section 100205 of Biggert-Waters. For example, Table A-1 , in Appendix A , shows actuarial full-risk rates based on flood risk zones that would apply when the elevation of the structure is a rating factor in determining the rates to be charged. Responses to Affordability Issues and Concerns In the aftermath of Biggert-Waters reforms and FEMA's adoption of "elevation rating" of pre-FIRM structures, owners of certain properties that, heretofore, did not have to consider the elevation of the structure in the insurance pricing process, now face relatively large rate increases. Although the new elevation-rating requirement is program-wide, the policy implications of the affordability challenges are particularly acute in urbanized coastal communities along the Gulf of Mexico and Atlantic coasts facing increasing exposure to coastal flood hazards, such as sea level rise, storm surge, and coastal flood inundation. Opposition to the Removal of Premium Subsidies Opponents of eliminating subsidized rates argue that the Biggert-Waters law does not explicitly address affordability concerns of existing policyholders facing mandatory coverage requirements and living in older, riskier homes in high-risk flood zones. Instead, the law authorized studies and reports of the effects of charging premium rates that reflect the full-estimated risk of potential flood losses. While it is critical to have a sustainable and fiscally responsible NFIP, they argue, the use of elevation rating on pre-FIRM structures that, by definition, are below BFE and subject to significant rate increases could threaten to harm the very citizens the program was designed to protect. Further, supporters of delaying rate increases maintain that, although FEMA does not have data on policyholders' ability to pay, the agency has begun implementing sharply higher flood insurance rates for some policyholders. Supporters of the Removal of Premium Subsidies Proponents of eliminating subsidized rates, and charging all policyholders full-risk rates, point to the NFIP's burden on taxpayers. They make two basic arguments: (1) property owners and businesses should become more aware of their flood risk and, therefore, make informed risk-management decisions; and (2) the transition from subsidized rates to actuarial rates would ensure that owners of properties that account for a disproportionate share of total losses in the program pay a premium rate that reflects their current risk of flooding. Congress, they argue, found that ensuring the long-term financial stability of the NFIP is in the public interest, and the Biggert-Waters law seeks to further this goal by transitioning subsidized rates to actual risk-based rates. From this perspective, the removal of premium subsidies would reduce taxpayer costs associated with a fiscally unsound government insurance program and have the additional benefit of reducing hidden financial incentives that encourage building in flood-prone and environmental sensitive coastal areas. Responses from the States To address recent premium rate reforms and associated insurance affordability challenges facing individual policyholders in the NFIP, some states are considering ways to incentivize private insurers to enter into the flood insurance market. The state of Florida, for example, has published pure loss cost data and invited private firms to use this information—along with individual company expenses and contingency factors and profit loads—to establish flood insurance rates they wish to charge in the state's voluntary property insurance market. On September 16, 2013, in anticipation of FEMA's October 1, 2013, actuarial rate revisions, the Mississippi Insurance Department filed a lawsuit against FEMA, seeking declaratory and injunctive relief from the implementation of Sections 100205 and 100207 of the Biggert-Waters law. The plaintiff argued that, although Biggert-Waters made changes designed to make the NFIP more financially stable, and ensure that flood insurance rates more accurately reflect the real risk of flooding, FEMA should be compelled to complete the mandatory affordability studies required by the Biggert-Waters law prior to establishing new flood insurance rates. The Mississippi Insurance Commissioner has insisted that without the information obtained from the affordability study, FEMA cannot avoid arbitrary decision making. Other states, such as Alabama, Louisiana, Florida, and Massachusetts, have joined the Mississippi Insurance Department lawsuit, filing amici curiae briefs in support of the plaintiffs. In general, they have argued that "FEMA failed to consider affordability when setting new premium rates and that, even if FEMA had no discretion to consider affordability when setting new premium rates, FEMA failed to utilize accepted actuarial principles and consider actual risk when calculating new rates." FEMA Administrator Craig Fugate has in oral testimony rejected the link between the timing of the affordability study and rate implementation. Moreover, as a defendant in the lawsuit, FEMA argues that (1) Congress instructed the agency to implement insurance premium rate increases by transitioning subsidized and grandfathered rates to actual risk-based rates for certain properties under the NFIP and (2) the Court lacks jurisdiction to compel FEMA and the National Academy of Sciences (NAS) to comply with the provisions of Section 100236. Responses from Insurance Policy Experts From a policy perspective, two long-term goals for the NFIP are to (1) increase private-sector involvement in the sale of flood insurance and (2) encourage technological innovations in risk assessment, pricing, and financing flood risk. For instance, insurance policy experts participating in a recent NFIP-privatization study conducted by Government Accountability Office (GAO), including representatives from FEMA, suggested various strategies that could create conditions to promote the private sale of flood insurance. These strategies include eliminating subsidized rates and charging all policyholders full-risk rates, funding a direct means-based subsidy (voucher) for some policyholders, and authorizing federal reinsurance for flood risk assumed under the NFIP. Researchers at The Wharton School, University of Pennsylvania, have suggested the use of long-term insurance as an alternative to the standard annual catastrophe risk financing policy. Finally, some Members of Congress, including those on the bipartisan Congressional Home Protection Caucus, have explored using alternative insurance policies designed to reduce insurance costs significantly if the policyholder agrees to a scheduled payout linked to flood watermarks relative to the elevation of the structure. Major Legislation The response to the implementation of Sections 100205 and 100207 of the Biggert-Waters Act was swift. Some Members of Congress introduced legislation, principle among them H.R. 3370 and S. 1846, as introduced, the Homeowners Flood Insurance Affordability Act, that would delay the gradual phase-out of subsidized flood insurance premiums and grandfathered policies. The Biggert-Waters Act led to increased debate about affordability and, more broadly, the feasibility of balancing program solvency concerns against the marketability of actuarial full-risk rates policies that now consider the elevation or height of the structure. H.R. 3370 (Grimm) H.R. 3370 was originally referred to the House Committee on Financial Services and the House Committee on Rules. The House may vote on a motion to suspend the rules and pass H.R. 3370 with an amendment in the nature of a substitute, striking out the entire text of the bill and replacing it with text prepared by the House leadership. This version of the bill, dated February 21, 2014, would delay the implementation of certain provisions of the Biggert-Waters Act. Key provisions of the substitute bill would: Remove the lapse in coverage, home sales, and new policy rate increase trigger (phase-in of full risk-based premium rates) for primary residences. Restore NFIP grandfather procedures by eliminating Section 1308(h) of the NFIA of 1968 (42 U.S.C. §4015(h)—Premium Adjustment to Reflect Current Risk of Flood. Impose an annual premium increase of not less than 5% but no more than 15% of the average of the risk premium rate for subsidized policies in any single risk classification. Impose and collect an annual premium surcharge of $25 per year on primary residence policies and $250 per year on business/non-primary residence NFIP policies and deposit the funds in the Reserve Fund created by the Biggert-Waters Act. Authorize the transfer of flood risk underwritten in the NFIP to the private reinsurance and capital markets at rates and on terms determined by the FEMA Administrator to be reasonable and appropriate, in an amount sufficient to maintain the ability of the program to pay claims. In addition, H.R. 3370 would authorize FEMA to use the National Flood Insurance Funds (NFIF) to reimburse policyholders who successfully appeal a map determination and to establish a Flood Insurance Advocate within FEMA to answer current and prospective policyholder questions about the flood mapping process and flood insurance rates. S. 1926 (Menendez) On January 31, 2014, the Senate passed S. 1926 , the Homeowners Flood Insurance Affordability Act of 2014, to delay the increase in rates for six months after the later of the date on which FEMA proposes the draft affordability framework or the date on which FEMA certifies that the agency has implemented a flood mapping approach that employs sound scientific and engineering methodologies to determine varying levels of flood risk in all areas participating in the NFIP. Some have estimated that these conditions could be met at in about four years from enactment, but the bill does not specifically require such a timeline. The report to Congress would assess "methods for establishing an affordability framework for [NFIP], including methods to aid individuals to afford risk-based premiums under [NFIP] through targeted assistance rather than generally subsidized rates, including means-tested vouchers." The Congressional Budget Office (CBO) has not released a score on S. 1926 . However, it has produced scores on two bills ( S. 1846 and S. 534 ) that make up the two titles of S. 1926 . The CBO score for S. 1846 —legislation similar to Title I of S. 1926 —indicated that the NFIP would borrow and spend an additional $900 million over the 2012-2018 period. CBO stated that because total borrowing is limited under current law, additional amounts borrowed over the next five years would be offset by less borrowing in later years, resulting in no net effect through 2024. In the absence of sufficient borrowing authority, CBO expects that the program would be forced to delay payment of insurance claims until additional resources became available. With respect to Title II of S. 1926 , CBO stated that that "enacting S. 534 would increase revenues by $490 million and increase direct spending by $483 million; taken together, those effects would reduce the deficit by $7 million over the 2014-2023 period." S. 1926 would not address the changes made by Section 100205 of the Biggert-Waters Act to transition subsidized rates to actuarial risk-based rates for second properties, severe repetitive loss (SRL) properties, properties that have incurred claim payments exceeding the fair market value of the structure, and commercial properties. Section 103(a) of S. 1926 — Delayed Implementation of Flood Insurance Rate Increases— would delay the implementation of rate increases on the following three types of properties: Grandfathered Properties . FEMA is prohibited from implementing section 1308(h) of the National Flood Insurance Act of 1968, pertaining to grandfathered properties. Pre-FIRM Properties—Not Insured . FEMA prohibited from implementing removal of premium subsidies from all properties not insured as of July 6, 2012. Pre-FIRM Properties—Lapsed Policies . FEMA prohibited from implementing removal of premium subsidies on any lapsed policy as a result of the property covered by the policy no longer being required to retain such coverage. Section 103(a)(3)(A)-(B) of S. 1926 would delay the implementation of flood insurance rate increases until six months after the later of the date on which the Administration proposes the draft affordability framework; or the date on which the Administrator of FEMA certifies in writing to Congress that FEMA has implemented a flood mapping approach that, when applied, results in technically credible flood hazard data in all areas where FIRMS are prepared or updated. Finally, with respect to rate structure reform, Section 103(c)— Treatment of Pre-FIRM Properties —of S. 1926 would require that, beginning on the date of enactment of this act through the expiration of the six-month period (i.e., after FEMA proposes the draft affordability framework and Congress implements a flood mapping approach that results in technically credible flood hazard data) FEMA restore the risk premium rate subsidies for flood insurance estimated under section 1307(a)(2) of the National Flood Insurance Act of 1968 (42 U.S.C. 4014(a)(2)) for the following three types of properties: Any property not insured by the flood insurance program as of July 6, 2012; Any policy under the flood insurance program that has lapsed in coverage, as a result of the deliberate choice of the holder of such policy; and Any property purchased after July 6, 2012. Analysis of Bills H.R. 3370 and S. 1926 would, either directly or indirectly, address the flood insurance affordability concerns. There are several flood insurance affordability-related issues that remain. Uncertainty surrounding affordability and t he actuarial adequacy of full-risk p remium . Flood risk is highly uncertain and potentially catastrophic in nature. The draft affordability framework authorized by H.R. 3370 and S. 1926 could address, via programmatic and regulatory changes, the issues of affordability of flood insurance sold under the NFIP. The affordability study will presumably consider the entire federal costs of flooding and the feasibility of a public decision-making framework, which is arguably needed to address the uncertainty and variability in flood risk exposure, post-reform insurance pricing—the source of the affordability crisis. The affordability study would presumably also encourage more innovative thinking about alternative and more holistic approaches to financing flooding risks. Future legislation may be needed to implement some of the unknown recommendations in the required draft affordability framework found in both S. 1926 and H.R. 3370 . A ffordab ility of fl ood insurance . According to FEMA, the phase out of pre-FIRM subsidies will impact about 438,000 policies that cover businesses, second homes, and severe repetitive loss properties effective with the October 1, 2013, rate changes. Moreover, before Congress passed Section 572 of the Consolidated Appropriations Act ( P.L. 113-76 ) to prohibit FEMA from implementing the phase-out of grandfathered policies, FEMA expected that another 715,000 policies (i.e., primary residence homes) would have been affected in 2014; however, this phase-out still occurs immediately if the policy lapses or if the home is sold. The availability of flood insurance provides communities leverage to adopt and enforce NFIP flood mitigation requirements. However, the leverage could be diminished by adopting an actuarial rating for all pre-FIRM non-principal residences, all non-residential properties, and properties whose ownership changes or the owner refinanced a mortgage. Eliminating FEMA's policy of grandfathering properties in a previous zone or elevation class is also of concern to property owners and local communities. The adverse effects of elevation rating could be mitigated if the property owner obtains and submit an elevation certificate to FEMA. P roperty values and property tax revenues . The potential impact of eliminating the pre-FIRM premium subsidy will likely be greatest in communities with a relatively large number of older, negatively-elevated rates and grandfathered policies with significant flood risk. Table B-1 Table 2 in Appendix B provides a side-by-side comparison of H.R. 3370 , the leadership substitute, and S. 1926 , as passed the Senate on January 31, 2014. As with S. 1926 , H.R. 3370 does not explicitly address the transition of subsidized rates to actuarial risk-based rates for second properties, SRL properties, properties that have incurred claim payments exceeding the fair market value of the structure, and commercial properties. Some of the key differences in H.R. 3370 and S. 1926 include 1. H.R. 3370 takes a different approach, compared to S. 1926 , to addressing flood insurance affordability. It would: a. Permit premium subsidies on policies covering properties not insured (as of July 6, 2012), or new purchases after July 6, 2012, by repealing 42 U.S.C Section 4014(g(1) and (2)) that requires the Administrator of FEMA to not permit premium subsidies for such new policies. b. Repeal Section 100207 of the Biggert-Waters Act that phases-out grandfathered policies. c. Allow purchasers of a property that, as of the date of such purchase, is covered under an existing flood insurance policy to assume the existing policy and coverage at subsidized rates for the remainder of the term of the policy. The subsidized rates would continue until the later of (1) the expiration of the assumed policy, or (2) implementation of the full Act by the Administrator. d. Authorize the Administrator of FEMA to create a flood insurance policy that offers the insured the option of a high loss-deductible policy to cover property in various amounts, up to and including $10,000. By opting for the higher annual loss deductible, the policyholder could presumably take advantage of lower expected premium rates. In contrast, S. 1926 would delay the rate increases required under the Biggert-Waters Act. e. Reduce the annual premium rate increase that FEMA could charge from 20% to 15%, but not less than 5% of the average of the risk premium rates for such properties. 2. H.R. 3370 would also: a. Refund annual premiums of policyholders who have paid the new premium rates that became effective January 1, 2012, and October 1, 2013. b. Impose and collect a new premium surcharge of $25 each year for residential properties and $250 each year for non-residential properties. c. Implement a flood mapping approach for the NFIP that, when applied, results in technically credible flood hazard data in all areas where FIRMs are issued whereas S. 1926 requires this as a condition to allow the expiration of the rate freeze. d. Permit FEMA to transfer flood risk to private reinsurers and the capital market at rates and on terms determined by the Administration to be reasonable and appropriate, in an amount sufficient to maintain the ability of the program to pay claims. e. Allow states to regulate private flood insurance. 3. H.R. 3370 does not include language to create the National Association of Registered Agents and Brokers. 4. Section 103 of S. 1926 would delay implementation of Section 1308(h) of the National Flood Insurance Act of 1968, regarding premium adjustments to reflect current risk of flood, until FEMA meets specific requirements. The delay shall expire the later of six months after the date FEMA proposes the draft affordability framework or the date that FEMA certifies in writing to Congress that the agency has implemented a flood mapping approach that results in technically credible flood hazard data in all areas applied . Conclusion Public debate on sharply higher rates required after the removal of premium subsidies has resulted in issues of affordability for residents in high-risk flood zones. This affordability issue has raised congressional concerns about the cost effectiveness of balancing affordability against the need to ensure the NFIP's long-term fiscal solvency. Policy makers might also consider innovative approaches to minimize future flood damages. For example, Congress might examine ways to strengthen FEMA's Hazard Mitigation Assistance (HMA) programs that provide funds for projects that reduce the risk to individuals and property from natural hazards. Under the FEMA HMA program, local community officials develop projects that reduce flood damage and submit grant applications to the states—and eventually FEMA for funding. Debate on H.R. 3370 and other measures, which would delay the removal of pre-FIRM premium subsidies and grandfathered rates, may lead Congress to consider ways to balance FEMA's use of elevation rating for pre-FIRM and grandfathered rated properties against the program's statutory mandate for coverage to be reasonably priced and widely available. Resolving the actuarial, financial, and social tensions surrounding the affordability of flood insurance coverage would arguably require a three-pronged approach to policy analysis. The first policy analysis approach is to determine the scope of the affordability problem associated with the transition toward full-risk rates. In other words, could existing and potential policyholders afford the higher actuarial rates? But how do policy makers determine what is affordable and at what level of income? To address these policy questions, policy makers might choose to consider best practices in quantifying and mapping flood risks, including risk that accounts for future conditions, where to assign the risk (using "Elevation Rating" methods), and what behavior should be changed to reduce future flood losses and, thereby, strengthen the NFIP's long-term financial solvency. The second policy analysis approach to addressing the affordability issue could be to find ways to reconcile the NFIP's long-standing ratemaking procedures that distinguished between the full-risk rated actuarial premiums paid and the subsidy premium amounts that will be eliminated to address the long-term solvency of the NFIP. Given the expected increases in premium rates associated with pre-FIRM structures when elevation is used in the calculation, it is questionable whether means-tested vouchers designed to address the affordability concerns of low- to moderate-income households might be sufficient to make the insurance policies marketable. Traditional principles of insurance suggest that for an insurance market to exist the policy must be marketable to policyholders—that is, people who want to purchase the coverage and have the financial means to do so. The third policy analysis approach could be to explore alternative, innovative risk-financing options and ratemaking approaches with the aim of encouraging greater spatial and temporal (over time) spread of risk without the requirement to borrow from the U.S. Treasury. Appendix A. NFIP October 1, 2013 Rate Table: Zone AE, Single Family Residential Dwelling, Non-elevated with No Basement or Crawl Space Appendix B. Side-by-Side of H.R. 3370 and S. 1926

On July 6, 2012, President Barack Obama signed into law the Biggert-Waters Flood Insurance Reform Act of 2012 (Division F, Title II, P.L. 112-141; 126 Stat. 918) to reauthorize the National Flood Insurance Program (NFIP) through September 30, 2017, and make significant program changes designed to make the program more financially stable. To achieve long-term financial sustainability and ensure that flood insurance rates more accurately reflect the actuarial risk of flooding, the new law gradually phases out subsidized premiums and grandfathered policies for approximately 19% (or about 1.1 million policyholders) of the program's total number of policyholders. Under the Biggert-Waters Act, the Federal Emergency Management Agency (FEMA) began imposing premium rates based on the property's "elevation rate," which, in turn, is based on the property's lowest floor elevation relative to the Base Flood Elevation (BFE) for existing homes and businesses built prior to the community's initial Flood Insurance Rate Map (FIRM). Since 1973, these so-called pre-FIRM structures had been shielded from higher premium rates. The National Flood Insurance Act of 1968 (P.L. 90-448; 82 Stat. 572) included a provision for subsidizing pre-FIRM structures by charging less than full risk-based premiums for flood insurance because their construction took place before the application of the NFIP construction standards. These structures are also exempt from the NFIP's mitigation requirements unless they become substantially damaged or substantially improved. Thus, with the elevation of the property now being a factor in the rating process, owners of certain properties—that is, those property owners with federally insured mortgages residing in government-designated, flood-prone areas—now face relatively larger flood insurance premium rate increases. Importantly, this transition toward full-risk premium rates for generally older and more risky properties has occurred before FEMA's completion of a congressionally mandated affordability study The impact of moving to full-risk premiums by eliminating the pre-FIRM premium subsidies, as required by the Biggert-Waters Act, is being felt in virtually all 21,000 NFIP communities across the nation. The impact of elimination of the subsidies on non-principle residential properties (i.e., second homes), business properties, and new or lapsed policies has been particularly felt in communities with a relatively high proportion of high-risk flood-prone pre-FIRM properties. In addition to its impact on property owners, the elimination of the subsidy affects local community economic development as well as debates concerning how to equitably distribute the burden of recovering from flood events. Opponents of eliminating subsidized rates argue that the Biggert-Waters Act does not explicitly address the affordability concerns of existing policyholders in high-risk flood zones and FEMA does not have sufficient data on policyholders' ability to pay; however, the agency has begun implementing sharply higher flood insurance rates for some policyholders. Proponents of eliminating subsidized rates maintain that Congress explicitly found that ensuring the long-term financial stability of the NFIP is in the public interest and the Biggert-Waters law seeks to further this goal by transitioning subsidized rates to actual risk-based rates. Removal of premium subsidies and grandfathered policies would reduce taxpayer costs associated with a fiscally unsound government insurance program while reducing the arguably hidden financial incentives that encourage building in flood-prone and environmental sensitive coastal areas. The key policy questions facing Congress with respect to the post-reform NFIP issues include addressing the affordability issue; deciding whether, how, and when to privatize flood risk; exploring options for improving flood risk analysis and maps; and finding innovative new approaches to financing the nation's increasing exposure to hurricane-induced catastrophic floods and coastal hazards. On January 17, 2014, President Barack Obama signed into law the Consolidated Appropriations Act, 2014 (Division F, Title V, Section 572 of P.L. 113-76), that prohibits FEMA from implementing Section 100207 (the "grandfather" provision) of the Biggert-Waters Act, codified at Section 1308(h) of the 1968 Act, during FY2014. The Omnibus requires FEMA to cease any current planning and development for Section 100207. However, according to FEMA, because Section 100207 does not relate to changes to flood insurance rates that have already taken place, and the Omnibus does not roll back any rate increases that have already occurred, the effect of Section 572 of the Omnibus is that FEMA would not implement Section 100207 until 12 to 18 months after the start of FY2015. FEMA indicated that the agency will continue to map flood risk as authorized by current law. On January 31, 2014, the Senate passed S. 1926, the Homeowners Flood Insurance Affordability Act of 2014, to delay the increase in rates for six months after the later of the date on which FEMA proposes the draft affordability framework or the date on which FEMA certifies that the agency has implemented a flood mapping approach that employs sound scientific and engineering methodologies to determine varying levels of flood risk in all areas participating in the NFIP. The report to Congress would assess "methods for establishing an affordability framework for [NFIP], including methods to aid individuals to afford risk-based premiums under [NFIP] through targeted assistance rather than generally subsidized rates, including means-tested vouchers." Several other bills—H.Amdt. 121 (Cassidy) of H.R. 2217 (Carter), H.R. 2199 (Richmond), H.R. 3370 (Grimm), H.R. 3511 (Capuano), and S. 996 (Landrieu) have been introduced to delay implementation of the rate structure reform provisions of the new law and provide additional funding for the completion of the affordability study.

Most Recent Developments On January 22, 2004, the Senate adopted a cloture motion and approved theconference agreement on the FY2004 consolidated appropriations bill ( H. Rept.108-401 , H.R. 2673). The measure combined six annual appropriations measureswith the spending bill for the U.S. Department of Agriculture (USDA) and RelatedAgencies. The President signed the measure into law ( P.L. 108-199 ) on January 23,2004. Division A of P.L. 108-199 contains $80.6 billion in FY2004 funding forUSDA and related agencies, of which $16.9 billion is for discretionary programs and$63.7 billion is for mandatory programs. USDA Spending at a Glance The U.S. Department of Agriculture (USDA) carries out its widely variedresponsibilities through approximately 30 separate internal agencies and officesstaffed by some 100,000 employees. USDA is responsible for many activitiesoutside of the agriculture budget function. Hence, spending for USDA is notsynonymous with spending for farm programs. USDA gross outlays for FY2003 were $81.53 billion, including regular and supplemental spending. The mission area with the largest gross outlays ($41.3billion or 50% of spending) was for food and nutrition programs -- primarily thefood stamp program (the costliest single USDA program), various child nutritionprograms, and the Supplemental Nutrition Program for Women, Infants and Children(WIC). The second largest mission area in terms of total spending is for farm andforeign agricultural services, which totaled $24.3 billion, or 30% of all USDAspending in FY2003. Within this area are the programs funded through theCommodity Credit Corporation (e.g., the farm commodity price and income supportprograms and certain mandatory conservation and trade programs), crop insurance,farm loans, and foreign food aid programs. Mandatory vs. Discretionary Spending Approximately three-fourths of total spending within the U.S. Department of Agriculture is classified as mandatory, which by definition occurs outside the controlof annual appropriations. Currently accounting for the vast majority of USDAmandatory spending are: the farm commodity price and income support programs(including ongoing programs authorized by the 2002 farm bill and emergencyprograms authorized by various appropriations acts); the food stamp program andchild nutrition programs; the federal crop insurance program; and various agriculturalconservation and trade programs. Although these programs have mandatory status, many of these accounts ultimately receive funds in the annual agriculture appropriations act. For example,the food stamp and child nutrition programs are funded by an annual appropriationbased on projected spending needs. Supplemental appropriations generally are madeif and when these estimates fall short of required spending. An annual appropriationalso is made to reimburse the Commodity Credit Corporation for losses it incurs infinancing the commodity support programs and the various other programs itfinances. The other 25% of the USDA budget is for discretionary programs, which are determined by funding in annual appropriations acts. Among the major discretionaryprograms within USDA are Forest Service programs; certain conservation programs;most of its rural development programs, and research and education programs;agricultural credit programs; the supplemental nutrition program for women, infants,and children (WIC); the Public Law (P.L.) 480 international food aid program; meatand poultry inspection; and food marketing and regulatory programs. Funding for allUSDA discretionary programs (except for the Forest Service) is provided by theannual agriculture appropriations act. Funding for Forest Service programs isincluded in the annual Interior appropriations act. Table 1. USDA and Related Agencies Appropriations, FY1995 to FY2003 (budget authority in billions of dollars) Note: Includes regular annual appropriations for all of USDA (except the Forest Service), the Foodand Drug Administration, and the Commodity Futures Trading Commission. Excludes all mandatoryemergency supplemental appropriations. The FY2003 level reflects the 0.65% across-the-boardrescission applied to all discretionary programs funded in the FY2003 Consolidated AppropriationsAct ( P.L. 108-7 ), except for the WIC program which was specifically exempted. Source: House Appropriations Committee. A key distinction between mandatory and discretionary spending involves how these two categories of spending are treated in the budget process. Congressgenerally controls spending on mandatory programs by setting rules for eligibility,benefit formulas, and other parameters rather than approving specific dollar amountsfor these programs each year. Eligibility for mandatory programs is usually writteninto authorizing law, and any individual or entity that meets the eligibilityrequirements is entitled to the benefits authorized by the law. Spending fordiscretionary programs is controlled by annual appropriations acts. The 13subcommittees of the House and Senate Appropriations Committees originate billseach year which decide how much funding to devote to continuing current activitiesas well as any new discretionary programs. Congressional Action The agriculture subcommittee of the House Appropriations Committee and thefull House Appropriations Committee completed markup of the FY2004appropriations bill for USDA and related agencies on June 17, 2003 and June 25,2003, respectively. The FY2004 House measure ( H.R. 2673 , H.Rept.108-193 ) was officially reported on July 9, 2003, and approved by the full House onJuly 14, 2003. Following the House action, the agriculture subcommittee of theSenate Appropriations Committee completed markup of its version of the FY2004agricultural appropriations bill on July 15 and July 17, 2003, respectively, andreported the measure ( S. 1427 , S.Rept. 108-107 ) on July 17. Senatefloor action was completed on November 6, 2003, following the adoption ofapproximately 49 amendments. The Senate substituted the text of H.R.2673 with the text of S. 1427 as amended, and then passedH.R. 2673 as amended. On November 25, 2003, H.R. 2673 became a consolidated appropriations measure when the conference agreement ( H. Rept. 108-401 ) on H.R. 2673 was filed, incorporating six other FY2004 appropriations measures with USDAfunding. The full House approved the conference agreement on December 8, 2003. Senate action was completed on January 22, 2004, when a cloture motion wasadopted followed by Senate passage. The President signed the measure into law( P.L. 108-199 ) on January 23, 2004. Because final action on the FY2004 USDA spending bill (as well as several other annual appropriations measures) was not completed in time for the beginningof the fiscal year (October 1, 2003), spending for USDA and related agencies was governed by several continuing resolutions (most recently P.L. 108-135 , which wasin effect until enactment of the consolidated appropriations measure on January 23,2004.) P.L. 108-135 allowed all departments and agencies for which FY2004spending bills had not been completed to be funded at the FY2003 level until theearlier of: enactment of a final spending measure or January 31, 2004. The enacted consolidated appropriations measure contains $80.63 billion for USDA and related agencies for FY2004 (excluding the effects of a 0.59%across-the-board rescission in all discretionary, non-defense accounts, as required inthe final law). As originally reported by their respective committees, H.R. 2673 and S. 1427 contained nearly identicalappropriations of $77.49 billion. However, the Senate added $2.2 billion to themandatory food stamp account to reflect more recent projections of programparticipation, and conferees added $1 billion to the food stamp reserve account. Justover three-fourths ($63.7 billion) of the spending in the agriculture portion (DivisionA) of P.L. 108-199 is classified as mandatory spending, including food stamps, childnutrition programs, crop insurance, and the various farm support programs fundedthrough USDA's Commodity Credit Corporation. The balance of spending ($16.9 billion) in Division A is for discretionaryprograms, which is $198 million below the Administration's request and $61 millionbelow both the House- and Senate-passed levels. Discretionary spending in DivisionA of the measure is $963 million below the FY2003 enacted level includingsupplementals. Agriculture appropriators were allocated nearly $1 billion less forFY2004 discretionary accounts than the FY2003 level including supplementals. Tohelp achieve this goal, the conference agreement includes an FY2004 appropriationfor foreign food aid that is $572 million below the FY2003 level (which wasbolstered by supplemental spending). Also, the conference agreement containsprovisions that limit or prohibit spending on certain mandatory conservation, ruraldevelopment, and research programs, which in total reduced spending in theseaccounts by approximately $650 million from authorized levels. The measure did not include a Senate provision that would have relaxed the licensing requirement for travel to Cuba for the sale of agricultural and medicalproducts. Conferees also rejected a House provision that would have blocked FDAfrom preventing individuals from importing cheaper FDA-approved prescriptiondrugs from foreign suppliers. Table 2. Congressional Action on FY2004 Appropriations for the U.S. Department of Agriculture and RelatedAgencies ** = Pending (1) Before Senate floor action on the FY2004 appropriations measure, the Senatesubstituted the text of S. 1427 for the text of the House-passed bill( H.R. 2673 ), and then after considering further amendments, adopted H.R. 2673 , as amended. (2) Six other appropriations bills were included in H.Rept. 108-401 as part of anFY2004 consolidated appropriations bill. FY2004 Agriculture Appropriations: Spending Levels and CurrentIssues The following sections compare the agriculture provisions of the FY2004consolidated appropriations act ( P.L. 108-199 , H.Rept. 108-401 ) with theHouse-passed version of the FY2004 agriculture appropriations bill( H.R. 2673 ), the Senate-passed version of the measure (originallyreported as S. 1427 , but subsequently amended and substituted as thetext for H.R. 2673 ), the FY2004 Administration request, and the enactedconference agreement on the FY2003 omnibus appropriations bill ( P.L. 108-7 ) forvarious mission areas and agencies within USDA, and for the Food and DrugAdministration and the Commodity Futures Trading Commission. Also see the tableat the end of the report for a tabular summary. Commodity Credit Corporation Most spending for USDA's mandatory agriculture and conservation programs was authorized by the 2002 farm bill ( P.L. 107-171 ), and is funded through USDA'sCommodity Credit Corporation (CCC). The CCC is a wholly owned governmentcorporation. It has the legal authority to borrow up to $30 billion at any one timefrom the U.S. Treasury. These borrowed funds are used to finance spending forongoing programs such as farm commodity price and income support activities andvarious conservation, trade, and rural development programs. The CCC has also beenthe funding source for a large portion of emergency supplemental spending over theyears, particularly for ad-hoc farm disaster payments, and direct market losspayments to growers of various commodities which have been provided in responseto low farm commodity prices. The CCC must eventually repay the funds it borrows from the Treasury. Because the CCC never earns more than it spends, its losses must be replenishedperiodically through a congressional appropriation so that its $30 billion borrowingauthority (debt limit) is not depleted, which would render the corporation unable tofunction. Congress generally provides this infusion through the regular annualUSDA appropriation law. Because of the degree of difficulty in estimating itsfunding needs, which is complicated by crop and weather conditions and otheruncontrollable variables, the CCC in recent years has received a "current indefiniteappropriation," which in effect allows the CCC to receive "such sums as arenecessary" during the fiscal year for previous years' losses and current year's losses. As in past years, the Administration requested an indefinite appropriation for the CCC for FY2004, which the Administration estimated at $17.275 billion, comparedwith an estimated indefinite appropriation of $16.285 billion provided in FY2003. The final FY2004 consolidated appropriations act ( P.L. 108-199 ) and the originalHouse- and Senate-passed FY2004 agriculture appropriations bills ( H.R. 2673 ) all concur with this request. Dairy Price Support Provision. A general provision in the final consolidated appropriations act requires the Secretaryof Agriculture to more diligently support the farm price of milk at the farmbill-mandated support price of $9.90 per hundredweight (cwt.). Under the dairy pricesupport program, USDA indirectly supports the farm price of milk by standing readyto purchase surplus cheese, butter, and nonfat dry milk from processors at a price thatshould allow the processors to pay at least the support price to farmers for the milkused in the manufacturing of those products. Supporters of this provision argued thatthe government purchase prices for surplus dairy products are set too low by USDAto support the farm price of milk at $9.90 per cwt. Late in 2002 and in early in 2003the market price of farm milk used for cheese fell below the $9.90 support price foreight consecutive months. USDA officials say they are evaluating the situation andpoint out that the authorizing statute for the dairy price support program ( P.L.107-171 , the 2002 farm bill) requires USDA to set dairy purchase prices so that theannual farm milk price on average is supported at $9.90, not the monthly price. Formore information on the dairy price support program, see CRS Issue Brief IB97011, Dairy Policy Issues . Crop Insurance The federal crop insurance program is administered by USDA's Risk Management Agency (RMA). It offers basically free catastrophic insurance toproducers who grow an insurable crop. Producers who opt for this coverage havethe opportunity to purchase additional insurance coverage at a subsidized rate. Mostpolicies are sold and completely serviced through approved private insurancecompanies that have their program losses reinsured by USDA. The annualagriculture appropriations bill makes two separate appropriations for the federal cropinsurance program. It provides discretionary funding for the salaries and expensesof the RMA. It also provides "such sums as are necessary" for the Federal CropInsurance Fund, which funds all other expenses of the program, including premiumsubsidies, indemnity payments, and reimbursements to the private insurancecompanies. Annual spending on the crop insurance program is difficult to predict inadvance and is dependent on weather and crop growing conditions and farmerparticipation rates. The Administration had estimated that the mandatory-funded Federal Crop Insurance Fund would require an FY2004 appropriation of $3.368 billion, comparedwith an estimated FY2003 appropriation of $2.886 billion. As is customary, the final consolidated appropriations act ( P.L. 108-199 ) concurs with the Administration'sestimate and provides "such sums as may be necessary" for the fund. Legislativeenhancements ( P.L. 106-224 ) made to the crop insurance program in 2000 greatlyincreased the federal subsidy of insurance premiums. The increased subsidy coupledwith large program losses associated with the extended drought in various parts ofthe country have contributed to increased program costs in recent years. For the discretionary component of the crop insurance program, P.L. 108-199 provides $71.42 million, as proposed by the Senate, for the salaries and expenses ofUSDA's Risk Management Agency (RMA). The final FY2004 level is just $87,000below the original House-passed level, $6.98 million below the Administration'srequest, but up $1.26 million from the FY2003 enacted level of $70.25 million. TheAdministration had requested a nearly 12% increase for FY2004, mainly to coverproposed information technology initiatives within RMA. The Administration request also had contained a legislative proposal to limit the amount of subsidy that accrues to the private insurance companies participating inthe program. The House- and Senate-passed versions of the bill, as well as the finalact, do not concur with the Administration proposal. The Administration maintainsthat the increased farmer participation in the program following the 2000 legislativeenhancements has resulted in windfall profits for the private insurance companies.Hence, the FY2004 budget request contained a proposal to cap the reimbursementthat the private companies receive from the federal government for their deliveryexpenses at 20% of premium for FY2004 and subsequent years, instead of the currentcap of 24.5%. According to Congressional Budget Office estimates, enactment ofthis proposal would have saved $81 million in FY2004. In report language, theSenate Appropriations Committee stated that the proposed reimbursement limitationwould force some private companies out of business, and that the reimbursement rateshould be negotiated in the standard reinsurance agreement between the privatecompanies and the federal government, rather than through a legislative mandate. Separately, the Agricultural Risk Protection Act of 2000 ( P.L. 106-224 ), as amended by the 2002 farm bill, authorized $20 million in each year (FY2003-2007) for an Agricultural Management Assistance program, which assists crop growers instates that are viewed as underserved by the crop insurance program (13 Northeaststates, Utah, and Wyoming.) The final consolidated appropriations act ( P.L. 108-199 )concurs with a Senate-passed provision that requires that $15 million of the funds beused for sharing in the cost of producers' conservation practices, as prescribed in thelaw, and $2 million for certification of organic growers in the states. In FY2003, theSecretary used virtually all of the $20 million to further subsidize crop insurancepremiums of farmers in these states. Current law allows the funding to be used foreither conservation or risk management practices, but leaves the mix of spending tothe discretion of the Secretary of Agriculture. Separately, report language in the final conference agreement urges the Secretary to expand the number of states eligible for a pilot livestock insuranceprogram from the current 10 states to the maximum number possible, includingMissouri, North Dakota, Ohio, South Dakota, West Virginia, and Wisconsin. Farm Service Agency While the Commodity Credit Corporation serves as the funding mechanism for the farm income support and disaster assistance programs, the administration of theseand other farmer programs is charged to USDA's Farm Service Agency (FSA). Inaddition to the commodity support programs and most of the emergency assistanceprovided in recent supplemental spending bills, FSA also administers USDA's directand guaranteed farm loan programs, certain conservation programs and domestic andinternational food assistance and international export credit programs. FSA Salaries and Expenses. This account funds the expenses for program administration and other functions assignedto the FSA. These funds consist of appropriations and transfers from CCC exportcredit guarantees, from P.L. 480 loans, and from the various direct and guaranteedfarm loan programs. All administrative funds used by FSA are consolidated into oneaccount. For FY2004, the final consolidated appropriations act ( P.L. 108-199 )provides a total appropriation of $988 million for FSA salaries and expenses, as inthe Senate-passed bill and requested by the Administration. The final FY2004 levelis below the House-passed level of $1.02 billion, but above the regular annualappropriation of $970.4 million for FY2003. The final FY2004 level also is belowthe total FY2003 level that included supplemental authority for FSA to tap the CCCfor $70 million to cover the administrative costs associated with implementing adhoc disaster assistance authorized in the emergency provisions of P.L. 108-7 . Report language accompanying the House bill instructed USDA not to shut down or consolidate any local FSA offices unless rigorous analysis proves suchaction to be cost-effective. The Senate committee also expressed concern about FSAdownsizing and directed the Secretary to consider the impact further reductions willhave on farm services before considering closing additional offices. FSA Farm Loan Programs. Through FSA farm loan programs, USDA serves as a lender of last resort for familyfarmers unable to obtain credit from a commercial lender. USDA provides directfarm loans and also guarantees the timely repayment of principal and interest onqualified loans to farmers from commercial lenders. FSA farm loans are used tofinance the purchase of farm real estate, help producers meet their operatingexpenses, and help farmers financially recover from natural disasters. Some of theloans are made at a subsidized interest rate. An appropriation is made to FSA eachyear to cover the federal cost of making direct and guaranteed loans, referred to asa loan subsidy. Loan subsidy is directly related to any interest rate subsidy providedby the government, as well as a projection of anticipated loan losses caused byfarmer non-repayment of the loans. The Administration requested an appropriation of $210.7 million for FY2004 to subsidize the cost of making $3.52 billion in direct and guaranteed FSA loans. The enacted FY2003 loan subsidy was $226.8 million to support FSA loans totaling$3.94 billion. Most of the proposed $420 million decline in requested loan authoritywas accounted for in a proposed $300 million reduction in unsubsidized guaranteedfarm operating loans (from $1.7 billion authorized in FY2003 to an estimated $1.4billion in FY2004). The Administration contends that the proposed reduction infunding for this program, which finances farmers' purchases of feed, seed, fertilizer,livestock and machinery, is consistent with historical demand. The FY2004 consolidated appropriations act ( P.L. 108-199 ) provide cuts in FSA farm loans beyond those requested by the Administration. Conferees provided anappropriation of $196.7 million to subsidize the cost of making $3.26 billion in directand guaranteed FSA loans in FY2004. The appropriation level is above the $194.3million provided in the Senate-passed version, but below the House-passed versionof $200.2 million. As in the Administration request, most of the reduction in loanauthority in the final appropriations act is within the unsubsidized guaranteedoperating loan program account. Natural Resources and Environment The natural resources and environment mission area within USDA is implemented through the programs of the Natural Resources Conservation Service(NRCS), the Farm Service Agency (FSA), and the Forest Service. (Funding for theForest Service is provided in the annual Interior appropriations bill.) Conservationspending combines discretionary spending, which has totaled more then $1 billionannually in recent years, and mandatory funding, which is funded through theCommodity Credit Corporation and is estimated to total just under $3 billion inbudget authority in FY2004, according to the March 2003 Congressional BudgetOffice baseline. The NRCS administers all the discretionary conservation programs. Discretionary Programs. The final FY2004 consolidated appropriations act ( P.L.108-199 ) provides a total of $1.033billion for the five discretionary conservation line items for FY2004, an increase of$12 million from the FY2003 enacted level of $1.021 billion. The earlierHouse-passed version of the agriculture appropriations bill (H.R. 2673) provided$1.045 billion, while the Senate-passed version of H.R. 2673 provided $973.2million. The House version was an increase of $23.5 million from the FY2003enacted level, while the Senate bill was a decrease of $48.1 million from that amount. The Administration had requested $1.241 billion. The Administration total isdifficult to compare directly with congressional amounts because the requestincluded the creation of a new discretionary line item of $432 million to pay fortechnical assistance in support of the mandatory conservation programs, which wouldhave been funded in part, by taking money from other accounts. The conferencecommittee and both chambers rejected this request. For more information on thisissue, see "Technical Assistance Funding," below. The enacted FY2004 level differs from the House and Senate bills, the Administration request, and the FY2003 funding levels in almost all cases for the fivediscretionary programs. P.L. 108-199 provides $853.0 million for ConservationOperations, $3.0 million more than the House-passed bill and $23.4 million morethan the Senate-passed bill. (The FY2003 appropriation was $819.6 million, and theAdministration requested $703.6 million for FY2004). P.L. 108-199 provides $10.6million for Watershed Surveys and Planning, $0.5 million less than the House billand $0.6 million more than the Senate bill. (The FY2003 appropriation was $11.1million and the Administration requested $5.0 million for FY2004.) For Watershedand Flood Prevention Operations, P.L. 108-199 provides $87.0 million, $3.0 millionless than the House and $32 million more than the Senate. (The FY2003appropriation was $109.3 million and the Administration requested $40 million forFY2004.) For Watershed Rehabilitation, P.L. 108-199 provides $29.8 million, $10.2million less than the House bill and the same as the Senate bill. (The FY2003appropriation was also $29.8 million and the Administration requested $10.0 millionfor FY2004.) For the Resource Conservation and Development Program, the P.L.108-199 provides $51.9 million, $1.0 million less than the House bill and $0.9million more than the Senate bill. (The FY2003 appropriation was $50.7 million andthe Administration request was $49.9 million.) The use of earmarks within two discretionary conservation program accounts, Conservation Operations and Watershed and Flood Prevention Operations, continuesto be substantial. The conference committee report identifies 135 earmarks forConservation Operations, and retains all other earmarks that were in the reports thataccompanied both the House and Senate bills. The final consolidated appropriationsact includes very few earmarks for Watershed Programs, with some identified inreport language and others in the general provisions of the measure. For comparison,the FY2003 appropriation included 214 congressional earmarks with a total value ofmore than $200 million, according to a compilation prepared by the NRCS budgetoffice. Both the number and total value of earmarks have been growing in recentyears, and for both of these accounts, the growth in earmarks has exceeded thegrowth in overall program funding some years. Some conservation supporters haveexpressed concern that the increased use of earmarks means that less money isavailable for those pressing conservation priorities that do not coincide with theearmarked projects and activities. The conference report specifies that theseearmarks are to be in addition to state funding allocations, and requires NRCS toreport to both appropriations committees on how Conservation Operations funds arebeing allocated among states within 45 days of enactment. Mandatory Programs. Annual or total funding levels for each of the mandatory conservation programs is contained inthe omnibus 2002 farm bill ( P.L. 107-171 ). (For two of the programs, theConservation Reserve and the Wetlands Reserve, limits are set in enrolled acresrather than dollars, so savings are made by limiting the number of acres that can beenrolled.) The Conservation Reserve Program (CRP) remains the largestconservation program in FY2004, according to the Congressional Budget Office'sAugust 2003 estimates. Outlays for all mandatory conservation programs areestimated to rise from a total of $2.86 billion in FY2003 to $2.99 billion in FY2004. However, P.L. 108-199 limits (and in one case completely prohibits) funding for seven of the mandatory programs, for total estimated savings of $240.6 million. These mandatory program adjustments include: limiting enrollment in the Wetland Reserve Program to 189,177 acres instead of 250,000 acres, for an estimated savings of $69.0million; limiting spending under the Environmental Quality IncentivesProgram (EQIP) by $25.0 million, to $975 million; limiting spending under the Conservation Security Program to $41.4 million, which is $11.6 million below the Congressional Budget Officeestimate; eliminating mandatory spending on the Dam Rehabilitation Program, with a savings of $95.0 million; limiting the Ground and Surface Water Conservation Program by $9.0 million, to $51.0 million; limiting the Wildlife Habitat Incentives Program by $18 million, to $42.0 million; and limiting the Farmland Protection Program (FPP) (also called the Farm and Ranch Lands Protection Program) by $13.0 million, to $112million. The total reduction in mandatory programs under the final appropriations act was greater than under the bills that passed either chamber. The House-passed billlimited funding for four programs to a total of $229 million below authorized levels,while the Senate-passed bill limited funding for five programs for an estimatedreduction of $204 million. P.L. 108-199 also amends another mandatory program,the Agricultural Management Assistance Program, modifying an amendment that hadbeen adopted in the Senate bill. The final act provides $14 million to conservationprograms in 15 specified states, $1 million to organic certification assistance, and $5million to financial management activities to reduce risk each year from FY2004through FY2007. This provision responds to an action taken by USDA in FY2003to channel almost all of the authorized total of $20 million to further subsidize cropinsurance premiums. The Administration's budget submission had proposed to limit total funding for mandatory conservation programs to $285 million below the authorized levels byreducing funding in five programs. In the Administration request, the reductionwould have offset part of the cost of establishing a proposed new line item to fundtechnical assistance in support of mandatory programs, a proposal both chambersrejected (see discussions above and below). P.L. 108-199 concurs with theAdministration proposals for the Dam Rehabilitation Program, the Ground andSurface Water Conservation Program, the Wildlife Habitat Incentives Program, andthe Farmland Protection Program (now called the Farm and Ranch Lands Programby USDA). Technical Assistance Funding. The rapid expansion in funding for conservation programs and activities hasincreased requests for technical assistance. Technical assistance had been funded inpart through the Commodity Credit Corporation (CCC), in part by reprogrammingcarry-over funds, and in part by using funds from Conservation Operations, adiscretionary program, to pay for this assistance. A statutory cap on the use of CCCfunds to provide such assistance for mandatory conservation programs, combinedwith limits from the other sources and rapid growth in these programs, has createda funding shortfall. Congress attempted to address these funding concerns in the2002 farm bill ( P.L. 107-171 ). However, in late 2002, the Office of Management andBudget, supported by a Department of Justice opinion, ruled that the farm bill didnot remove the CCC cap and the Administration would have to continue to limitmandatory technical assistance funding through the CCC. The Administration initially sought to address this problem by proposing to create a new farm bill technical assistance line item in FY2003, funded at $333million. This would have provided the technical assistance for all of the mandatoryconservation programs (authorized at a total of $1.2 billion), plus the ConservationReserve Program, a mandatory program authorized in acres rather than dollars. Congress rejected this proposal, and specifically prohibited the use of discretionaryfunds (funds from the Conservation Operations account) to implement any mandatoryconservation programs. This prohibition, combined with a retention of the cap onCCC funds, meant that some of the mandatory programs were significant "donorprograms" by funding technical assistance for other programs, thereby leaving lessmoney available to implement their activities. USDA estimated that four programswere donor programs, with the largest donations being made from the EQIP ($107.9million) and the Farmland Protection Program ($27.6 million). The Administration again proposed a new discretionary technical assistance line item for FY2004 and Congress again rejected it. P.L. 108-199 includes a provisionwithin each of the five discretionary accounts that prohibits using these funds to payfor technical assistance in support of the mandatory conservation programs. TheHouse bill, as reported, contained a provision prohibiting the spending of funds in theConservation Operations account for this purpose. This provision was removed ina floor amendment. The Senate bill contained provisions prohibiting funding fortechnical assistance for mandatory programs from all the discretionary programsexcept the Resource Conservation and Development Program. The conferencecommittee does not otherwise address the issue. Earlier, during floor debate on theagriculture appropriations bill, the Senate defeated an amendment that would haveprohibited technical assistance funding for the Conservation Reserve Programcoming from four programs (EQIP, Farmland Protection, Grassland Reserve, andWildlife Habitat Incentives), so there will again be donor programs among themandatory programs unless Congress enacts freestanding legislation, such as H.R. 1907 , that would prohibit funds in three of the mandatory programs(EQIP, the Grasslands Reserve Program, and Farmland Protection) from being usedfor technical assistance for any of the other mandatory programs. Other Provisions. Also in P.L. 108-199 are general provisions that (1) waive cost sharing requirements for theEmergency Watershed Protection Program to repair or prevent damage to non-federallands in watersheds that have been affected by fires initiated by the federalgovernment; (2) prohibit making land enrolled in the CRP and planted to hardwoodtrees ineligible for re-enrollment; and (3) prohibit NRCS from reorganizing regionalconservationists and regional offices without approval by the appropriationscommittees. Additionally, report language for the Office of the Secretary encouragesimplementation of a new program to establish a conservation corridor along theDelmarva peninsula; encourages a study of cropping techniques in the UpperMidwest; and requires consultation with the agriculture committees beforeproceeding with possible mergers involving the NRCS and FSA. Division H of P.L.108-199 also includes conservation provisions that are not part of the regular annual funding for conservation programs. One provisionauthorizes the Conservation Security Program (CSP) through FY2007 rather thanFY2013, and removes a lifetime cap of $3.77 billion on total program spending thatwas placed on the CSP by the FY2003 consolidated appropriations act ( P.L. 108-7 )so that the remainder of the estimated spending could be used to offset the cost ofdisaster assistance. Other separate provisions in the FY2004 consolidatedappropriations act make disaster assistance funds available to deal with the resourceproblems stemming from the wildfires in California during the fall of 2003, including$150 million to the Emergency Watershed Protection Program, $12.5 million to theTree Assistance Program, and $12 million to the Emergency Conservation Program.The cost of these wildfire assistance provisions is offset by a mandated rescission of$225 million from the Federal Emergency Management Agency (FEMA). TheCalifornia wildfires are also addressed in the general provisions of the agriculturetitle, where a provision waives the cost-sharing requirements for funding andassistance under the Emergency Watershed Protection Program. Agricultural Trade and Food Aid USDA's international activities include both discretionary and mandatory programs with the former funded by appropriations and the latter funded withborrowing from USDA's Commodity Credit Corporation. Both the discretionary andthe mandatory international programs are authorized in the 2002 farm bill ( P.L.107-171 ). The FY2004 consolidated appropriations act ( P.L. 108-199 ) provides$1.512 billion for discretionary USDA trade programs, namely P.L. 480 food aid, thenew McGovern-Dole international food for education program (IFEP), salaries andexpenses of USDA's Foreign Agricultural Service, and administrative expenses forCCC export programs. The original House-passed agriculture appropriations bill( H.R. 2673 ) provided an appropriation of $1.523 billion for theseactivities, while the Senate-passed version provided an appropriation of $1.487billion. Most of the difference between the two bills was accounted for by a Senaterecommendation of $25 million for IFEP, in contrast to a House-recommendedappropriation of $56.9 million. The conference report resolved this difference byappropriating $50 million for IFEP. For the mandatory programs, which include both agricultural export and other food aid programs, the Administration's FY2004 budget proposal estimates aprogram level of around $4.7 billion. The final FY2004 appropriations measureplaces no new funding limits on the mandatory agricultural trade and food aidprograms; it does, however, make permanent a prohibition, first incorporated inappropriations measures in FY1993, on the use of USDA funds to promote the saleor export of tobacco or tobacco products. Foreign Agricultural Service. For FAS, which administers USDA's international programs, P.L. 108-199 appropriates$132.1 million, considerably less than the $140.8 million requested by theAdministration. House and Senate measures had recommended $133.9 million and$131.6 million respectively. Neither measure included the Administration's requestfor a $5 million USDA contribution to the Montreal Protocol Fund. The MontrealProtocol is an international agreement on limiting substances that deplete the ozonelayer. Additionally, P.L. 108-199 allots to FAS the sum of $500,000 for cross-cuttingtrade negotiations and biotechnology activities. This allocation is part of anappropriation of $3.3 million for such activities. Other USDA agencies that receivetrade-biotechnology allotments in the conference report include the Office of theSecretary ($1.165 million), APHIS ($1.0 million), and GIPSA ($150,000). Food Aid. For P.L. 480 commodity sales and donations, P.L. 108-199 provides an appropriation of $1.326billion, an amount identical with the Senate-passed amount and only $2 million lessthan recommended in the House-passed measure. Of that amount, $1.192 billion isfor commodity donations for emergency and non-emergency activities under P.L. 480Title II. USDA administers P.L. 480 commodity sales and IFEP, while the U.S.Agency for International Development (USAID) administers humanitarian donationsunder P.L. 480 Title II. The conferees direct the Administration not to place arbitrarylimits on monetization (i.e., sales of donated commodities for local currencies) underTitle II, but rather to base approvals of food aid proposals on the merits of programplans to promote food security and improve people's lives, not on the level ofmonetization. The FY2004 bill authorizes the transfer to Title II of any balances,recoverables, or reimbursements that remain available to P.L. 480 Title III (afood-for-development program, first established in 1990, that has not received anappropriation in recent years). The new food aid program, IFEP, authorized in the 2002 farm bill ( P.L. 107-171 ), receives an FY2004 appropriation of $50 million. IFEP will providecommodity donations and associated finance and technical assistance to carry outschool and child feeding programs in foreign countries. The 2002 farm billauthorized $100 million of CCC funding for IFEP in FY2003 but stipulated that,beginning in FY2004, IFEP must be funded by appropriations. The bill suggests,however, that the Secretary investigate the use of other resources, such as Section416(b) food aid (see below), to carry out activities consistent with the goals of IFEP. The appropriation for food aid in P.L. 108-199 is $377.6 million less than the amount appropriated for FY2003. The regular FY2003 appropriation for food aidwas augmented by $369 million for P.L. 480 Title II programs in the EmergencySupplemental Wartime Appropriations Act of 2003 ( P.L. 108-11 ). P.L. 108-11 included $69 million toward partial replenishment of releases of commodities from the Emerson Trust used to meet urgent food needs in Africa, Afghanistan, and Iraq;$150 million to finance previously approved but unfunded FY2003 P.L. 480 Title IIprojects, and $150 million in additional food aid for Africa, Iraq, and Afghanistan. The President's budget provides no estimate of the value or volume of commodities that could be released from the Emerson Trust (primarily a commodityreserve), which was used extensively in FY2003 to respond to food emergencies inAfrica and Iraq. In FY2003, the Secretary of Agriculture announced availability from the Emerson Trust of 200,000 tons of wheat for emergency relief in the Hornof Africa (Ethiopia and Eritrea) and 600,000 tons of wheat for emergency relief inIraq. Of the total amount made available, only about half was used (400,000 metrictons). USDA estimates that about 1.6 million metric tons of wheat now remain inthe trust, which is authorized to hold up to 4 million metric tons of wheat, corn,sorghum, and rice. The appropriations measure provides no additional funding forreplenishment of the Emerson Trust. Instead, it limits to $20 million the amount ofFY2004 P.L. 480 funds that could be used to reimburse the trust for the release ofcommodities to meet emergency food aid needs. Other food aid programs include Food for Progress (FFP) which provides commodities to countries that are introducing and expanding free enterprise in theiragricultural economies and Section 416(b) commodity donations. The President'sbudget envisions $151 million of CCC funding for FFP; some funding for FFP alsowill come from appropriations for P.L. 480 Title I, which P.L. 108-199 set at $132million. USDA estimates that about $119 million of surplus nonfat dry milk will bemade available as commodity donations under Section 416(b) in FY2004. Theconference report accompanying P.L. 108-199 directs the Secretary of Agriculture,to the extent practicable, to make available $25 million in Section 416(b)commodities to mitigate the effects of HIV/AIDS. Export Programs. Mandatory (CCC-funded) programs to promote exports include the Export EnhancementProgram (EEP), the Dairy Export Incentive Program (DEIP), CCC Export CreditGuarantee Programs, the Market Access Program (MAP), and the Foreign MarketDevelopment Program (FMDP). None of these mandatory programs require anannual appropriation. In the EEP and DEIP programs, USDA makes cash bonuspayments to exporters of U.S. agricultural commodities to enable them to be pricecompetitive when U.S. prices are above world market prices. EEP has been littleused in recent years. No EEP bonuses were provided in FY2002 or FY2003. Reflecting this program experience, the President's budget assumes a program levelof $28 million in FY2004, compared with $478 million authorized for EEP in the2002 farm bill. Consequently, USDA would retain some flexibility to increase thelevel of EEP subsidies. For DEIP, the Administration expects a program level of $57million for FY2004. The President's budget projects an overall program level of $4.2 billion in FY2004 for CCC export credit guarantee programs, which provide paymentguarantees for the commercial financing of U.S. agricultural exports. While thisprojection is virtually the same as for FY2003, the actual level of guarantees willdepend on demand for credit, market conditions, and other factors. Of the amountof guarantees expected to be issued in FY2004, $4 billion would be made availablefor GSM (General Sales Manager)-102 short-term guarantees of up to 3 years, whileGSM-103 intermediate-term guarantees (3 to 10 years) would be allocated $18million. For export market development, the budget proposes $125 million for the Market Access Program and $34.5 million for the Foreign Market DevelopmentProgram, as required by the 2002 farm bill. Both programs support the developmentand maintenance of export markets for U.S. agricultural products. However, MAPmainly promotes high value products, including brand-name products, while FMDPpromotes generic commodities. Funding for U.S. agricultural export and food aid programs could be affected by ongoing WTO agricultural trade negotiations. The United States has proposedthat agricultural export subsidies be eliminated, while the European Union, whichopposes complete elimination of such subsidies, has conditioned its willingness tonegotiate reductions in export subsidies on the inclusion of export credit programs(such as CCC export credit guarantees) and food aid based on surpluses (such assection 416(b)) on the WTO agriculture negotiating agenda. The EU and othertrading partners charge that the U.S. credit program has a subsidy element (althoughit is much less than the subsidy represented by the EU's own export subsidy program)and gives the United States an unfair competitive advantage in exporting certainagricultural commodities. The EU and other U.S. trading partners, such as Australia, Brazil, and a number of agricultural exporting developing countries, also have raised the issue of largeU.S. food aid shipments in ongoing WTO agriculture negotiations. They havesuggested that the United States is using food aid to get around its export subsidyreduction commitments made in the 1994 Uruguay Round Agriculture Agreement. The United States has countered that its food aid shipments, though large, are madein conformity with WTO rules, and are being made available to countries with foodneeds or used for development programs. In ongoing WTO agriculture negotiations, the United States has agreed to the principle of establishing new rules and disciplines for export credit guarantees andfor food aid. However, those negotiations have not yielded agreements on detailedproposals for modifying either program. For more information on the status ofnegotiations on export credits and food aid, see CRS Report RL32053 , Agriculturein WTO Negotiations . Other International Provisions. P.L. 108-199 includes an FY2004 appropriation of $3 million to finance BillEmerson and Mickey Leland Hunger Fellowships as authorized in P.L. 108-58 . These fellowships, administered by the Congressional Hunger Center, honorEmerson and Leland, now deceased, who were, respectively, ranking member andchairman of the House Select Committee on Hunger, which was eliminated alongwith other House Select Committees in 1995. Cuba Trade. P.L. 108-199 did notadopt language included in the Senate-passed version of the FY2004 agricultureappropriations bill that would have relaxed the licensing requirement for travelingto Cuba to pursue opportunities to sell agricultural and medical products. The Senatelanguage was reportedly in response to a Treasury Department decision in June 2003to deny the license application of a firm seeking to organize a food and agribusinessexhibition in Havana in January 2004. The Bush Administration continues to opposeany efforts to relax existing restrictions on eligible agricultural exports to Cuba. Current U.S. policy is to exempt commercial sales of agricultural and medical products from U.S. unilateral sanctions imposed on foreign countries, subject tospecified conditions and prohibitions. Debate continues, though, among policymakerson the scope of the statutory restrictions that should apply on agricultural sales toCuba. Members of Congress opposed to the Cuba-specific prohibitions haveintroduced bills in the 108th Congress proposing to effectively repeal them. Formore information on this issue, see the CRS Electronic Briefing Book, Trade , pageon Economic Sanctions and AgriculturalExports . Agricultural Research, Extension, and Economics Four agencies carry out USDA's research, education, and economics (REE) function. The Department's intramural science agency is the Agricultural ResearchService (ARS), which performs research in support of USDA's action and regulatoryagencies, and conducts long term, high risk, basic and applied research on subjectsof national and regional importance. The Cooperative State Research, Education,and Extension Service (CSREES) is the agency through which USDA sends federalfunds to land grant Colleges of Agriculture for state-level research, education andextension programs. The Economic Research Service (ERS) provides economicanalysis of agriculture issues using its databases as well as data collected by theNational Agricultural Statistics Service (NASS). With the exception of recent years in which USDA research agencies have received supplemental funds for antiterrorism activities, the agricultural researchbudget, when adjusted for inflation, has remained flat for almost 30 years. Furthermore, current financial difficulties at the state level are causing some statesto reduce the amounts they appropriate to match the USDA formula funds (blockgrants) for research, extension, and education (100% matching is required, but moststates have regularly appropriated two to three times that amount). A combinationof cuts at the state and federal levels can result in program cuts as far down as thecounty level. In 1998 and 2002 legislation authorizing agricultural researchprograms, the House and Senate Agriculture Committees tapped sources of availablefunds from the mandatory side of USDA's budget and elsewhere ( e.g. , the U.S.Treasury) to find new money to boost the availability of competitive grants in theREE mission area. From FY1999 through FY2003, the Appropriations Committeesprohibited the use of those mandatory funds for the purposes the AgricultureCommittees intended; however, from FY1999 through FY2002, and now again forFY2004, the appropriations conference committees have allocated more funding forongoing REE programs than were contained in either the House or Senateappropriations bills. Nonetheless, agricultural scientists, stakeholders, and otherscurrently are concerned that higher military spending and lower tax revenues mayreturn the REE mission area to a period of static or shrinking appropriations. Agricultural Research Service. The FY2004 consolidated appropriations Act ( P.L. 108-199 ) provides $1.15 billionfor ARS, an amount higher than both the House- ($1.05 billion) and Senate-passed($1.09 billion) appropriations bills. This represents essentially level funding with theregular appropriation for ARS in FY2003, excluding the $110 million one-timesupplemental appropriation that ARS received in P.L. 108-11 for construction at theNational Animal Disease Laboratory in Ames, Iowa. P.L. 108-199 allocates $1.1 billion of the total FY2004 ARS appropriation to support the agency's research programs, and $63.8 million to support themodernization and construction of ARS facilities. This will provide nearly $54million in additional funds for research over FY2003, but represents nearly a $55million decrease in spending for facilities ($118.7 million in FY2003, excluding thesupplemental). The research allocation in P.L. 108-199 is $75 million more than thatcontained in the House bill and $43.4 million more than in the Senate bill. Of the $63.8 million appropriated in FY2004 for facility construction and modernization, $10.5 million is allocated for laboratory security upgrades (theAdministration had requested $22 million for ARS construction, nearly all forsecurity upgrades), and the balance is designated for construction projects at eighteendifferent ARS locations. The House bill would have provided $36 million forbuilding projects, and the Senate measure $46 million. The Senate bill provision toprovide $2 million for renovations at the National Agricultural Library in Beltsville,Maryland, was not adopted. FY2004 conferees included report language requiringARS to submit prospectuses on construction projects and to assist the committees insetting priorities to guide future appropriations. As in past years, the Administration's budget request for ARS assumed thediscontinuation of several dozen congressionally earmarked research projects anddirected the savings to other research areas that the agency considers to have higherpriority. Again as in the past, the FY2004 act reflects the appropriators' rejection ofthat proposal, and provides continued funding for all the projects at FY2003 levels. (The House appropriations committee report for FY2004 also contains languagestating that in future years the Administration will be expected to defend and explainwhy each research program should be terminated.) However, the conferees didinclude in the Act the Administration's proposal to reprogram roughly $12 millionfrom lower-priority research areas into special initiatives on emerging diseases,global climate change, biosecurity, and genomic sequencing. Every 5 years, ARSevaluates its programs and revises its research plan. Reprogramming is the outcomeof this process. Cooperative State Research, Education, and Extension Service. P.L. 108-199 provides total FY2004 funding of$1.120 billion for CSREES, an amount $2.4 million higher than the FY2003appropriation. This amount is $11 million higher than the House bill and $1.8million more than the Senate bill provisions. Within the agency's budget, P.L. 108-199 allocates $621.4 million for research and education funding for the states, which is $4.65 million above FY2003, $24million above the House bill allocation, $3.9 million above the Senate provision, and$107.2 million above the FY2004 budget request. Block grants to the states tosupport agricultural experiment station research (under the Hatch Act of 1887) at the1862 land grant universities are funded at $180 million, level with FY2003. Grantsfor research at the 1890 (historically black) land grant institutions are funded at $36million, essentially level with the FY2003 appropriation of $35.6 million. Conferees appropriated $1.1 million to supplement money distributed from the endowment fundto support research at the 1994 (tribally controlled) land grant institutions ($1.7 inFY2003). For state extension programs, P.L. 108-199 designates $441.7 million, which represents an $8.8 million decrease from FY2003. The House bill contained $439.7million for extension, and the Senate bill $442 million. Block grants to the states tosupport extension programs (under the Smith-Lever Act of 1914) at the 1862 landgrant universities are funded at $279.4 million, a decrease from $281.2 million inFY2003. Grants for extension programs at the 1890 institutions are funded at $31.9million, essentially level with the $32.1 million appropriated in FY2003. P.L.108-199 provides $2.9 million to support extension programs at the 1994 institutions($3.4 million in FY2003). For the fairly new category of multi-state research projects that have both research and extension components (authorized in1998), the FY2004 consolidatedappropriations act provides $50.5 million, which is a $4.1 million increase overFY2003, and a $4 million increase over the Senate bill provision, but a $12.4 milliondecrease from both the budget request and the House bill. The act contains increased funding for an outreach program for socially disadvantaged farmers, from $3.5 million in FY2003 to $6 million in FY2004, anamount that is higher than both the budget request ($4 million) and the fundingcontained in the Senate bill (which provided level funding), but lower than the Housebill provision ($8.5 million). As in past years, the Administration proposed to eliminate all but about $3 million in earmarked research and extension grants to specified land grant schools(special research grants). Congress traditionally has never adopted such proposals. P.L. 108-199 contains $111.3 million, essentially level funding with FY2003 ($112million); the House and Senate bills would have provided about $100 million forspecial research grants. For USDA major competitive, peer-reviewed grant program,the National Research Initiative (NRI), P.L. 108-199 appropriates $165 million,essentially level funding with the FY2003 appropriation of $167 million, which wasthe highest in the program's 13-year history (authorized at $500 million annuallysince 1994). The NRI would have received $149 million and $180 million,respectively, in the House and Senate bills. The FY2004 budget request was for$200 million. P.L. 108-199 includes (as did the House and Senate bills) the Administration's request to continue to deny funding to carry out the Initiative for Future Agricultureand Food Systems competitive grants program. This program (which is not subjectto annual appropriations) was established in 1998, was reauthorized in the 2002 farmbill ( P.L. 107-171 ), and is authorized to receive $120 million annually in governmentmandatory funds. Grants were awarded under the initiative in FY2000 and FY2001,but appropriators prohibited the funds to be used for that purpose in FY2002 andFY2003. Language in P.L. 108-199 concurs with a Senate bill provision giving theSecretary discretionary authority to make 20% of NRI funds available for competitivegrants under the terms and conditions of the initiative. This means thatapproximately $30 million of the $165 million NRI appropriation could be awardedas initiative grants in FY2004. Both grant programs support fundamental researchon subjects of national, regional, or multistate importance to agriculture, naturalresources, human nutrition, and food safety, among other things. Economic Research Service (ERS) and National Agricultural Statistics Service (NASS). P.L. 108-199 includes theHouse bill provision to appropriate $71.4 million for ERS. This represents a $2.7million increase over FY2003, a $1.5 million increase over the Senate bill, but $5.3million decrease from the amount requested by the Administration. For NASS, theact contains FY2004 funding of $128.9 million, as proposed in the Senate bill, whichis about $1 million less than the House provision, $7.3 million less than the budgetrequest, and $9.5 million less than the FY2003 level. Food Safety USDA's Food Safety and Inspection Service (FSIS) conducts mandatory inspection of meat, poultry, and processed egg products to insure their safety andproper labeling. The FY2004 consolidated appropriations act ( P.L. 108-199 ) provides $784.5 million for FSIS, roughly the amount contained in both the Houseand Senate bills. It represents a $29.7 million increase over FY2003, but it is $12.6million below the Administration's request. The FY2004 conference report contains language from the House bill directing the agency to use the increase to hire additional inspectors, provide more scientifictraining, and conduct more sampling for pathogens that cause human illness, amongother things. P.L. 108-199 also includes the Administration's request for $1.65million to be used solely to pay for microbiological testing of meat and poultrysamples at commercial laboratories, in order to support the goal of establishing avalid and reliable baseline against which to measure risks and performance. Reportlanguage also expresses concern over the validity of FSIS determinations of the"equivalency" of foreign meat and poultry inspection systems that are authorized toexport to the United States. FSIS is required to present a report to Congress byMarch 1, 2004, documenting the process for determining equivalency, and explainingrecent changes in the agency's system for reinspecting meat imports at U.S. ports ofentry. A provision in the Senate bill to prohibit USDA from spending any funds toinspect downed (non-ambulatory) animals was not included in the conferenceagreement (meaning that they could not receive federal inspection for use as humanfood). However, because the first case of bovine spongiform encephalopathy (BSE,or mad cow disease) was identified in a downer cow in the state of Washington inDecember 2003, FSIS has since instituted new regulations banning downed animalsfrom entering slaughtering plants. In addition to annual appropriations, FSIS traditionally has had access to user fees collected from industry for laboratory accreditation and for overtime and holidayinspection. Approximately $101 million is made available annually from thisaccount to support the inspection program. The President's budget request containeda proposal to change the definition of "overtime" to mean any hours that a firm mightbe operating beyond one 8-hour daytime shift. This would significantly raise theamount of fees collected from industry and diminish the proportion of inspection paidfor by tax dollars. Congress has never agreed to similar proposals in the past, sayingthat assuring the safety of the food supply is an appropriate function of the federalgovernment. In keeping with the House and Senate bills, which disregarded theAdministration's proposal, the FY2004 appropriations act does not address it. Marketing and Regulatory Programs Animal and Plant Health Inspection Service (APHIS). The largest appropriation for USDA marketing andregulatory programs goes to the Animal and Plant Health Inspection Service. APHISis responsible for protecting U.S. agriculture from foreign pests and diseases,responding to domestic animal and plant health problems, and facilitating agriculturaltrade through science-based standards. Under the FY2004 consolidatedappropriations act ( P.L. 108-199 ), APHIS receives $725.6 million. This is $32.9million more than FY2003 (see next paragraph), $25.7 million more than theAdministration's request, $13.5 million more than the Senate-passed bill, and $4.9million less than the House-passed bill. Of the $725.6 million in P.L. 108-199 ,$720.6 million is for salaries and expenses, and $5 million is for buildings andfacilities, the latter of which matches the Administration's request and both theHouse and Senate versions. The FY2003 amount that is comparable to the FY2004 appropriation is $692.7 million. This equals the FY2003 appropriation of $730.7 million, after rescission,minus $38 million transferred to the new Department of Homeland Security (DHS). On March 1, 2003, approximately 2,680 APHIS border inspectors and the PlumIsland Animal Disease Center became part of DHS under P.L. 107-296 . SeparateFY2004 appropriations for USDA and DHS reflect this new division ofresponsibilities. DHS now conducts agricultural inspections at the border, butAPHIS continues to set agricultural inspection policies, conduct preclearance,supervise training, and inspect passengers and cargo entering the mainland fromHawaii and Puerto Rico. USDA continues to collect the user fees that fund muchof the agriculture border inspection program and will reimburse DHS for inspectionsperformed. In FY2004, USDA expects to collect $285 million in such fees andtransfer $178 million to DHS. APHIS activities are divided into five program functions, plus a contingency fund. P.L. 108-199 funds the pest and disease exclusion function at $152.5 million,an increase of $6 million from FY2003, but $3.4 million less than theAdministration's request ($5.9 million less than the House and $4.5 million morethan the Senate). Plant and animal health monitoring is funded at $139.3 million, anincrease of $6.3 million from FY2003, but $3 million less than the Administration'srequest ($430,000 less than the House, and $2.4 million more than the Senate). Pestand disease management rises prominently to $333 million, an increase of $15.8million over FY2003, and $35.5 million over the Administration's request ($4.2million above the House and $920,000 above the Senate). The increase for scientificand technical services is $13.8 million over FY2003 and $6.1 million above theAdministration's request ($2.3 million below the House and $10 million above theSenate). The contingency fund and animal care function adopt the Senate-passedlevels, and are very similar to FY2003, the Administration's request, and the House. Within the pest and disease management function, P.L. 108-199 provides an increase of $18.3 million for emerging plant pests (totaling $93.7 million), $5.2million more than the Senate, but $2.5 million less than the House. This increase isallocated with $8 million for citrus canker, $4 million for Asian long-horned beetle,$4.8 million for glassy-winged sharpshooter, and $1.5 million for Emerald AshBorer. The conferees request reports from USDA on controlling Emerald Ash Borer(by March 1, 2004) and Asian long-horned beetle (by January 1, 2004). Theagreement also increases funding for chronic wasting disease by $3.6 million(totaling $18.6 million), $1.8 million more than the House but $1.4 million less thanthe Senate. Appropriations also rise for control of grasshoppers, Mormon crickets,cormorants, and other pests and diseases. As in past years, Congress encourages the Secretary to transfer funds from other Departmental accounts (generally the Commodity Credit Corporation (CCC)) foremergency eradication and indemnification programs. The agency transferred over$390 million in CCC funds for such purposes in FY2003. (Separately, theconference report notes that $10 million of CCC funds should be used for treereplacement and indemnification for losses due to citrus canker in Florida.) In the plant and health monitoring function, the conferees increase emergency management systems by $640,000, partially to increase the number of available dosesof foot and mouth disease (FMD) vaccine. P.L. 108-199 funds a $2 millionbiosecurity program, in addition to other funds related to agroterrorism preparedness,such as database development and veterinary diagnostics. The conferees instruct theSecretaries of Agriculture and Homeland Security to coordinate efforts to assist stateswith agroterrorism preparedness. They also direct that diagnostic work at PlumIsland should remain focused on agriculture. Regarding cost sharing, P.L. 108-199 incorporates a Senate provision prohibiting funds from being used to issue a final rule that would have required statesto match certain federal funds. Conferees also adopted another Senate amendmentallowing citrus canker assistance funds (in the Agricultural Assistance Act of 2003)to be used for tree replacement. P.L. 108-199 reflects language from a Sense of the Senate amendment that USDA should not allow imports of live cattle from any country known to have BSE(bovine spongiform encephalopathy, also known as "mad cow disease") unless thecountry complies with guidelines of the World Organization for Animal Health. Agricultural Marketing Service. AMS is responsible for promoting the marketing and distribution of U.S. agriculturalproducts in domestic and international markets. The FY2004 consolidatedappropriations act ( P.L. 108-199 ) provides budget authority of $94.2 million forAMS in FY2004, compared with the House-passed level of $92.7 million and theSenate-passed level of nearly $94 million. The Administration request was $91.8million; $91.5 million was provided in FY2003. The AMS levels include annualappropriations for marketing services and for payments to states and territories. Conferees approved the Senate's additional $2 million in FY2004 budget authorityfor payments to states and territories (funded last year at $1.3 million), andearmarked the $2 million increase specifically for the Wisconsin Department ofAgriculture, Trade, and Consumer Protection for the creation of specialty markets. More than $15 million of the AMS appropriation represent funds transferred from the permanent Section 32 account. Further, AMS uses additional Section 32monies (not reflected in the above totals) to pay for government purchases of surplusfarm commodities that are not supported by ongoing farm price support programs. (For an explanation of this account, see CRS Report RS20235, Farm and FoodSupport Under USDA's Section 32 Program .) Also not included in the above AMSbudget authority levels are approximately $195 million in various user fees that fundnumerous agency activities. The Senate appropriations committee report encourages USDA to use all existing Section 32 authorities to continue the $6 million Fruit and Vegetable PilotProgram (providing free fresh fruits and vegetables to students in 25 schools),authorized under Section 4305 of the 2002 farm bill ( P.L. 107-171 ). On a separatebut related matter, the report also notes that Section 10603 of the farm bill requiresUSDA to purchase at least $200 million annually of fruits, vegetables, and otherspecialty crops, and reminds the Department that farm bill report language expectedthat the purchases were to be in addition to any existing purchases. So far, USDAhas interpreted the farm bill language by counting existing purchases toward the $200million minimum. In another area, the Senate report notes that it was including, inthe committee's recommended increase for AMS, an additional $477,000 (for a totalof $1.5 million) for the National Organic Program, which, the report stated, shouldbe used to hire an executive director for the National Organic Standards Board, createa peer review panel to oversee USDA's accreditation process for organic certifiers,and pay expenses for volunteer technical advisers to the program. Country-of-Origin Labeling. The 2002 farm bill ( P.L. 107-171 ) contained a requirement that many retailers providecountry-of-origin labeling (COOL) for fresh fruits and vegetables, ground and freshcuts of red meats, wild and farmed fish, and peanuts, starting on September 30, 2004. P.L. 108-199 delays most implementation for 2 years. The new implementation dateis September 30, 2006, for all covered commodities except wild and farmed fish,which are still subject to the original deadline. The House-passed bill had includeda provision, added in committee, to prohibit the use of FY2004 funds to implementCOOL for meats only. A House floor amendment to strike this committee provisionwas defeated, 208-193. The Senate version had not included a delay in COOLimplementation. Rather, the full Senate had approved a resolution insisting thatconferees not agree to the House position. (For background, see CRS Report 97-508ENR, Country-of-Origin Labeling for Foods .) Grain Inspection, Packers, and Stockyards Administration. GIPSA establishes the official U.S. standards,inspection and grading for grain and other commodities, and ensures fair-tradingpractices, including in livestock and meat products. GIPSA has been working toimprove its understanding and oversight of livestock markets, where increasingconcentration and other changes in business relationships have raised concernsamong some producers about the impacts of competition on farm prices. Theconsolidated FY2004 appropriations act ( P.L. 108-199 ) provides an appropriation of$35.9 million for GIPSA salaries and expenses. As approved by the House, H.R. 2673 would have provided $39.7 million, the same level as inFY2003 and $2 million below the Administration request. The Senate-passedversion would have set the GIPSA appropriation at $35.6 million in FY2004,approximately $4 million below FY2003 and $6 million below the Administrationrequest. In addition to the annual appropriation, another $42.5 million is expected to be collected through existing GIPSA user fees. Neither the House- nor Senate-passedbill assumed adoption of the Administration's proposal for new user fees in FY2004to replace $28.8 million in appropriations. Approximately $5 million of the proposednew fees would have come from charges for the costs of developing, reviewing, andmaintaining official U.S. grain standards; the other $24 million would have comefrom new license fees imposed on packers, live poultry dealers, poultry processors,stockyard owners, market agencies, dealers and swine contractors covered by thePackers and Stockyards Act (PSA). In their report, conferees expressed concernabout the Secretary's transfer in July 2003 of $2 million from the salaries andexpenses account to the user fee account for grain export inspection and weighingservices. Conferees directed the Administration to "take all necessary steps to adoptand implement a fee structure that fully funds the services provided." Report language accompanying the original House committee-reported appropriations bill notes that no resources are provided for packer audits. TheAdministration requested $1 million in FY2004 GIPSA funds to implement a newpilot program to audit the four largest beef packers, intended for "better financialprotection to the regulated industries through heightened financial scrutiny of the TopFour." Also, $500,000 was proposed to conduct a comprehensive, industry-widereview of the PSA and its regulations. The Act has not undergone a comprehensivereview since its enactment in 1921 despite "dramatic structural changes" in theindustry since then, USDA observed. After receiving industry participant input,"GIPSA will clarify its views on competition in the industries it regulates. Theseactivities may result in future increases in the number and complexity ofinvestigations conducted by GIPSA and the monies recovered or returned to theregulated industries," the Department added in its proposal. The House Appropriations Committee stated in its report that it "continues to be concerned about the economic impacts of packer control, feeding, or ownership[of livestock] on local communities." Observing that it had provided FY2003funding "for a comprehensive, objective study of the issues surrounding a ban onpacker ownership," the committee states that it expects the Department to provideregular updates on its progress. The Administration's FY2004 budget summary also noted that some of the new funds proposed for the Secretary's office for "crosscutting" trade and biotechnologyactivities may be provided to GIPSA for its expanded biotechnology activities. P.L.108-199 earmarks $150,000 to GIPSA for these purposes, out of a total of $3.3million provided by conferees to all of USDA for this request. Rural Development USDA's stated rural development mission is to enhance rural communities by targeting financial and technical resources in areas of greatest need. Three agenciesestablished by the Agricultural Reorganization Act of 1994 ( P.L.103-354 ) areresponsible for this mission area: the Rural Housing Service (RHS), the RuralBusiness-Cooperative Service (RBS), and the Rural Utilities Service (RUS). AnOffice of Community Development provides community development supportthrough Rural Development's field offices. The mission area also administers therural portion of the Empowerment Zones and Enterprise Communities Initiative, theRural Economic Partnership Zones, and the National Rural Development Partnership. The FY2004 consolidated appropriations act ( P.L. 108-199 ) provides a total appropriation of $2.462 billion for USDA rural development programs, which in partsupports an $11.098 billion loan authorization level for rural economic andcommunity development programs. The Senate and House measures recommendedapproximately $131 million and $65 million more, respectively, in budget authorityand $36 million and $1.386 billion more, respectively, in loan authorization levelthan the conference agreement provides. P.L. 108-199 also provides $170 millionmore in budget authority and $3.203 billion more in loan authorization than theAdministration's requested appropriation. Reductions in Mandatory Spending and General Provisions. In general provisions, P.L. 108-199 prohibits theexpenditure of any funds to carry out several mandatory rural development programsauthorized by the 2002 farm bill ( P.L.107-171 ). Each of these programs is fundedthrough the borrowing authority of USDA's Commodity Credit Corporation, anddoes not require an annual appropriation. The provisions prohibit the use ofappropriated funds for the salaries and expenses associated with these programs,which effectively blocks funding for these programs. In total, P.L. 108-199 prohibits$293 million in mandatory rural development spending for the following programs: The Rural Strategic Investment Program (Congressional Budget Office-estimatedsavings of $100 million); the Rural Firefighters and Emergency Personnel Program($10 million); Enhancement of Rural Access to Broadband Services ($20 million);the Renewable Energy Systems and Energy Efficiency Improvements Program ($23million); the Rural Business Investment Program ($100 million); and theValue-Added Agricultural Product Market Development Grants program ($40million). (1) While the original House-passed billrecommended prohibitingexpenditures to carry out the Value-Added grants program, the Senate bill did notcontain this prohibition. The Senate bill recommended that no funds be spent tocarry out provisions of the Rural Business Investment Program ($100 million). TheHouse bill did not contain this provision. While prohibiting the mandatory funding for the Renewable Energy Systems and Energy Efficiency Improvements Program, P.L. 108-199 does provide $23million in funding for the program, bringing budget authority to the level authorizedin the 2002 farm bill, but doing so through a discretionary appropriation. Both theHouse- and Senate-passed bills contained this recommendation. P.L. 108-199 alsoincludes bill language to provide guaranteed loans for this program, and also provides$15 million in discretionary funding for the Value-Added grants program. In other general provisions, P.L. 108-199 provides $1.5 million for the Northern Great Plains Regional Authority, half of the amount recommended by the Senate bill. The Authority was created in the 2002 farm bill and authorized at $30 million eachfiscal year, FY2002-FY2007. This is the first year that funding has been providedfor the program. P.L. 108-199 also provides $1 million to the Denali Commissionfor improving solid waste disposal sites that currently threaten rural drinking watersupplies in Alaska. This was also half the amount recommended by the Senatemeasure. The House bill did not make recommendations for these programs. Rural Community Advancement Program (RCAP). The RCAP, authorized by the 1996 farm bill( P.L.104-127 ), consolidates funding for 13 rural development loan and grantprograms into three accounts: Community Facilities, Rural Utilities, andBusiness-Cooperative Development. RCAP was designed to provide greaterflexibility in targeting financial assistance to local needs and permits a portion of thevarious accounts' funds to be shifted from one funding stream to another. P.L.108-199 provides $757.4 million in budget authority for the three RCAP accounts,approximately $10 million less than the Senate-passed measure, $56 million morethan the House-passed bill, and $280 million more than requested by theAdministration. Within the three streams of RCAP funding, P.L. 108-199 provides funding of $76 million for the Community Facilities account. Through earmarking, theconference agreement provides $30 million for the Rural Utility Service's HighEnergy Cost Grants account (by transfer) and $22 million for Economic ImpactInitiative Grants for facilities in communities with high unemployment/economicdepression. These amounts are $2 million and $1 million less respectively than theSenate-passed bill had recommended. The House-passed bill made norecommendation for these programs. P.L. 108-199 also adopts the Senate and Housebill recommendations directing $6 million of the funding for rural communityprograms for a Rural Community Development Initiative targeting low-income ruralareas and Native American Tribes. The Senate bill noted that demand for the directcommunity facilities loan program far exceeds available funding, and, in reportlanguage, encouraged the Department to consider establishing a program level of$500,000,000 to meet these demands. The conference agreement does not includethis language. For the Rural Utilities account within RCAP, P.L. 108-199 provides $605 million. The account supports water and waste-water loans and grants and solidwaste grants and is, by far, the largest of the three RCAP accounts. As with theHouse and Senate bills, language is included in the conference agreement that furtherearmarks RCAP water/waste-water funding for Native American Tribes ($24million), Alaska Native villages ($28 million), and the Colonias ($25 million) alongthe U.S.-Mexican border. The Senate bill had recommended $30 million for Alaskavillages, while the House measure made no such earmark P.L. 108-199 also provides$13 million for the circuit rider program and earmarks two additional circuit ridercontracts for Alaska. The circuit rider program provides technical assistance to smallrural water and waste-water systems. P.L. 108-199 further earmarks approximately$12.6 million of the RCAP account for water and waste-water development inEmpowerment Zones/Enterprise Communities and Rural Economic AreaPartnerships, about $10 million more than the Senate had recommended and the sameas recommended by the House measure. P.L. 108-199 also earmarks $2 million forgrants to statewide private non-profit television stations, $3 million less than theSenate recommendation. P.L. 108-199 also provides $1 million for improvements toindividually owned water wells, half of the amount recommended by the Senate. TheHouse made no recommendation for the program. Finally, P.L. 108-199 provides $76.5 million for the Rural Business Services account within RCAP, which is $5 million and $3.5 million more than the House andSenate recommendations, respectively. P.L. 108-199 also earmarks $8.5 million forbusiness development in Empowerment Zones/Enterprise Communities and RuralEconomic Area Partnerships. Rural Housing Service. For the RHS, P.L. 108-199 provides a $1.376 billion appropriation for FY2004, which inpart supports a total rural housing loan authorization of $4.362 billion. P.L. 108-199 provides $129.5 million and $147.7 million less in total budget authority thanrecommended by the Senate and House measures respectively, and is $170 millionless than requested. This reduced budget authority, however, supports a loanauthorization level that is only slightly less than the House recommendation andabout $9 million more than the Senate recommendation. P.L. 108-199 provides aloan authorization level of $4.092 billion for Section 502 single family guaranteedloans, the largest account of the Rural Housing Insurance Fund portfolio. TheSenate-recommended loan authorization level and Administration request for thisaccount are slightly less than this amount and are the same as recommended by theHouse bill. P.L. 108-199 provides $232 million in housing loan subsidies, with Section 502 single family loans accounting for half of the direct subsidies ($165.9 million). Thisis $667,000 more than the Senate recommendation and $79,000 less than the Houserecommendation, but $19.6 million more in total subsidies than requested. P.L.108-199 provides approximately $50 million for Section 515 rental housingsubsidies, the same as recommended by the House bill and only slightly less than theSenate recommendation. For the Rural Rental Assistance program, P.L. 108-199 provides $584 million. This is $137 million and $147 million less, respectively, than the Senate and Houserecommendations and $156 million less than the budget request. Conferees includedreport language expressing concern that past Section 521 rental assistance budgetrequests have been overstated, resulting in substantial unliquidated balances in thataccount. In particular, the conferees note that appropriations for 5-year rentalassistance contracts have been sufficient for an average period of 6.5 years. Accordingly, P.L. 108-199 changes the contract term from 5 years to 4 years. Theconferees also provide the Secretary with the authority to carry over unexpendedfunds at the completion of the 4-year contract period. P.L. 108-199 also provides $46.2 million for the rural housing assistance grants, the same as recommended by the Senate and $4 million more than recommended bythe House bill. For the farm labor account, P.L. 108-199 provides $36.3 million, thesame as recommended by the House and $3.3 more than recommended by the Senate. P.L. 108-199 also provides $34 million for the mutual and self-help housing grants,the same as recommended by the Senate and only slightly less than the House billrecommendation. P.L. 108-199 does not include the Senate recommendation to provide $2 million for the Historic Barn Preservation Program authorized by the 2002 farm bill. Rural Utilities Service. P.L. 108-199 provides a total appropriation of $102.3 million for rural utility programs,which supports, in part, a loan authorization level of $6.681 billion. This is $18.7million more in budget authority than recommended by the House-passed bill and $4million less than in the Senate-passed bill. It is also $1.390 billion more in loanauthorization than recommended by the House bill, $45 million less than the Senaterecommendation, and $3.160 billion more than the Administration requested. Budgetauthority for the Rural Electrification and Telecommunications Loan account isapproximately the same as recommended by both the House and Senate bills. P.L.108-199 adopts the loan authorization level recommended by the Senate bill. Thislevel is $950 million more than the House bill and $2.47 billion more than requested. As recommended by both the House and Senate bills, and as requested by theAdministration, P.L. 108-199 effectively terminates electric and telecommunicationloan subsidies. For the Rural Telephone Bank (RTB), P.L. 108-199 provides $173.5 million in FY2004 loan authorization, but no loan subsidies. This is the same as proposed bythe Senate bill. The House bill recommended neither loan authorization nor directloan subsidies for RTB, the same as requested by the Administration. In furtheranceof the privatization of the RTB, the conferees also include a provision limiting theretirement of Class A stock in the RTB. In other RUS programs, P.L. 108-199 provides an FY2004 loan authorization level of $300 million for the Distance Learning and Telemedicine program, $250million more than requested, but the same as recommended by both House andSenate bills. P.L. 108-199 also provides $39 million in grants for this program, $14million more than the House recommendation and $1 million less than the Senaterecommendation. P.L. 108-199 also provides a loan authorization level of $602million for rural broadband telecommunications, $266 million more thanrecommended by the House and requested by the Administration, and $45 millionless than recommended by the Senate bill. For broadband direct loan subsidies andgrants, P.L. 108-199 provides $13.1 million and $9 million respectively. This is $19million more than recommended by the House bill and $4 million less thanrecommended by the Senate measure. No funding was provided for broadband directloan subsidies in FY2003. For purposes of loans and grants under these programs, P.L. 108-199 also adopts the Senate definition of a rural area as one outside anincorporated city or town and with a population of 20,000 residents or less. Rural Business-Cooperative Service. P.L. 108-199 provides an FY2004 appropriation of $84million for the RBS accounts to support rural business development and expansion. This is $12 to $13 million more than the levels recommended by the House andSenate bills and $46 million more than requested. P.L. 108-199 adopts the loansubsidy and authorization levels for the Rural Development Loan Fund asrecommended by the House and Senate bills and as requested by the Administration. P.L. 108-199 also adopts the Senate recommendation to provide $15 million in loanauthorization for the Rural Economic Development Loan account, approximately $1million less than the House measure and the same as requested. For RuralCooperative Development grants, P.L. 108-199 provides $24 million. This is $11and $15 million more respectively than the House and Senate measures. Within the RBS appropriation, P.L. 108-199 provides an FY2004 appropriation of $12.7 million for the Empowerment Zone/Enterprise Community Initiative(EZ/EC), approximately $1.7 million more than the House measure and $1.7 lessthan the Senate recommendation. The Administration made no funding request forthe program. The conference report also provides $1 million for the two rural EZs(Aroostook County, Maine and Middle Rio Grande FUTURO communities) chosenin Round III of the Empowerment Zone competition. Food and Nutrition Programs The FY2004 consolidated appropriations act ( P.L. 108-199 ) provides total funding of $47.3 billion for USDA nutrition programs, an increase of $5.4 billionover FY2003 spending for these programs. The final amount is higher than the $44.2billion recommended by the Administration, the $46.3 billion proposed by theSenate, and the $44.1 billion proposed by the House because of higher than originallyprojected unemployment resulting in greater participation in income-tested programs.Food and Nutrition programs include the food stamp program, child nutritionprograms (e.g., school lunch, breakfast, summer food, child care, special milk, etc.),the special supplemental nutrition program for women, infants and children (WIC),and various commodity donation programs. The food stamp program, the largest of the federal nutrition programs, is expected to serve over 21 million people in FY2004, according to Administrationestimates. For FY2004, Congress agreed to total funding of $30.9 billion for foodstamp and related programs. This is $4.6 billion more than FY2003 spending; $3.2billion more than the Administration request and House proposal, and $1 billionmore than the Senate proposal. The final amount funds food stamp expenses (foodbenefits, administration, and the Food Distribution Program on Indian Reservations)at $26.4 billion, the food stamp contingency reserve at $3 billion, $1.4 billion forPuerto Rico and American Samoa, and $140 million for the emergency foodassistance program (EFAP). Food stamp expenses are funded at the Senate proposedlevel ($2.2 billion more than the Administration request and House proposal) becausemore recent projections indicate higher than originally expected unemployment. Another difference between the finally enacted amount and the Administration,House, and Senate proposals is in the reserve fund, which was raised from $2 billionto $3 billion. Other food stamp related programs (Puerto Rico and American Samoaand EFAP) are funded at the same levels as were proposed by the House and Senatebills but slightly more ($5 million) than the Administration request. The final lawalso contains language amending the Food Stamp Act to ensure that food stampbenefits in FY2004 for Alaska and Hawaii are not lower than those in FY2003. Child Nutrition programs receive a total of $11.417 billion (2) under the finallyenacted law. This is $837 million more than FY2003 spending for these programs,and $1 million less than was proposed by the Administration and the House- andSenate-passed bills. The difference reflects a reduction from $6 million to $5 millionfor a certification study by the FNS. Child nutrition funding is used to assist with thecosts of meal service programs in schools, child and adult care, and summer andafter-school programs, milk programs, and related nutrition and administrativesupport. The largest program, the school lunch program, served subsidized meals tosome 28.7 million children in FY2003. For FY2004 it would receive an estimated$6.7 billion and serve 29.1 million children, according to USDA estimates.Conference report language encourages the Secretary of Agriculture to take actionto prevent purchases for the school lunch program of chicken treated withfluoroquinolones (an antibiotic treatment). Several child nutrition programs and provisions due to expire at the end of of FY2003 were temporarily extended through March 31, 2004 in separate legislation ( P.L.108-134 ) after the Congress was unable to agree on a comprehensive childnutrition reauthorization bill. These programs include: (1) the summer food serviceprogram and summer food service pilot projects; (2) authority for the use ofagricultural funds to buy commodities for food programs; (3) provisions relating toeligibility for private non-profit child and adult care food providers, and (4) aprovision extending a provision permitting the exclusion of military housingallowances for free and reduced price meal eligibility. WIC program funding authority, which expired at the end of FY2003, was not among the expiring programs temporarily reauthorized by P.L.108-134 . Nevertheless, the program was funded in the FY2004 consolidated appropriations actat $4.64 billion. This program provides monthly food packages to low-incomepregnant and postpartum mothers and children under age 5 who are at nutritionalrisk. The amount provided by P.L. 108-199 is the same as that recommended by theSenate; $51 million less than the House proposal; $130 million less than theAdministration request; and $56.8 million less than the FY2003 appropriation. TheSenate committee report ( S. Rept.108-107 ) justified the agreed-upon FY2004reduction in appropriated funds from FY2003 on the basis of lower than originallyprojected FY2003 participation rates and a slight decrease in WIC food packagecosts. Moreover, according to the Administration, there will be $125 million inunexpended reserve funds from FY2003 that can be used in FY2004. The reportprojected that the final funding level of $4.64 billion would be adequate to maintainparticipation at the FY2003 level of approximately 7.8 million. An Administration proposal to remove funding for the Farmers' Market Nutrition Program (FMNP) (3) from the WIC budget,and instead, fund this activityunder the Commodity Assistance Program (CAP, see below) was not adopted in thefinal law. The House-passed bill concurred with this change; the Senate bill did not. The final law sets $23 million ($2 million less than the Senate bill) as the amount ofWIC funds to be spent on the FMNP. It also allows not less than $15 million ofWIC funds for a breastfeeding support initiative, and up to $25 million formanagement information systems. Up to $4 million of WIC funds are permitted tobe used for pilot projects to combat childhood obesity, $1 million less than the Senatebill recommendation. The Commodity Assistance Program (CAP) is a category created by appropriators to combine funding for a variety of commodity donation programsauthorized by several agriculture laws. Programs include the commoditysupplemental food program (CSFP); emergency food assistance program (EFAP)administrative grants; and funding for Food Donations and Pacific Island Assistance.The finally enacted law provides a total of $150 million for these programs, insteadof the $166 million proposed by the Administration and the House and the $145million proposed by the Senate. This is $13.4 million less than the amount spent forthese programs in FY2003. Of the amount appropriated, the CSFP is funded at$98.92 million. The CFSP provides monthly food packages made up of commoditiesto low-income pregnant and postpartum women, children under 6 and elderlypersons. The final law provides $3.93 million more than the Administration request,and the House and Senate recommended levels. Conference report languageindicates the conferees' intent that the funding maintain the same caseload in FY2004as that existing at the end of FY2003. The final CAP funding also provides $50million to support the administrative costs of distributing commodities through theEFAP, and $1.081 million for food donations for disasters and Pacific Islandassistance, and contains language authorizing assistance to nuclear-affected islands. Food and Drug Administration (FDA) The Food and Drug Administration (FDA), an agency of the Department ofHealth and Human Services (DHHS), is responsible for regulating the safety offoods, drugs, biologics (e.g., vaccines), and medical devices. The agency is fundedby a combination of congressional appropriations and various user fee revenues,assessed primarily for the pre-market review of drug and medical device applications. The total amount of user fees to be collected each year is set in FDA's annualappropriations act. The FY2004 consolidated appropriations act ( P.L. 108-199 ) provides a total program level of $1.704 billion. Of this amount, $1.387 billion isappropriated for FDA salaries and expenses, an increase of $6 million over the$1.381 billion appropriated for FY2003, but $19 million less than the Administrationrequest of $1.406 billion. P.L. 108-199 also appropriated $7 million to pay forconstruction and maintenance of FDA's buildings and facilities. In addition, P.L.108-199 allows FDA to collect a total of $309.7 million in user fees during FY2004,an amount 14.5% higher than the $270.5 million in user fees for FY2003. User Fees Total user fee revenues, which have risen steadily over the past 10 years, account for nearly 18% of FDA's total program level this year. The PrescriptionDrug User Fee Act (PDUFA), reauthorized as part of the 2002 Public Health Securityand Bioterrorism Preparedness and Response Act ( P.L. 107-188 ), allows FDA tocollect user fees for the review of drug and biologic applications. P.L. 108-199 setsthese fees at $249.8 million, as the President requested, an increase of $26.9 millionover the $222.9 million for FY2003. In addition, the new Medical Device User Feeand Modernization Act (MDUFMA) of 2002 ( P.L. 107-250 ) authorizes the agencyto charge user fees for medical device applications as well. P.L. 108-199 calls for$31.7 million in medical device user fee assessments, an increase over the $25.1million for FY2003. Moreover, the President signed the new Animal Drug User FeeAct of 2003 ( P.L. 108-130 ) on November 18, 2003, and the conference committeerecommended that $5 million be derived from these fees. The FDA also receives$23.2 million in user fee revenues from mammography clinics, color certificationreceipts, and export certificates. Counterterrorism Activities The conference report provides $20.5 million for FDA's counterterrorism activities in FY2004, the same as the budget request. These funds are consolidatedunder the category of food safety as part of the DHHS's overall strategy to protect thenation's food supply, and include $5 million in grants to states, $5 million forlaboratory protection, and another $10.5 million to support FDA's new food facilityregistration system. This initiative, mandated under the Bioterriorism Act of 2002,requires all food facilities, both domestic and foreign, to register with the FDA. Unified Financial Management System FDA's Unified Financial Management System (UFMS), which integrates the Department's financial management structure, provides HHS leaders with a moretimely and coordinated view of critical financial management information. Conference report language includes a total of $9.445 million for the UFMS, anincrease of $1.145 million. The conferees directed that, from this total amount, noless than $4.5 million is to be invested in improvements to FDA's legacy systems,and cannot be used for UFMS contracts or global UFMS costs. Food Conference report language continues to support $1.9 million for research at the New Mexico University Laboratory to develop rapid test methods for microbiologicalpathogens found in fruits and vegetables and to develop models and data analysis tofacilitate implementation of FDA's rules on food safety, homeland security,bioterrorism, and other initiatives. In three other issues related to food, conferees (1) agreed to an appropriation of $21.607 million for Bovine Spongiform Encephalopathy (BSE) prevention activities;(2) allocated $692,000 for the food center's adverse event reporting system; and (3)set aside a total of $10.9 million for the regulation of dietary supplements, a$500,000 increase over FY2003. The conference report concurs with a Senateprovision that directs the agency to spend no less than $250,000 to process commentson its March 5, 2003 proposed rule to require warning labels on dietary supplementscontaining ephedrine alkaloids. Seafood In report language, the conferees said they expect FDA to devote no less than$250,000 to continuing work with the Interstate Shellfish Sanitation Commission(ISSC) and at least $250,000 to promoting educational and research activities relatedto shellfish safety in general and Vibrio vulnificus in particular. On other seafoodsafety issues, the conference committee let stand a House requirement that FDAproduce a report describing its current efforts for controlling temperaturerequirements for imported seafood; the Senate urged FDA to promote newcost-effective technologies to control temperatures. The House required the FDA toreport on the sampling frequency and violation rates for chloramphenicolcontamination in farm-raised imported shrimp, while the Senate encouraged theagency to increase its frequency of inspections. Drug Issues The conferees directed FDA to spend no less than $53.8 million for its generic drugs program, confirming that the timely approval of generic drug products playsan important role in addressing the high cost of prescription drugs. An $8 millionincrease over the FY2003 level, the amount is $5 million less than the $13 millionincrease called for in the budget request. Nevertheless, both the House and Senatecommittees said this funding level -- coupled with the pay increases for the program -- will allow the agency to hire 28 more reviewers and examiners and review at least85 percent of generic drug applications within 6 months of submission. In separatebut related legislation, the President signed into law on December 8, 2003, theMedicare Prescription Drug, Improvement, and Modernization Act of 2003 (H.R. 1),which contains a provision to close existing loopholes in the Hatch-Waxman patentlaw and, in so doing, speed up the availability of less costly generic drugs forconsumers. Conferees rejected a House-passed provision that would have blocked FDA from preventing individuals, wholesalers, and pharmacists from importing cheaperFDA-approved prescription drugs from foreign suppliers. The recently enactedMedicare reform legislation also includes a provision to let pharmacists and drugwholesalers import prescription drugs from Canada, but only if the DHHS Secretaryfirst certifies to Congress that the drugs will be safe and provide substantial costsavings for American consumers. To address other drug-related issues, conference report language provides $8 million to reduce review times and increase the number of generic drugs on themarket; $4 million to improve pediatric labeling under the Best Pharmaceuticals forChildren Act; $3 million for activities related to patient safety; and $650,000 tosupport FDA's over-the-counter (OTC) drug program. Acknowledging the importantrole OTC drugs play in the nation's healthcare system, Congress directed that theOTC funds be used to hire and train additional employees to improve the OTC drugreview process and work towards finalizing the OTC drug monograph system. Inaddition, the conferees provided $13.3 million to support grants and contracts underthe Orphan Products Grants Program. Commodity Futures Trading Commission (CFTC) The Commodity Futures Trading Commission (CFTC) is the independentregulatory agency charged with oversight of derivatives markets. The CFTC'sfunctions include oversight of trading on the futures exchanges, registration andsupervision of futures industry personnel, prevention of fraud and price manipulation,and investor protection. Although most futures trading is now related to financialvariables (interest rates, currency prices, and stock indexes), Congressional oversightis vested in the Agricultural Committees because of the market's historical originsas an adjunct to agricultural trade. For FY2004, the consolidated appropriations act( P.L. 108-199 ) provides $90.4 million , which is $2 million more than the House-and Senate-passed measures and the Administration request, and $5 million abovethe FY2003 appropriation. The Senate-reported version of the bill had originallyprovided $90.4 million. However, an adopted floor amendment in the Senatereduced CFTC funding by $2 million to offset the added cost of a rural developmentamendment. The final enacted level in effect is the same as the Senate-reported level. In earlier Senate floor action on the appropriations measure, the Senate rejected by a vote of 41-56 an amendment offered by Senator Feinstein that would have giventhe Commodity Futures Trading Commission (CFTC) and Federal Energy RegulatoryCommission (FERC) new powers to regulate energy trading and marketing. Theamendment would have required currently unregulated dealers in over-the-counterderivatives contracts based on energy products to report certain data to the CFTC,and would have increased the anti-fraud authority available to both regulators. Proponents of such legislation have argued that the collapse of Enron and theCalifornia electricity crisis were signs of a dangerous regulatory gap. Opponentsbelieve that regulators have adequate authority to pursue fraud and manipulationunder current law, and point to ongoing enforcement actions against Enron and otherenergy traders as evidence of this. Table 3. USDA and Related AgenciesAppropriations, FY2004 Budget Request, House Bill, Senate Bill and Enacted, vs. FY2003 Enacted (budget authority, in millions of $) Source: Based on spreadsheets provided by the House Appropriations Committee. An item with a single asterisk (*) represents the total amount of direct and guaranteed loans that can be made given the requested or appropriated loan subsidy level. Only the subsidy levelis included in the total appropriation. (1) FY2003 enacted levels include amounts appropriated for USDA and related agencies in the Consolidated Appropriations Act, 2003 ( P.L. 108-7 ) adjusted for the 0.65% across-the-boardrescission in all discretionary programs (with the exception of the WIC program which wasspecifically exempted from the rescission), and the $479 million in supplemental FY2003agriculture appropriations provided by the Wartime Supplemental Appropriations Act, 2003. (2) The FY2004 omnibus conference agreement ( H.R. 2673 ) contains a 0.59% across-the-board rescission in all non-defense discretionary accounts. Figures in this table areas reported by the conferees and do not include the effect of the rescission. (3) Under current law, the Commodity Credit Corporation and the Federal Crop Insurance Fund each receive annually an indefinite appropriation ("such sums, as may be necessary"). Theamounts shown for both FY2003 and FY2004 are USDA estimates of the necessaryappropriations. (4) Scorekeeping adjustments reflect the savings or cost of provisions that affect mandatory programs, plus the permanent annual appropriation made to USDA's Section 32 program. (5) P.L. 108-7 includes $3.1 billion in farm disaster assistance for 2000 and 2001 crop livestock losses. The cost of this assistance in the final law was offset by a limitation placed onmandatory spending for the Conservation Security Program over a ten-year period (FY2004-FY2013). This additional spending does not appear in the grand total listed above. (6) Division H of P.L.108-199 contains $225 million in supplemental funding for various USDA assistance programs (including $50 million for USDA's Forest Service, which is fundedunder the Interior appropriations bill). Spending for this assistance was offset in the conferenceagreement by a mandated rescission of $225 million from the Federal Emergency ManagementAgency (FEMA).

On January 23, 2004, the President signed into law an FY2004 consolidated appropriations measure ( P.L. 108-199 , H.R. 2673 ) that includes annual funding for the U.S.Department of Agriculture and Related Agencies. The full House approved the conference agreementof the measure on December 8, 2003. Senate floor action on the conference agreement was delayedfor several weeks until a cloture motion was approved and the conference agreement was adoptedon January 22, 2004. Part of the reason for the delay in Senate consideration of the measure wasopposition to a conference-adopted provision that postpones implementation of country-of-originlabeling (COOL) for fresh fruits and vegetables, and red meats, for two years, until September 30,2006. Until enactment of P.L. 108-199 , FY2004 spending for USDA and related agencies had beengoverned by several continuing resolutions (most recently P.L. 108-135 , H.J.Res. 79 ),which allowed FY2004 spending to continue at the FY2003 level. The FY2004 consolidated appropriations act contains $80.63 billion for USDA and related agencies for FY2004 (excluding the effects of a 0.59% across-the-board rescission in alldiscretionary, non-defense accounts, as required by the final law). As originally reported by theirrespective committees, H.R. 2673 and S. 1427 contained nearly identicalappropriations of $77.49 billion. However, the Senate added $2.2 billion to the mandatory foodstamp account to reflect more recent projections of program participation, and conferees added $1billion to the food stamp reserve account. Just over three-fourths ($63.7 billion) of the spending inthe agriculture portion (Division A) of P.L. 108-199 is classified as mandatory spending, includingfood stamps, child nutrition programs, crop insurance, and the various farm support programs fundedthrough USDA's Commodity Credit Corporation. The balance of spending ($16.9 billion) in Division A is for discretionary programs, which is$198 million below the Administration's request and $61 million below both the House- andSenate-passed levels. Discretionary spending in Division A of the measure is $963 million belowthe FY2003 enacted level including supplementals. Agriculture appropriators were allocated nearly$1 billion less for FY2004 discretionary accounts than the FY2003 level including supplementals.To help achieve this goal, P.L. 108-199 includes an FY2004 appropriation for foreign food aid thatis $572 million below the FY2003 level (which was bolstered by supplemental spending). Also, P.L.108-199 contains provisions that limit or prohibit spending on certain mandatory conservation, ruraldevelopment, and research programs, which in total reduced spending in these accounts byapproximately $650 million from authorized levels. The measure did not include a Senate provision that would have relaxed the licensing requirement for travel to Cuba for the sale of agricultural and medical products. Conferees alsorejected a House provision that would have blocked FDA from preventing individuals fromimporting cheaper FDA-approved prescription drugs from foreign suppliers. Key Policy Staff Division abbreviations: RSI = Resources, Science and Industry; DSP = Domestic Social Policy; G&F = Government and Finance

Medicaid Eligibility and Benefit Coverage Historically, eligibility for Medicaid was subject to "categorical restrictions" that generally limited coverage to the elderly, persons with disabilities, members of families with dependent children, certain other pregnant women and children, among others. As of January 1, 2014, federal law allows states to expand Medicaid eligibility for citizens with income up to 133% of the federal poverty level who do not fit into these traditional categories. The Congressional Budget Office (CBO) estimated that the coverage expansion provisions in the ACA would increase enrollment in both the Medicaid and the State Children's Health Insurance Programs by about 7 million in CY2014, rising to 13 million by CY2024. To qualify for Medicaid, applicants must have income (and sometimes assets) that meet financial requirements. These financial criteria are usually tied to specific percentages of the federal poverty level (FPL), and are sometimes based on certain cash assistance programs (e.g., Supplemental Security Income or SSI). Below is a description of services available for Medicaid beneficiaries by eligibility classification. First, "categorical needy" individuals represent the vast majority of people enrolled in Medicaid, most of whom receive traditional Medicaid benefits (described in more detail in the " Traditional Medicaid Benefits " subsection). The Patient Protection and Affordable Care Act (ACA; P.L. 111-148 , as amended) required that a newly established categorically needy group consisting of poor nonelderly, non-pregnant adults with income below 133% FPL receive Medicaid benefits through Alternative Benefit Plans (ABPs). However, on June 28, 2012, the United States Supreme Court issued a decision in National Federation of Independent Business v. Sebelius making this ACA Medicaid expansion optional. For the medically needy subgroup, states may offer a more restrictive benefit package than is available to most categorically needy individuals. Such individuals include people who meet the main categorical restrictions described above but may have higher income. States electing the medically needy option must provide coverage to certain pregnant women (i.e., prenatal and delivery services) and children under age 18. Finally, states also use waiver authority to design benefit packages. Under Section 1115 waivers, states tailor benefits to state-specified subpopulations that can include both currently authorized groups and/or new groups not specified in federal statute. Each such waiver delineates the unique terms and conditions that are negotiated between a given state and the federal Centers for Medicare & Medicaid Services (CMS). , Table 1 provides examples of Medicaid benefits available by selected eligibility classifications. Mandatory benefits are services that a state must cover in its state Medicaid plan. Likewise, there are also a number of optional benefits that states may choose to cover. As illustrated, different Medicaid subpopulations may have access to benefit packages that can be quite varied, and can be categorized into two broad groups: (1) traditional benefits, and (2) Alternative Benefit Plans (ABPs). Additional details are described further below. Traditional Medicaid Benefits Under federal law, states must cover certain benefits, while other services may be offered at state option. Examples of benefits that are mandatory for most Medicaid groups (i.e., categorically needy populations excluding the ACA Medicaid expansion subgroup) include inpatient hospital services, physician services, laboratory and x-ray services, early and periodic screening, diagnostic and treatment services (EPSDT) for individuals under 21, nursing facility services for individuals aged 21 and over, and home health care for those entitled to nursing facility care. Examples of optional benefits for such Medicaid groups include prescribed drugs, physician-directed clinic services, services of other licensed practitioners (e.g., chiropractors, podiatrists, psychologists), nursing facility services for individuals under age 21, physical therapy, and prosthetic devices. Table 2 provides additional information on selected mandatory benefits for most categorically needy subpopulations under the traditional Medicaid program. Table 3 provides additional information for selected optional benefits covered by most states under the traditional Medicaid program near the end of 2010 and beginning of 2011. The breadth of coverage for a given benefit can and does vary from state to state, even for mandatory benefits. For example, states may place different limits on the amount of inpatient hospital services a beneficiary can receive in a year (e.g., up to 15 days of inpatient days per year in one state versus unlimited inpatient days in another state). In general, in defining a covered benefit, federal guidelines require that (1) services be sufficient in amount, duration, and scope to reasonably achieve their purpose; (2) the amount, duration, and scope of services must be the same statewide; (3) within a state, services available to various categorically needy groups must be equal in amount, duration, and scope; and (4) with some exceptions, beneficiaries must have freedom of choice of providers among health care practitioners or managed care entities participating in Medicaid. States can modify these rules via existing waiver authority provided in Section 1115 of the Social Security Act. Medicaid Alternative Benefit Plans (ABPs) As an alternative to providing all the mandatory and selected optional benefits under traditional Medicaid, the Deficit Reduction Act of 2005 (DRA; P.L. 109-171 ) gave states the option to enroll state-specified groups in what were referred to as benchmark or benchmark-equivalent coverage, but are currently called ABPs. The ACA made significant changes to both ABP design and requirements. Examples of those changes are provided below. Individuals eligible for Medicaid through the ACA Medicaid expansion are required to have ABP coverage. States can also require "full benefit eligibles" (or specific subgroups of these individuals) to enroll in Medicaid ABPs. A full benefit eligible is someone who is eligible for all the mandatory and optional services that a state covers under its traditional Medicaid program. States have the option to provide ABP coverage to other sub-populations, and these plans can also exist in sub-state areas. Medically needy and certain spend-down populations (e.g., individuals whose Medicaid eligibility is based on a reduction of countable income for costs incurred for medical or remedial care) are excluded from the definition of a full benefit eligible. Medically needy populations can continue to receive coverage through the medically needy program, or if they are eligible for the ACA Medicaid expansion subgroup, they can receive services through an ABP. Such individuals can choose which coverage option they believe would be most beneficial to them. Additional sub-groups are also 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). Table 4 provides a description of each of these other exempted populations. These exempted groups may get traditional Medicaid benefits or may be offered voluntary enrollment in ABPs. In such cases, states must describe the differences between traditional Medicaid and ABPs to these beneficiaries in order to facilitate an informed choice. In general, ABPs may cover fewer benefits than traditional Medicaid, but there are some requirements, such as coverage of EPSDT and transportation to and from medical providers (as per a 2010 regulation), that might make them more generous than private health care insurance. Starting in 2014, both ABP and ABP-equivalent packages must cover at least the 10 essential health benefits that also apply to plans in the private individual and small group health insurance markets. These essential health benefits (EHBs) are (1) ambulatory patient services, (2) emergency services, (3) hospitalization, (4) maternity and newborn care, (5) mental health and substance use disorder services (including behavioral health treatment), (6) prescribed drugs, (7) rehabilitative and habilitative services and devices, (8) lab services, (9) preventive and wellness services and chronic disease management, and (10) pediatric services, including oral and vision care. For calendar years 2014 and 2015, HHS requires states to define details for each EHB; however, this process may change in the future. Certain services are not considered to be EHBs, including (1) routine non-pediatric dental services, (2) routine non-pediatric eye exams, (3) long-term/custodial nursing home care, or (4) non-medically necessary orthodontia. All ABP plans must also cover family planning services and supplies. Such plans must also comply with the requirements of the Mental Health Parity and Addiction Equity Act (MHPAEA) mental health services. In addition, for children under age 21, ABP and ABP-equivalent coverage must include EPSDT. Also, Medicaid beneficiaries enrolled in such coverage must have access to services provided by rural health clinics and federally qualified health centers. In designing a Medicaid ABP, several steps are required. First, states select a coverage option among the following choices: (1) the Blue Cross/Blue Shield standard provider plan under the Federal Employees Health Benefits Program (FEHBP), (2) a plan offered to and generally available to state employees, (3) the largest commercial health maintenance organization (HMO) in the state, and (4) Secretary-approved coverage appropriate to meet the needs of the targeted population. ABP-equivalent coverage must have the same actuarial value as one of the four ABPs. Second, states then determine if the selected option is also one of the health insurance exchange base-benchmark plan options that the Secretary of HHS has indicated can be used to define all 10 essential health benefits (listed above). The EHB base benchmark choices include (1) any of the three largest small group market health plans by enrollment, (2) any of the three largest state employee health benefit plans by enrollment, (3) any of the three largest federal employee health benefit plans by aggregate enrollment, and (4) the largest, insured commercial non-Medicaid health maintenance organization (HMO) operating in the state. As long as all of the EHB categories are covered, the requirements for the provision of coverage would be met. If not, states must select one of the EHB base-benchmark plan options and supplement it with any missing EHB benefits from other EHB base-benchmark plans, or the Medicaid state plan as necessary. Benefit substitution rules also apply to EHBs in ABPs and ABP-equivalent plans. States may substitute benefits when (1) a service is actuarially equivalent to the benefit being replaced, (2) the replacement benefit is selected only within the same EHB category, and (3) the service is not a prescription drug benefit. In addition, benefit substitutions can be made when a state submits evidence of actuarial-equivalence that (1) has been certified by a member of the American Academy of Actuaries, (2) is based on an analysis performed in accordance with generally accepted actuarial principals and methodologies, (3) is based on a standardized plan population, and (4) is determined regardless of beneficiary cost-sharing. Other rules apply to Medicaid ABP coverage for prescription drugs, rehabilitative services and devices and habilitative services and devices, and preventive care. A health plan will not be considered to provide EHBs unless it covers at least the greater of (a) one drug in every U.S. Pharmacopeia (USP) category or class, or (b) the same number of prescription drugs in each category and class as the EHB base benchmark plan. A health plan must also submit its drug list to the health insurance exchange, the state, or the Office of Personnel Management (OPM), as applicable. And a health plan providing EHBs must have procedures in place that allow an enrollee to have access to clinically appropriate drugs not covered by the health plan. As noted above, rehabilitative and habilitative services and devices are among the 10 EHB categories, and thus are mandatory benefits under ABPs. There is not a standard definition for these services in federal statute. The July 15, 2013, final rule indicates that the Centers for Medicare and Medicaid Services (CMS) is not prescribing a specific definition for these services, and states may choose to adopt service definitions that are similar to those provided by the National Association of Insurance Commissioners (NAIC). Rehabilitative services and devices include long-term services and supports designed to assist a person to prevent deterioration and regain or maintain a skill or function acquired and then lost or impaired due to illness, injury, or disabling condition. In addition, NAIC notes that habilitative services and devices are designed to attain or maintain a skill or function never learned or acquired due to a disabling condition. CMS has also indicated that it will consider the need for further guidance, based on experience in implementing these services and devices. Under traditional Medicaid state plan coverage, states may cover preventive services, such as vaccinations or regular physical examinations, diagnostic services, rehabilitative services, and the services of other practitioners recognized by the state, although they may be included with mandatory services such as early and periodic screening, diagnosis and treatment (EPSDT) or home health care. Medicaid ABPs must cover preventive care at least at the minimum level required for EHBs. This means that they must cover preventive services that are rated A or B by the U.S. Preventive Services Task Force, adult immunizations recommended by the Advisory Committee on Immunization Practices, and women's services recommended by the Health Resources and Services Administration. Cost-sharing for these preventive services is prohibited under Medicaid ABPs. The ACA also created health insurance exchanges in which individuals ineligible for Medicaid due to income can purchase coverage that meets their needs. Some benefit requirements overlap between Medicaid ABPs and health insurance exchange plans. Thus, when individuals' income changes (increases or decreases over time), they can move back and forth between ABPs and health insurance exchange coverage as needed. In addition, common requirements between health insurance exchange coverage and ABPs (e.g., essential health benefits, supplementation and substitution of benefits) can also be used by states to align traditional Medicaid benefits with ABP coverage. As noted above, states have had the authority to implement benchmark benefit packages in their Medicaid programs since the Deficit Reduction Act of 2005. The requirements applicable to the current ABPs are different from the requirements that applied to former benchmark plans. These latter plans must adhere to the new ABP requirements if states wish to continue using them. It is unclear how state experiences with Medicaid benchmark plans to date will influence the design of such benefit packages in 2014. States with no such experience may look to those states that have implemented benchmark packages for lessons learned in order to make choices tailored to their given circumstances and resources. Also, states that implement the ACA Medicaid eligibility expansion could decide to provide ABP coverage to other eligibility groups. And states that do not take up this eligibility expansion might decide to utilize ABP coverage for other subpopulations. State Experience with ABPs Table 5 provides information about selected characteristics of ABPs for 15 states. This table is not exhaustive nor is it comprehensive for each state listed, but rather is intended to illustrate cross-state similarities and variation in covered ABP benefits. All of the plans shown are being implemented statewide. For a few states, covered ABP benefits are the same as those offered under traditional Medicaid. Dental care for adults (or selected subgroups of adults) is covered in six states (Kentucky #2, Minnesota, Nevada, Ohio, Oregon, and Vermont). Non-emergency medical transportation is offered in four states (Arizona, Maryland, Nevada, and Oregon). And four states (Maryland, Minnesota, Nevada, and Ohio) include coverage of nursing facility care in their ABPs. Mental Health Parity Requirements Under Both Traditional Medicaid and ABP Plans The federal mental health parity requirements, as established in the Public Health Service Act (Section 2726), generally mandate that, under a given insurance plan, coverage of mental health and addiction services (if offered) should be on par with coverage of medical and surgical services in terms of the treatment limitations (e.g., amount, duration, and scope of benefits), financial requirements (e.g., beneficiary co-payments), in- and out-of-network covered benefits, and annual and lifetime dollar limits. Managed care plans under both traditional Medicaid and ABPs must comply with all federal mental health parity requirements. ABPs that are not managed care plans are only required to comply with federal requirements for parity in treatment limitations and financial requirements. These plans are deemed to comply with federal mental health parity requirements if they offer EPSDT to individuals under age 21, for which they are statutorily required to cover. Additional CRS Medicaid and CHIP Resources CRS Report R43357, Medicaid: An Overview CRS Report R41210, Medicaid and the State Children's Health Insurance Program (CHIP) Provisions in ACA: Summary and Timeline CRS Report R42978, Comparing Medicaid and Exchanges: Benefits and Costs for Individuals and Families CRS Report R43328, Medicaid Coverage of Long-Term Services and Supports

The Medicaid program, which served an estimated 56.7 million people in FY2012, finances the delivery of a wide variety of preventive, primary, and acute care services as well as long-term services and supports for certain low-income populations. Benefits are available to beneficiaries through two avenues: traditional coverage and alternative benefit plans (ABPs, formerly known as benchmark plans, first established in P.L. 109-171, the Deficit Reduction Act of 2005). The traditional Medicaid program covers a wide variety of mandatory services (e.g., inpatient hospital services, lab/x-ray services, physician care, nursing facility care for persons aged 21 and over), and other services at state option (e.g., prescribed drugs, physician-directed clinic services, physical therapy, prosthetic devices) to the majority of Medicaid beneficiaries across the United States. Within broad federal guidelines, states define the amount, duration, and scope of these benefits. Thus, even mandatory services are not identical from state to state. With the enactment of the Patient Protection and Affordable Care Act in 2010 (ACA; P.L. 111-148, as amended), benefit requirements have expanded under ABPs. At a minimum, these plans must cover essential health benefits (i.e., ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance use disorder services [including behavioral health treatment], prescribed drugs, rehabilitative and habilitative services and devices, lab services, preventive and wellness services and chronic disease management, and pediatric services, including oral and vision care). In addition, at state option, a new group of citizens with income up to 133% of the federal poverty level is eligible for Medicaid as of January 1, 2014. These individuals are required to receive ABPs rather than traditional Medicaid benefits (with some exceptions for subgroups with special medical needs). This report outlines the major rules that govern and define both traditional Medicaid and ABPs. It also compares the similarities and differences between these two benefit package designs.

Introduction The U.S. Agency for International Development (USAID) plays a central role in shaping and implementing U.S. global health policy. The agency is one of three agencies tasked with leading the Global Health Initiative (GHI), an initiative created by the Obama Administration to coordinate ongoing presidential health initiatives and raise investments in other health areas, including maternal and child health, neglected tropical diseases, and family planning and reproductive health ( Figure 1 ). USAID also coordinates and acts as an implementing partner in three presidential initiatives that comprise the bulk of U.S. global health assistance. The agency leads the implementation of the President's Malaria Initiative (PMI) and the Neglected Tropical Diseases (NTD) Program, and is an implementing partner of the President's Emergency Plan for AIDS Relief (PEPFAR), which is coordinated by the State Department. In addition, USAID manages its own bilateral health programs. This report highlights the health-related activities conducted by USAID worldwide, outlines how much the agency has spent on such efforts from FY2001 to FY2011, and highlights FY2012 proposed funding levels. Background Since USAID was created in 1961 through the Foreign Assistance Act of 1961, congressional support for global health, in general, and USAID's global health programs, in particular, have grown. Appropriations for USAID rose from $1.4 billion in FY2001 to $2.5 billion in FY2011. Funding growth occurred most precipitously during the George W. Bush Administration, when Congress provided unprecedented resources to fight new and re-emergent diseases, including HIV/AIDS, multi- and extremely drug-resistant tuberculosis (MDR- and XDR-TB), severe acute respiratory syndrome (SARS), H5N1 (bird flu), and H1N1 pandemic flu. Congressional support also followed the launching of several presidential health initiatives—PEPFAR (HIV/AIDS), PMI (malaria), NTD Program (neglected tropical diseases). Congress funds USAID's global health activities through the State, Foreign Operations and Related Programs (State-Foreign Operations) appropriations. Through this vehicle, Congress appropriates funds directly to USAID through the Global Health and Child Survival (GHCS) account and USAID uses additional funds from other accounts within State-Foreign Operations, including the Development Assistance and the Economic Support Fund accounts, to support its global health programs. Appropriators do not specify how much USAID should spend through these other accounts on its global health programs. The additional funds provided through other accounts for other USAID global health programs can be significant ( Table 1 ). USAID Global Health Programs Congress specifies support for five USAID global health program areas: Child Survival and Maternal Health aims to reduce morbidity and mortality from diseases like polio, measles, and diarrhea; provide vaccines and immunizations; support safe delivery; and address malnutrition. Vulnerable Children aims to provide services to vulnerable children and orphans, particularly those affected by blindness or war (support for children made vulnerable by HIV/AIDS is provided through HIV/AIDS funds). HIV/AIDS aims to prevent, treat, and address the impacts of HIV/AIDS—particularly among vulnerable populations such as women, girls, and orphans—through voluntary counseling and testing, awareness campaigns, and antiretroviral medicines, among other activities. Other Infectious Diseases aims to address a number of diseases and resultant outbreaks, such as those related to pandemic and avian influenza, malaria, TB, and neglected tropical diseases (NTDs). Family Planning and Reproductive Health aims to increase access to related services, such as reproductive health education, and to improve awareness about birth spacing, contraception, and sexually transmitted diseases. Funding for these programs has mostly been on an upward trajectory, though increased support has been aimed primarily at fighting infectious diseases. Successive waves of infectious disease outbreaks have garnered significant attention from Congress and have generated rigorous debate on balancing efforts to address infectious disease threats, including HIV/AIDS, malaria, pandemic influenza, and tuberculosis, with other long-standing health challenges like high maternal and child mortality rates, widespread morbidity from neglected tropical diseases, and strengthening the capacity of poor countries to address their own health challenges. In 2009, President Barack Obama announced the Global Health Initiative to increase investments in health areas that he deemed underfunded, bolster the health systems of weak and impoverished states, and improve the coordination of presidential health initiatives established during the Bush Administration (PEPFAR, PMI, and the NTD Program) as well as other USAID and Centers for Disease Control and Prevention (CDC) bilateral health programs. Congress has generally supported presidential health initiatives, including the Global Health Initiative, and has mostly met funding requests associated with these efforts. On April 15, 2011, the President signed the Department of Defense and Full-Year Continuing Appropriations Act, 2011 ( P.L. 112-10 ), into law. The act provided $2.5 billion to USAID for global health programs in FY2011 but did not specify how much USAID should spend on each activity. As of June 28, 2011, many program details about FY2011 funding levels remain unavailable. Presidential Health Initiatives The bulk of U.S. global health assistance is aimed at mitigating the impact of infectious diseases, through three presidential initiatives: PEPFAR (HIV/AIDS), PMI (malaria), and the NTD Program (neglected tropical diseases). In FY2010, for example, nearly 81% of all U.S. global health spending was aimed at these initiatives. The Global Health Initiative is distinct from PEPFAR, PMI, and the NTD Program, because it is not aimed at a particular disease and does not call for significant adjustments to ongoing efforts. Instead, the initiative intends to coordinate ongoing U.S. global health activities and, through GHI-Plus countries, identify strategies for improving the efficacy, impact, and sustainability of U.S. bilateral global health programs. USAID plays an important role in each of these initiatives, both as an implementing and coordinating agency. The sections below briefly describe each initiative and USAID's role in carrying out these efforts. President's Emergency Plan for AIDS Relief (PEPFAR) In January 2003, President Bush announced PEPFAR, a government-wide initiative to combat global HIV/AIDS. PEPFAR supports a wide range of HIV/AIDS prevention, treatment, and care activities and is the largest commitment by any nation to combat a single disease. In FY2004, Congress authorized $15 billion to be spent over five years in support of bilateral HIV/AIDS programs and the Global Fund. In 2008, through the Tom Lantos and Henry J. Hyde United States Global Leadership Against HIV/AIDS, Tuberculosis, and Malaria Reauthorization Act of 2008 ( P.L. 110-293 ), Congress authorized an additional $48 billion to be spent over five years in support of PEPFAR, which also included $4 billion for TB and $5 billion for malaria. PEPFAR is overseen by the Office of the Global AIDS Coordinator (OGAC) at the State Department. In this capacity, the State Department transfers most of the resources it receives from Congress for PEPFAR programs to implementing bilateral agencies and other multilateral organizations, including the Global Fund and the Joint United Nations Program on HIV/AIDS (UNAIDS) that carry out global HIV/AIDS efforts. USAID accounted for nearly half of all PEPFAR obligations between FY2004 and FY2010 ( Table 2 ). As of September 30, 2010, U.S. implementing agencies, including USAID, supported life-saving HIV treatments for more than 3.2 million people and medicine to prevent the transmission of HIV from mother to child for more than 600,000 HIV-positive pregnant women. The Appendix offers additional data by country ( Table A-2 ). President's Malaria Initiative (PMI) In June 2005, President Bush announced PMI in order to expand and coordinate U.S. global malaria efforts. PMI was originally established as a five-year, $1.2 billion effort to halve the number of malaria-related deaths in 15 sub-Saharan African countries through the expansion of four prevention and treatment techniques: indoor residual spraying (IRS), insecticide-treated nets (ITNs), artemisinin-based combination therapies (ACTs), and intermittent preventative treatment for pregnant women (IPTp). The Obama Administration expanded the range of PMI to include Nigeria and the Democratic Republic of the Congo as focus countries and augmented the goal of the initiative to include halving the burden of malaria (including morbidity and mortality) among 70% of at-risk populations in Africa by 2014. PMI is led by USAID and jointly implemented by USAID and CDC. PMI is overseen by the U.S. Malaria Coordinator at USAID, who is advised by an Interagency Steering Group that includes representatives from USAID, HHS, the Department of State, DOD, the National Security Council (NSC), and the Office of Management and Budget (OMB). From FY2005 to FY2010, USAID obligated roughly $1.4 billion for PMI-related activities ( Table 3 ). Figure A-1 in the Appendix outlines PMI spending by country. It is important to note that these figures reflect spending on PMI only and do not include additional spending on global malaria programs through other USAID programs or other U.S. agencies, including CDC and NIH. As of December 31, 2011, USAID reported supporting the provision of 45.4 million insecticide-treated nets and 105.6 million malaria treatments, including 10.3 million tablets to prevent the transmission of malaria from mother to child. More detailed information about PMI results are outlined in the Appendix ( Figure A-2 ). Neglected Tropical Disease (NTD) Program9 In response to FY2006 appropriations language that directed USAID to make available at least $15 million for combating seven NTDs, the agency launched the NTD Program in September 2006. Originally, the NTD Program aimed to support the provision of 160 million NTD treatments to 40 million people in 15 countries. President Bush reaffirmed his commitment to the program in 2008 and proposed spending $350 million from FY2008 through FY2013 on expanding the fight against seven NTDs to 30 countries. The Obama Administration amended the targets of the NTD program and called for the United States to support the administration of nearly 1 billion NTD treatments in 30 countries. As of February 17, 2011, USAID has reportedly supported the delivery of more than 387 million NTD medicines to treat roughly 170 million people. The Global Health Initiative In May 2009, President Obama announced the Global Health Initiative, a six-year plan projected to cost $63 billion. GHI aims to develop a comprehensive U.S. global health strategy for existing U.S. global health programs, including the programs and initiatives outlined above. GHI calls for shifting the U.S. approach to global health from one focused on specific diseases to one that comprehensively addresses a variety of health challenges through strengthening health systems and improving coordination and integration of distinct global health programs. In June 2010, eight countries were chosen as "GHI Plus Countries" and are serving as "learning laboratories" to inform future U.S. global health efforts. In partnership with national governments, USAID, CDC, and the Department of State are completing multi-year joint strategic plans for each GHI Plus Country. These strategic plans aim to identify unnecessary programmatic duplications, find opportunities for integration, and better align U.S. programs with the priorities of national governments. These plans are not intended to replace current disease-specific strategies, but rather to serve as an overarching strategic guide under which each program will operate. GHI is currently coordinated by an executive director at the Department of State who reports to both the Secretary of State and the GHI Operations Committee, which comprises the USAID Administrator, the Global AIDS Coordinator, and the Director of CDC. The Operations Committee is charged with oversight and management of the initiative. Leadership of GHI is expected to transition from the State Department to USAID in FY2012, should USAID meet a set of benchmarks related to management capacity, outlined in the Quadrennial Diplomacy and Development Review. The State Department will continue to lead PEPFAR, even after USAID assumes leadership of GHI. FY2012 Budget and Issues The Obama Administration requests an estimated $3.1 billion in support of USAID's global health efforts through the GHCS account for FY2012. After PEPFAR was launched, U.S. efforts to address HIV/AIDS dominated congressional discussions and appropriations for global health. Since announcing GHI in 2009, the President has gradually increased requests for non-HIV/AIDS programs. Congress has fully funded these requests, which has led to a slight shift in how USAID global health funds are distributed ( Figure 3 ). The vast majority of USAID's global health programs are funded through the Global Health and Child Survival account. The account is also used to fund the coordination of PEPFAR programs by the Department of State. These amounts are not included in the figure below. Additional funds that USAID uses to support its global health programs through other accounts in the State-Foreign Operations appropriations are also not included in the figure below, as Congress does not typically direct spending for global health through these other accounts (see Table 1 ). The Obama Administration requests that in FY2012, Congress provide approximately 25% more for USAID's global health activities funded through the GHCS account than in FY2010. The majority of the increases are aimed at areas the Administration has prioritized through GHI, including strengthening national health systems and raising investments in areas where progress has lagged. The most notable increases include $846 million for child survival and maternal health programs, up 78.5% from the $474 million Congress provided in FY2010; $100 million for neglected tropical diseases, up 54% from the $65 million provided in FY2010; and $626 million for family planning and reproductive health, up 19% from the $525 million provided in FY2010. Since the George W. Bush Administration, successive Congresses have mostly appropriated funds for USAID's global health programs in excess of presidential requests. As concerns about the U.S. economy have heightened, however, Congress has sought ways to reduce federal spending. Some Members of the 112 th Congress have begun to question U.S. foreign aid levels, in general, and to argue for the reduction or elimination of health assistance. Although some Members of Congress argue that cuts to these programs could yield important savings, others contend that such reductions would have little impact on the federal deficit but could significantly imperil the lives of vulnerable populations reliant on U.S. health assistance. Congressional debate over funding levels for global health programs is tied to broader, longstanding discussions over the value, design, and funding levels of foreign aid programs. These debates are related to concern over aid effectiveness and reform of USAID, as well as the U.S. federal budget deficit and efforts to reduce government spending. Some Members have long-questioned the impact of U.S. global health investments, have called attention to corruption practices by various recipient governments receiving global health assistance, and have encouraged greater commitment to global health issues by these states. In March 2011, Members of the House Appropriations Subcommittee on State-Foreign Operations raised some of these concerns at oversight and budget hearings. In relation to the Administration's FY2012 budget request, some Members of Congress have argued that investing significant resources in global health represents "misplaced priorities" in a difficult fiscal environment. Some have also argued that delaying spending cuts for global health now might necessitate more drastic cuts in the future. USAID is reportedly responding to concerns over aid effectiveness. For example, USAID Administrator Rajiv Shah created a new suspension and debarment task force, led by Deputy Administrator Don Steinber, to monitor, investigate, and respond to suspicious activity. USAID also requests $19.7 million to implement a new evaluation policy that would require all major projects to undergo an independent evaluation with results being released within three months of completion. Finally, Administrator Shah announced USAID would begin to fund programs based on "unit cost of impact" and that USAID would aim investments at programs that were the most efficient and effective and divest from those that had "a unit cost of impact that is unnecessarily high." Appendix. USAID Global Health Data in Detail

A number of U.S. agencies and departments implement U.S. government global health interventions. The U.S. Agency for International Development (USAID) plays a particularly central role. The agency is responsible for coordinating two important presidential health initiatives—the President's Malaria Initiative (PMI) and the Neglected Tropical Diseases (NTD) Program. USAID serves as an implementing agency of the largest U.S. global health program—the President's Emergency Plan for AIDS Relief (PEPFAR)—and is set to assume leadership over the Global Health Initiative (GHI) in September 2012 (presuming it meets a set of benchmarks related to management capacity, as outlined in the Quadrennial Diplomacy and Development Review). In addition, Congress appropriates the most funds to USAID for global health efforts, excluding provisions for presidential health initiatives, which are carried out by several agencies, including USAID. Congress appropriates funds to USAID for global health activities through five main budget lines: Child Survival and Maternal Health (CS/MH), Vulnerable Children (VC), HIV/AIDS, Other Infectious Diseases (OID), and Family Planning and Reproductive Health (FP/RH). From FY2001 through FY2010, Congress appropriated nearly $20 billion to USAID for global health programs, including contributions to the United Nations' Children's Fund (UNICEF) and the Global Fund to Fight AIDS, Malaria, and Tuberculosis (Global Fund). From FY2001 through FY2010, the greatest budgetary growth was aimed at fighting infectious diseases, mainly malaria, tuberculosis (TB), and pandemic influenza. President Barack Obama indicated early in his Administration that global health is a priority and that his Administration would continue to focus global health efforts on addressing HIV/AIDS. When releasing his FY2012 budget request, President Obama indicated that his Administration would increase investments in global health programs and, through the Global Health Initiative, improve the coordination of all global health programs. The President requested that in FY2012, Congress provide $3.8 billion for USAID's global health programs funded through the Global Health and Child Survival (GHCS) account. There is a growing consensus that U.S. global health assistance needs to become more efficient and effective. There is some debate, however, on the best strategies. This report explains the role USAID plays in U.S. global health assistance, highlights how much the agency has spent on global health efforts from FY2001 to FY2012, discusses how funding to each of its programs has changed during this period, and raises some related policy questions. For more information on all U.S. global health assistance, see CRS Report R41851, U.S. Global Health Assistance: Background and Issues for the 112th Congress, by [author name scrubbed] and [author name scrubbed].

U.S.-EU Relations: Background The European Union (EU) is a treaty-based, institutional framework that defines and manages economic and political cooperation among its 27 member states (Austria, Belgium, Bulgaria, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and the United Kingdom). The Union is the latest stage in a process of European integration begun after World War II to promote peace and economic prosperity in Europe. This European integration project has evolved over the last decade from encompassing primarily economic sectors to include developing a common foreign policy, an EU defense arm, and closer police and judicial cooperation. The U.S. Congress and successive U.S. administrations have supported the EU project since its inception as a way to foster a stable Europe, democratic states, and strong trading partners. The United States has welcomed EU efforts since the end of the Cold War to expand the political and economic benefits of membership to central and eastern Europe, and supports the EU aspirations of Turkey and the western Balkan states. The United States and the EU share a huge and mutually beneficial economic relationship. Two-way flows of goods, services, and foreign investment now exceed $1.0 trillion on an annual basis, and the total stock of two-way direct investment is over $1.9 trillion. Nevertheless, the U.S.-EU relationship has been challenged in recent years as numerous trade and foreign policy conflicts have emerged. The 2003 crisis over Iraq, which bitterly divided the EU and severely strained U.S.-EU relations, is most notable, but the list of disagreements has been wide and varied. Although Europeans are not monolithic in their views, many EU member states have objected to at least some elements of U.S. policy on issues ranging from the Israeli-Palestinian conflict to U.S. treatment of terrorist detainees to climate change and aircraft subsidies. Since 2003, however, both sides have made efforts to improve relations, and successive U.S.-EU summits have sought to emphasize areas of cooperation and partnership. At the same time, challenges and some tensions remain in the U.S.-EU relationship. Issues at the U.S.-EU April 2007 Summit U.S.-EU summits are held annually; the 2007 summit took place on April 30 in Washington, DC. President Bush, leading the U.S. side, met with Chancellor Angela Merkel of Germany, the holder of the EU's rotating six-month presidency for the first half of 2007, and European Commission President José Manuel Barroso, among others from the EU side. As in previous years, the two sides issued a declaration on political and security issues highlighting areas of U.S.-EU foreign policy cooperation on a wide range of global challenges, from Kosovo to Afghanistan to Darfur. Other summit deliverables were a framework on advancing transatlantic economic integration, the signing of a U.S.-EU air transport agreement, and a joint statement on energy security and climate change. Other selected issues in U.S.-EU relations that figured prominently in summit discussions were the Doha Round of multilateral trade negotiations; the Middle East, including Iran; counterterrorism; and the U.S. visa waiver program. Transatlantic Marketplace Initiative Upon assuming the EU Presidency in January 2007, Germany's Chancellor Angela Merkel proposed a new initiative to enhance and deepen the transatlantic economic relationship. The proposal advocated further liberalizing transatlantic trade and reducing investment barriers by reducing non-tariff and regulatory barriers to trade. The aim of such efforts is to lower costs to businesses on both sides of the Atlantic and to facilitate higher levels of economic growth. Since the establishment of the New Transatlantic Agenda in 1995, a number of initiatives have attempted to remove remaining non-tariff and regulatory barriers to trade. Although each successive initiative has made some progress towards reducing regulatory burdens, both European and U.S. companies heavily engaged in the transatlantic marketplace argue that the results have not proved materially significant. In a departure from these past efforts that relied substantially on voluntary and non-binding dialogues among regulators with political-level endorsement, the Merkel initiative proposed creating an overarching framework to provide greater commitment on the part of political leaders and greater accountability on the part of regulators. According to Business Europe , the EU's main business trade association, this would require legislators and officials to take into account how new laws and regulations affect the transatlantic marketplace. Merkel's proposal also covered issues such as public procurement, intellectual property, energy and the environment, financial markets and security, and innovation. Building on and borrowing from the Merkel initiative, the 2007 U.S.-EU Summit adopted a Framework for Advancing Transatlantic Economic Integration . The framework affirmed the importance of further deepening transatlantic economic integration, particularly through efforts to reduce or harmonize regulatory barriers to international trade and investment. A new institutional structure, a Transatlantic Economic Council (TEC), was established to advance this process. The TEC will be headed on both sides by ministerial-level appointees with cabinet rank. Its mandate is to accelerate on-going efforts to reduce regulatory barriers, in part, by introducing broader participation of stakeholders, including legislators, in the discussions and cooperative meetings. Meeting at least once a year, the TEC will monitor progress and try to identify areas where regulations could be reduced or harmonized. Despite this effort to provide a higher-level political commitment to accelerating transatlantic economic integration, U.S.-European differences in public values over issues such as health safety and environmental protection remain large. The goal of reducing regulatory barriers through harmonization efforts and improved cooperation, combined with divergent regulatory objectives and approaches, thus, remains a difficult target. Air Transport Agreement An aviation agreement—Open Skies Plus—between the United States and EU was signed at the April 30 summit. The agreement, which had been under negotiation for four years, will substantially liberalize the transatlantic air services market. Congressional approval will not be required. The accord will allow U.S. and EU airlines to fly between any city in the EU and any city in the United States with no restrictions on the number of flights, routes, or prices. It also will open to competition London's Heathrow Airport, where landing rights have been restricted to two British and two U.S. carriers. In addition, the agreement provides some enhanced foreign direct investment opportunities in each other's airlines. Open Skies Plus takes effect March 30, 2008, and calls for a second phase of aviation liberalization negotiations to commence by May 30, 2008. The European Commission predicts that the initial agreement will lower airline fares on transatlantic travel, expand the number of passengers over the next five years, and create 80,000 new jobs. But the agreement is not without controversy. Many Europeans argue that it is not balanced because it does not give European carriers the right to fly between U.S. cities and maintains limits on EU ownership of U.S. airlines. Although most U.S. airlines support the agreement, the major U.S. unions representing pilots, machinists, flight attendants, and baggage handlers oppose it on the grounds that it will lead to a further erosion of jobs, benefits, and wages. Doha Round The World Trade Organization's (WTO) Doha Development Round of multilateral trade negotiations has been suspended since July 2006. The round, which seeks to liberalize world trade flows and provide a boost to development and the world economy, has been stymied by persistent differences among the United States, the EU, and developing countries on major issues such as agriculture and services. Agreement between the EU and U.S. has been key to the conclusion of previous multilateral trade rounds. Accordingly, at the 2007 summit, leaders reaffirmed their "strong desire to reach a prompt agreement ... that is ambitious, balanced, and creates meaningful new trade flows in agriculture, industrial goods, and services among and between the developed and developing countries." Trade negotiators from the two sides, however, face a complicated task of getting the rest of the world to accept any agreement the United States and the EU might reach. Developing countries in particular are much more vociferous in their expectations and demands than they were in previous multilateral trade talks. Energy Security and Climate Change European leaders have made curbing global climate change an integral objective of EU energy security policy. In March 2007, EU members established binding targets for the use of renewable energy and biofuels and committed to cut greenhouse gas emissions by at least 20% compared to 1990 levels by 2020. Building on this agreement, European officials are reportedly seeking U.S. support for an international treaty regulating greenhouse gas emissions after 2012, when the U.N. Kyoto Protocol is set to expire, and for an international market-based carbon emissions credit trading system. The United States is not party to the Kyoto Protocol, and U.S. officials appear reluctant to commit to global regulation; instead, they advocate transatlantic cooperation to promote alternative and clean energy technology. In light of the differences on global climate change regulation, the United States and EU used the April 2007 summit to launch initiatives jointly promoting technological advances in clean coal and carbon capture and storage, energy efficiency, biofuels, and methane recovery, among other areas. Although European officials agree with the United States that these technologies should help improve transatlantic energy security and mitigate the negative effects of climate change, they are reportedly disappointed by perceived U.S. reluctance to pursue binding international emissions targets and a global carbon trading system. U.S. officials, pointing out that from 2000-2004 carbon dioxide emissions increased at a faster rate in the EU than in the United States, argue that the U.S. approach, based on fostering technological innovation as opposed to binding regulation, is proving more effective in curbing global warming. At the April 2007 summit, U.S. and European leaders sought to downplay differences over carbon emissions targets and carbon trading, expressing confidence that their decisions to promote clean and renewable energy sources represent a step forward in transatlantic cooperation both to increase energy security and curb climate change. However, analysts note that past efforts—such as a 2006 pledge creating an annual strategic review of U.S.-EU energy cooperation, a U.S.-EU High Level Dialogue on Climate Change, Clean Energy and Sustainable Development, and a U.S.-EU Energy CEO Forum—yielded little if any tangible progress. The Middle East Over the last few years, the United States and many EU members have differed sharply on policies toward Iraq, Iran, the Israeli-Palestinian conflict, and democracy promotion in the Middle East. Recently, however, the two sides seem to have found more common ground on some of these issues, and the April 2007 U.S.-EU summit highlighted such cooperation. Although EU officials continue to urge the Bush Administration to "do more" to get Israeli-Palestinian negotiations back on track, many appear encouraged by renewed U.S. diplomatic initiatives and note that Washington has backed Germany's efforts, as part of its EU presidency, to revitalize the largely stalled "road map" for a two-state solution. Washington and the EU have also managed to stay on the same page with regard to policies toward Hamas since it won a majority in the January 2006 Palestinian legislative elections. At the April 2007 summit, the United States and the EU essentially reaffirmed that Hamas must recognize Israel, renounce violence, and accept prior Israeli-Palestinian accords before either side permits contact with Hamas members of the new Hamas-Fatah coalition government. The United States and the EU continue to provide foreign assistance directly to the Palestinian people, rather than giving it through the coalition government; but some analysts question how long the United States and the EU will remain in lock step, suggesting that the EU may be inclined to resume direct aid to the new government sooner than the United States. As for Iran, the United States has intensified cooperation with France, Germany, and the UK (the "EU3") to curtail Iran's suspected nuclear weapons program. In December 2006, and again in March 2007, the EU3 and the United States gained U.N. Security Council approval for limited sanctions on Iran related to its nuclear work. U.S. officials have been urging EU countries to go even further by cutting off bank lending and other financial interactions; EU states have so far responded tepidly to such calls. Tensions between Iran and the West have also risen following Iran's seizure in March 2007 of 15 British naval personnel off the Iraq/Iran coast and amid U.S. accusations that elements of the Iranian government are supporting sectarian violence in Iraq and supplying insurgents with explosives. At the April 30, 2007 summit, the United States and EU reiterated their commitment to prevent an Iranian nuclear weapons capability and expressed their mutual concern about the negative effects of Iran's policies in the region, including in Iraq. The United States and the EU have generally cooperated in providing humanitarian relief and reconstruction assistance to Lebanon, following fighting in July-August 2006 between Israel and the Lebanon-based Hezbollah. A key sticking point, however, is that the EU does not recognize Hezbollah as a terrorist organization. Like the United States, the EU has called on Syria to end all interference in internal Lebanese affairs, but some analysts suggest that the EU has begun softening it policy of isolating the Syrian regime. In the summit declaration on political and security issues, however, the United States and the EU asserted that they remain concerned about Syria's role in the region and its repression of civil society. Observers suggest that any gap between the United States and the EU on Syria is not that wide, noting that EU officials have stressed that improved relations are contingent on constructive actions by Syria and that some in the United States advocate more engagement with Syria. They also point out that on May 3, 2007, U.S. Secretary of State Condoleezza Rice met with Syria's foreign minister on the sidelines of an international conference on Iraq. Countering Terrorism Washington has welcomed EU efforts over the last few years to boost police and judicial cooperation, stem terrorist financing, and improve border controls and transport security. The EU and the United States have concluded several new agreements on police information-sharing, extradition, mutual legal assistance, container security, and exchanging airline passenger data. Nevertheless, some challenges remain. For example, a U.S.-EU agreement allowing European air carriers to provide U.S. authorities with passenger data has been controversial because of fears that it compromises EU citizens' privacy rights; the current deal expires in July 2007, and some caution that European Parliamentarians and civil liberty groups may try to stymie its extension. Also, some EU members continue to resist U.S. entreaties to add suspected Hamas-related charities or Hezbollah to the EU's common terrorist list. Many Europeans fear that the United States is losing the battle for Muslim "hearts and minds" as a result of the Iraq war and some U.S. practices in combating terrorism. For example, EU officials would like the detention center at Guantánamo Bay closed because they believe it degrades shared values regarding human rights and disregards international accords on the treatment of prisoners. In addition, Europeans are concerned about U.S. rendition policy and a CIA program to detain and question suspected terrorists outside of the United States. U.S. officials charge that allegations of U.S. wrongdoing and ongoing criminal proceedings against CIA officials in some EU members may put U.S.-European intelligence cooperation at risk. During the 2007 summit, the United States and the EU reaffirmed that efforts to combat terrorism must comply with international law and promised to deepen U.S.-European dialogue on such issues. Visa Waiver Program (VWP) The EU would like the U.S. VWP, which permits short-term visa free travel for business or pleasure to the United States from certain countries, to be applied to all EU members. Currently, 12 EU members (mostly newer ones from central and eastern Europe) do not qualify for the VWP due to problems meeting the program's statutory requirements. The United States prefers to address this issue on a bilateral basis. However, in part because of growing EU frustration, President Bush announced in November 2006 that he would ask Congress to modify the VWP both to allow new EU members (and other interested states) to qualify more quickly and to strengthen the program's security components. Some Members of Congress oppose expanding or even continuing the VWP because of security concerns, noting that terrorists with European citizenship have entered the United States on the VWP (UK-born Richard Reid, the airplane "shoe bomber," and French citizen Zacarias Moussaoui, the "20 th " September 11 hijacker, being two examples). Other Members are more supportive of extending the VWP to new EU countries, given their roles as U.S. allies in NATO and in the fight against terrorism. In the 110 th Congress, several pieces of legislation on the VWP have been introduced in the House and Senate; most are in line with the Bush Administration's policy aims of both expanding the VWP and enhancing its security measures. EU officials continue to press the United States to treat all 27 member states equally under the VWP. At the April 30, 2007, summit, the two sides committed to work toward visa-free travel to the United States for all EU citizens.

The U.S. Congress and successive U.S. administrations have supported the European Union (EU) and the process of European integration as ways to foster a stable Europe, democratic states, and strong trading partners. In recent years, a number of trade and foreign policy conflicts have strained the U.S.-EU relationship. Since the divisive dispute over Iraq in 2003, however, both the United States and the EU have sought to improve cooperation and demonstrate a renewed commitment to partnership in tackling global challenges. This report evaluates the results of the annual U.S.-EU summit on April 30, 2007, in Washington, DC. It will not be updated again. Also see CRS Report RS21372, The European Union: Questions and Answers , by [author name scrubbed], and CRS Report RL30732, Trade Conflict and the U.S.-European Union Economic Relationship , by [author name scrubbed].

Introduction North Korea's systematic violation of its citizens' human rights and the plight of North Koreans trying to escape their country have been well documented in multiple reports issued by governments and other international bodies. The Bush Administration initially highlighted and later de-emphasized Pyongyang's human rights record as its policy on nuclear weapons negotiations evolved. Congress has consistently drawn attention to North Korean human rights violations on a bipartisan basis. On several occasions, Congress has criticized the executive branch for its approach to these issues, through tough questioning of Administration witnesses during multiple hearings and through written letters of protest to high-level officials. Although the Obama Administration has indicated that it will seek to continue the nuclear negotiations, it has not indicated how the issue of human rights will be addressed. The passage of the North Korean Human Rights Act of 2004 ( H.R. 4011 ; P.L. 108 - 333 ; and 22 U.S.C. 7801.) and its reauthorization in 2008 ( H.R. 5834 , P.L. 110 - 346 ) serve as the most prominent examples of legislative action on these issues. The legislation both reinforced some aspects of the Bush Administration's rhetoric on North Korea and expresses dissatisfaction with other elements of its policy on North Korea. The reauthorization bill explicitly criticizes the implementation of the original law and reasserts Congressional interest in adopting human rights as a major priority in U.S. policy toward North Korea. U.S. attention to North Korean human rights and refugees is complicated by the geopolitical sensitivities of East Asia. China is wary of U.S. involvement in the issue and chafes at any criticism based on human rights. South Korea also had reservations about a more active U.S. role, particularly in terms of refugees, although the current Lee administration in Seoul has been more amenable to such efforts. Both want to avoid a massive outflow of refugees, which they believe could trigger instability or the collapse of North Korea. U.S. executive branch officials worry that criticism of how Seoul and Beijing approach North Korea's human rights violations could disrupt the multilateral negotiations to deal with Pyongyang's nuclear weapons programs. North Korean refugees seeking resettlement often transit through other Asian countries, raising diplomatic, refugee, and security concerns for those governments. The Role of Human Rights in U.S. Policy Toward North Korea under the Bush Administration In the first several years of the Bush Administration, high-level officials, including the President and Secretary of State, publicly and forcefully criticized the regime in Pyongyang for its human rights practices. As efforts to push forward the Six-Party talks accelerated in 2007, the Administration did not propose any negotiations with North Korea over human rights but asserted that human rights is one of several issues to be settled with North Korea after the nuclear issue is resolved. The Six-Party Agreement of February 13, 2007, calls for the United States and North Korea to "start bilateral talks aimed at resolving bilateral issues and moving toward full diplomatic relations." Prior to the Agreement in 2007, the Bush Administration held that it would not agree to normalization of diplomatic relations with North Korea until there was progress on human rights (presumably including refugees) and other issues. However, after the signing of the agreement in February 2007, some observers say that former Assistant Secretary of State for East Asian and Pacific Affairs Christopher Hill focused exclusively on a satisfactory settlement of the nuclear issue. The North Korean Human Rights Act of 2004 The 108 th Congress passed by voice vote, and President Bush signed, the North Korean Human Rights Act of 2004 (NKHRA). The legislation authorized up to $20 million for each of the fiscal years 2005-2008 for assistance to North Korean refugees, $2 million for promoting human rights and democracy in North Korea and $2 million to promote freedom of information inside North Korea; asserted that North Koreans are eligible for U.S. refugee status and instructs the State Department to facilitate the submission of applications by North Koreans seeking protection as refugees; and required the President to appoint a Special Envoy to promote human rights in North Korea. The act also expressed the sense of Congress that human rights should remain a key element in negotiations with North Korea; all humanitarian aid to North Korea shall be conditional upon improved monitoring of the distribution of food; support for radio broadcasting into North Korea should be enhanced; and that China is obligated to provide the United Nations High Commissioner for Refugees (UNHCR) with unimpeded access to North Koreans inside China. Some hail the NKHRA as an important message that human rights will play a central role in the formulation of U.S. policy towards North Korea. Passage of the legislation was driven by the argument that the United States has a moral responsibility to stand up for human rights for those suffering under repressive regimes. Advocates claim that, in addition to alleviating a major humanitarian crisis, the NKHRA will ultimately enhance stability in Northeast Asia by promoting international cooperation to deal with the problem of North Korean refugees. Critics say the legislation risks upsetting relations with South Korea and China, and ultimately the diplomatic unity necessary to make North Korea abandon its nuclear weapons program through the Six-Party Talks. Further, they insist that the legislation actually worsens the plight of North Korean refugees by drawing more attention to them, leading to crackdowns by both North Korean and Chinese authorities and reduced assistance by Southeast Asian countries concerned about offending Pyongyang. Selected Implementation Progress While the passage of the NKHRA raised the profile of congressional interest in North Korean human rights and refugee issues, many of the activities had existing authorizations already in place. The State Department had programs directed toward raising awareness of North Korean human rights issues as well as providing some assistance to vulnerable North Korean refugees through other organizations. Korean-language broadcasting by Radio Free Asia (RFA) and Voice of American (VOA) pre-dated the passage of the law. However, some activities appear to have been enhanced as a result of the law's enactment, particularly the admission of North Korean refugees for resettlement in the United States. Human Rights Reports required by the act have outlined steps taken by the State Department and other executive branch bodies to promote human rights in North Korea. The State Department has not requested funding explicitly under the NKHRA, but officials assert that the mission of the NKHRA is fulfilled under a number of existing programs. For democracy promotion in North Korea, the State Department's Democracy, Human Rights, and Labor (DRL) Bureau gives grants to U.S.-based organizations: in the FY2008 budget, DRL requested $1 million for North Korea human rights programs, as well as $1 million for media freedom programs. DRL also considers several other programs, such as those under the National Endowment of Democracy account specific to North Korea, as fulfilling part of the NKHRA's mission. The Special Envoy attended three international Freedom House conferences organized to raise awareness of human rights conditions in North Korea in 2005-2006. The U.S. government has also sponsored and supported United Nations resolutions condemning North Korea's human rights abuses. Refugee Resettlement The NKHRA appears to have had the greatest impact in the area of refugee admissions. As of January 2009, the United States had accepted 71 North Korean refugees for resettlement from undisclosed transit states. The first refugees—four women and two men—were accepted in May 2006. The State Department's Population, Refugees, and Migration (PRM) Bureau annually provides funds for UNHCR's annual regional budget for East Asia, which includes assistance for North Korean refugees, among other refugee populations. PRM funds international organizations such as UNHCR and the International Committee for the Red Cross. Radio Broadcasting into North Korea The NKHRA calls on the Broadcasting Board of Governors (BBG) to "facilitate the unhindered dissemination of information in North Korea" by increasing the amount of Korean-language broadcasts by RFA and VOA. (A much more modest amount has been appropriated to support independent radio broadcasters.) The hours of radio broadcasts into North Korea, through medium- and short-wave, were modestly increased beginning in 2006, and original programming was added in 2007. The BBG currently broadcasts to North Korea ten hours per day: RFA broadcasts three and one-half hours of original programming and one and one-half hours of repeat programming, and VOA broadcasts four hours of original and one hour of repeat programming with news updates each day. In FY2008, the BBG's budget request included $8.1 million to implement the 10-hour broadcast schedule, and the FY2009 request includes $8.5 million to maintain this schedule. Content includes news briefs, particularly news involving the Korean peninsula, interviews with North Korean defectors, and international commentary on events happening inside North Korea. The BBG cites an InterMedia survey of escaped defectors that indicates that North Koreans have some access to radios, many of them altered to receive international broadcasts. The BBG continues to explore ways to expand medium wave broadcast capability into North Korea. VOA is broadcast from BBG-owned stations in Tinian, Thailand, and the Philippines, and from leased stations in Russia and Mongolia. RFA is broadcast from stations in Tinian and Saipan and leased stations in Russia and Mongolia. Reauthorization Bill The reauthorization bill renews funding that expired in FY2008, reasserts key tenets of the legislation, and criticizes the pace of the executive branch implementation of the original law. It also cites the small number of resettlements of North Korean refugees and the slow processing of such refugees overseas. Funding is reauthorized through 2012 at the original levels of $2 million annually to support human rights and democracy programs, $2 million annually to promote freedom of information to North Koreans, and $20 million annually to assist North Korean refugees. It also requires additional reporting—portions of which can be classified as necessary—on U.S. efforts to process North Korean refugees, along with reporting from the Broadcasting Board of Governors on progress toward achieving 12 hours per day of broadcasting Korean language programming. Focus on Special Envoy The role and activities of the Special Envoy for Human Rights in North Korea (per the reauthorization bill, now the "Special Envoy for North Korean Human Rights Issues") have garnered particular attention from Congress. Jay Lefkowitz, appointed as the Special Envoy by President Bush nearly five months after the law was enacted in August 2005, was criticized for accepting the job as a part-time position while maintaining his legal career in New York. The reauthorization bill stipulates that the Special Envoy be an ambassador-level position—which requires confirmation by the Senate—and expresses the sense of Congress that the position should be full-time. Whereas the original legislation was vague on whether the refugee-specific provisions fell under the Envoy's responsibilities, the reauthorization bill includes the sense of Congress that the Envoy should "participate in policy planning and implementation" on North Korean refugee issues. The Obama Administration has not yet selected its Special Envoy. Lefkowitz's role varied in its public profile: at times he was an active and vocal advocate for human rights issues, and at other times he faded from public view. He attended international conferences dedicated to raising awareness of human rights abuses in North Korea and testified at multiple congressional hearings. As the Korean-U.S. Free Trade Agreement was negotiated, he raised questions about labor practices at the Kaesong complex, an industrial park located in North Korea in which a consortium of South Korean firms employ North Korean labor. Lefkowitz's visibility declined particularly in 2007 as the Bush Administration renewed its effort on nuclear negotiations. His statements occasionally sparked controversy: in January 2008, he gave a speech at a Washington think tank in which he criticized the denuclearization talks and voiced doubt that North Korea would ever give up its nuclear weapons. In response, then-Secretary of State Condoleezza Rice said, "Jay Lefkowitz has nothing to do with the Six-Party Talks ... he certainly has no say in what American policy will be in the Six-Party Talks." In his final report to Congress in January 2009, Lefkowitz criticized some aspects of U.S. handling of refugee admissions and critiqued the North Korean policies of the South Korean, Chinese, and Japanese governments. Complications with Refugee Provisions Implementation Challenges Some observers contend that good-faith implementation of NKHRA's refugee provisions may be counterproductive. They argue that the legislation on North Korean refugee admissions could send a dangerous message to North Koreans that admission to the United States as a refugee is assured, encouraging incursions into U.S. diplomatic missions overseas. State Department officials say that given the tight security in place at U.S. facilities abroad, unexpected stormings could result in injury or death for the refugees. Secondly, granting of asylum status to North Korean refugees involves a complex vetting process that is further complicated by the fact that the applicants originate from a state with which the United States does not have official relations. In congressional hearings, State Department officials have cautioned that effective implementation of the NKHRA depends on close coordination with South Korea, particularly in developing mechanisms to vet potential refugees given the dearth of information available to U.S. immigration officials on North Koreans. Funding Concerns Some government officials and NGO staff familiar with providing assistance to North Korean refugees say that funding explicitly associated with the NKHRA is problematic because of the need for discretion in reaching the vulnerable population. Refugees are often hiding from authorities, and regional governments do not wish to draw attention to their role in transferring North Koreans, so funding is labeled under more general assistance programs. In addition, many of the NGOs that help refugees do not have the capacity to absorb large amounts of funding effectively because of their small, grass roots nature. A Ready Alternative for Resettlement South Korea remains the primary destination for North Korean refugees. In addition to automatically granting South Korean citizenship, the South Korean government administers a resettlement program and provides cash and training for all defectors. According to press reports, over 14,000 defectors from North Korea have resettled in the South since the conclusion of the Korean War in 1953, including over 2,500 in 2007 alone. The South Korean system of accepting refugees is faster and more streamlined than the U.S. process. Changes in South Korea's Approach? As part of its policy of increasing economic integration and fostering better ties with North Korea, South Korea until recently refrained from criticizing Pyongyang's human rights record and downplayed its practice of accepting North Korean refugees. Lee Myung-bak's election as South Korea's president in December 2007, however, appeared to usher in a new approach: Lee's administration has tied assistance from the South to North Korean progress on denuclearization and openly criticized North Korea's human rights situation. In years past, South Korea had usually abstained from voting on United Nations resolutions calling for improvement in North Korea's human rights practices. At the U.N. Human Rights Council meeting in March 2008, however, South Korea voted for a similar resolution. Lee has also conditioned fertilizer and food aid on improved access to the North's distribution systems to ensure that such aid is not going only to Pyongyang's elite and military. This approach has contributed to a considerable chill in North-South relations since Lee took office. A joint statement from President Bush and President Lee in August 2008 urged progress in improving North Korea's human rights, the first time such a mention appeared.

As the incoming Obama Administration conducts a review of U.S. policy toward North Korea, addressing the issue of human rights and refugees remains a priority for many members of Congress. The passage of the reauthorization of the North Korean Human Rights Act in October 2008 (P.L. 110-346) reasserted congressional interest in influencing executive branch policy toward North Korea. In addition to reauthorizing funding at original levels, the bill expresses congressional criticism of the implementation of the original 2004 law and adjusts some of the provisions relating to the Special Envoy on Human Rights in North Korea and the U.S. resettlement of North Korean refugees. Some outside analysts have pointed to the challenges of highlighting North Korea's human rights violations in the midst of the ongoing nuclear negotiations, as well as the difficulty in effectively reaching North Korean refugees as outlined in the law. Further, the law may complicate coordination on North Korea with China and South Korea. At this point, it remains unclear what focus the Obama Administration will place on human rights and refugees as it takes over the nuclear negotiations. For more information, please see CRS Report RL34189, North Korean Refugees in China and Human Rights Issues: International Response and U.S. Policy Options, coordinated by [author name scrubbed].

Introduction Each year, Congress provides funding to the Department of Housing and Urban Development (HUD) to renew the more than 2.1 million Section 8 vouchers—also called Housing Choice Vouchers—authorized by Congress (see Table 1 below). The Section 8 voucher program is federally funded and governed by federal rules, but is administered at the local level by quasi-governmental public housing authorities (PHAs). Section 8 vouchers are rental subsidies that low-income families use in the private market to help make up the difference between their rent and their expected contribution toward that rent (30% of adjusted income). The cost of a voucher to a PHA is the difference between the lesser of a tenant's actual rent or the maximum subsidy level set by the PHA—called a payment standard—and 30% of a tenant's income. That cost increases or decreases with changes in tenant incomes and changes in rents and payment standards. (For more information on Section 8 voucher reform proposals, see CRS Report RL34002, Section 8 Housing Choice Voucher Program: Issues and Reform Proposals , by [author name scrubbed].) In recent years, Congress has enacted, and HUD has implemented, a series of changes in the way that voucher renewal funding is distributed to local PHAs. These changes have led to funding uncertainty for many PHAs, and has put pressure on Congress to adopt a permanent funding formula, possibly through enactment of Section 8 voucher reform legislation. This report discusses the renewal funding formula changes that Congress has enacted as a part of the annual appropriations process, starting in FY2003, and concludes with a discussion of their effects. Pre-FY2003 Funding Prior to FY2003, PHAs administering the voucher program were funded based on their average annual per-voucher cost from the previous year, adjusted by an inflation factor and multiplied by the number of vouchers that the PHA was authorized to lease. Each PHA was provided with a reserve equal to one month of voucher funding that could be used in the event that a PHA's voucher costs increased faster than the inflation factor established by HUD. Despite the fact that they received full funding, few PHAs were able to lease 100% of their authorized vouchers. Low utilization rates were a major concern of Congress for several years. While PHAs are expected to have utilization rates of at least 95%, in FY2000 and FY2001, national voucher utilization rates were just over 91%. Since PHAs were not utilizing all of their vouchers, they typically had low budget utilization as well, meaning that they had more money in their budgets than they needed, and they rarely had to dip into their one-month program reserves, even if their costs rose significantly. At the end of the year, HUD and each PHA would reconcile their budgets, and HUD was typically able to recapture excess funds from PHAs' reserves. HUD generally used this same formula—last year's actual costs, plus an inflation, times the number of authorized vouchers—each year to determine how much funding to request from Congress for the renewal of tenant-based Section 8 vouchers. HUD would also make available to Congress for rescission those unused funds that the agency had recaptured from PHAs. The end result of this system for PHAs was that their funding increased along with their costs. If their costs dropped, they were permitted to use some of their excess funds to create new vouchers, a process called maximized leasing. The end result of this system for Congress was that each year it provided more funds for voucher renewals than PHAs could reasonably be expected to use, and then recaptured those unused funds the following year to offset the cost of that year's appropriation. FY2003-FY2006: The Emergence of "Budget-Based" Funding FY2003 Funding Changes In FY2003, Congress changed the way PHAs were funded in an attempt to limit recaptures of unspent funds and provide funding levels that better reflected actual use. Since actual use of vouchers was lower than authorized use, this change reduced the amount of appropriations needed for the program. HUD was directed in the annual appropriations bill to fund PHAs based on their average annual per-voucher cost from the previous year, increased by the inflation factor, and multiplied by the number of vouchers the PHA could reasonably be expected to lease in that year (rather than the larger number of authorized vouchers). Specifically, the law stated, The Secretary shall renew expiring section 8 tenant-based annual contributions contracts for each public housing agency ... based on the total number of unit months which were under lease as reported on the most recent end-of-year financial statement submitted by the public housing agency to the Department, adjusted by such additional information submitted by the public housing agency ... regarding the total number of unit months under lease at the time of renewal of the annual contributions contract, and by applying an inflation factor based on local or regional factors to the actual per-unit cost as reported on such statement. ( P.L. 108-7 , Title II, Section (1)) HUD implemented this provision so that PHAs' budgets were based on their utilization rates and costs as reported on their end-of-the-year statements, or more recent data , if available. As stated in guidance released by HUD: Renewal calculations under the [Federal Fiscal Year] 2003 Appropriation will be based on the total number of unit months under lease and actual cost data, as reported on the PHA's most recent year-end settlement or as subsequently submitted to HUD by the PHA. Actual costs will be adjusted by applying the [Annual Adjustment Factors]. Expiring voucher funding increments will generally be renewed for terms of three months. The use of the most recent leasing and cost data and the short renewal terms will enable HUD to calculate funding more accurately than previous procedures allowed. (HUD Notice PIH 2003-23, Issued September 22, 2003) Congress also created a Central Reserve fund to be used by the Secretary to replenish PHA one-month reserves in the event that PHAs had to use their reserves to cover the costs of increased utilization or increased per-voucher costs. The language of the law stated, in regard to the Central Reserve fund: The Secretary may use amounts made available in such fund, as necessary, for contract amendments resulting from a significant increase in the per-unit cost of vouchers or an increase in the total number of unit months under lease as compared to the per-unit cost or the total number of unit months provided for by the annual contributions contract. ( P.L. 108-7 , Title II, Section (2)) Finally, the bill instituted restrictions on maximized leasing, stating that none of the funds provided in the act could be used to support more vouchers than a PHA was authorized to lease in a year. This presented problems for PHAs that were over-leased. Many had to refrain from reissuing vouchers once families left the program in order to get their leasing back to their authorized level. FY2004 Funding Changes The FY2004 appropriations law continued in the direction of the FY2003 law, instructing HUD to fund PHAs based on actual utilization of vouchers—rather than on the total number of vouchers they were authorized to lease—and restricting the use of funds for maximized leasing. Moreover, the conference report that accompanied the FY2004 appropriations law stated that the conferees were concerned about "spiraling" cost increases in the voucher program and that they expected the Secretary to control costs. As stated in the conference report: The conferees are aware that the Secretary has the administrative authority to control the rapidly rising costs of renewing expiring annual contributions contracts (ACC), including the budget-based practice of renewing expiring ACCs, and expect the Secretary to utilize these tools. ( H.Rept. 108-235 , Title II) The FY2004 appropriations language was changed from FY2003 to state: The Secretary shall renew expiring section 8 tenant based annual contributions contracts for each public housing agency ... based on the total number of unit months which were under lease as reported on the most recent end-of-year financial statement submitted by the public housing agency to the Department, or as adjusted by such additional information submitted by the public housing agency to the Secretary as of August 1, 2003 (subject to verification), and by applying an inflation factor based on local or regional factors to the actual per-unit cost. ( P.L. 108-199 , Title II, Section (1)) The FY2004 language also varied from the FY2003 language in terms of how the Central Reserve fund could be used: In FY2003, the Central Reserve fund could be used to replenish PHA reserves that had been depleted due to either increased utilization rates or increased costs. In FY2004, the Secretary could use Central Reserve funds only to replenish reserves depleted because of increased utilization, not increased costs: Language proposed by the House and Senate is not included to allow the Central Fund to also be used for increased per-unit costs as such costs have been reflected in the amount provided for renewals. ( H.Rept. 108-401 , Division G, Title II) HUD issued a notice on April 22, 2004 (PIH 2004-7) implementing the FY2004 appropriations law. According to the notice, PHAs' budgets would be based on their utilization rates from their end-of-the-year statements, or more recent data if available, and costs as reported on their end-of-the-year statements as of August 1, 2003, adjusted by the annual adjustment factor (AAF), but not adjusted by more recent data , even if available. The notice stated that PHAs could appeal to the Secretary only if they could document that rental costs in their areas had risen higher than the inflation factor adopted by HUD. The notice proved controversial. Some housing advocates contended that Congress gave HUD the authority to use a broader measure of inflation than the AAF, taking into account not just rental costs but also other changes in PHAs' costs, such as utility costs and changes in their tenant populations. The notice was not modified, and on August 31, 2004, HUD granted the appeals requests of 380 agencies out of approximately 400 that applied, distributing a total of $160 million from the Central Reserve. However, HUD did not necessarily provide the full level requested in each appeal. FY2005 Funding Changes The final FY2005 Consolidated Appropriations Act ( P.L. 108-447 ) moved the program further in the direction of budget-based funding. It directed the Secretary to fund PHAs based on their voucher costs and utilization rates as of May-July 2004 plus the HUD-published AAF, adjusted for new tenant protection vouchers. If a PHA's May-July data were not available, HUD was directed to fund the agency based on February-April 2004 data, or if these data were not available, to fund the PHA based on its most recently submitted year-end financial statement, as of March 31, 2004. If the amount provided in the law was insufficient to fund all PHA budgets under this formula, then the Secretary was directed to prorate agency budgets. According to the conference report ( H.Rept. 108-792 ), PHAs were expected to manage their voucher programs within their budgets for CY2005, regardless of their actual costs. The report also stated that "HUD shall provide agencies with flexibility to adjust payment standards and portability policies as necessary to manage within their 2005 budgets." Agency reserves were reduced from the one-month to the one-week level and no Central Reserve was provided to replenish depleted reserves. Finally, the act continued the prohibition on maximized leasing. The FY2005 appropriations act made another important change to the way that PHAs received their voucher renewal funding. Rather than funding PHAs for the federal fiscal year (October 1, 2004-September 30, 2005), the act funded PHAs for the calendar year (January 1, 2005-December 30-2005). The accounting change allowed for some one-time budget authority savings in the appropriations process. As a result, PHAs had to alter the way in which they budget for their voucher programs to a calendar-year cycle. HUD published guidance implementing these provisions on December 8, 2004 (HUD Notice PIH 2005-1). Agencies received notification of their preliminary budget levels on December 17, 2004. At that time, PHAs were directed to inform HUD of any data errors within 10 days (although the deadline was later extended). The appeals were limited to data errors; agencies were told that they could not appeal the actual formula used for calculating their budgets. The final calculations, including a final proration factor, were published on January 21, 2005. Agencies were funded generally at 4.03% less than their May-July 2004 actual cost and utilization levels, plus the 2005 AAF. This proration factor of just less than 96% was implemented because the funding amount provided by Congress for voucher renewals was not sufficient to fund agencies at 100% of their formula eligibility. According to CRS analysis of HUD funding data, the median change in PHA renewal budgets from FY2004 to FY2005 was an increase of 0.17%. This number hides a wide variance; the change at the fifth percentile was a decrease of 12% and the change at the 95 th percentile was an increase of 14%. On February 25, 2005, HUD published Notice PIH 2005-9, entitled "[PHA] Flexibility to Manage the Housing Choice Voucher Program in 2005." It identified administrative options available to PHAs to lower their costs in 2005. Suggestions included lowering payment standards; reducing utility assistance to families; restricting portability; reviewing rents to ensure they are reasonable in the market; suspending the reissuance of vouchers when families leave the program; restricting bedroom sizes; instituting minimum rents; monitoring income eligibility more strictly; and terminating assistance to families due to insufficient funds. FY2006 Funding Formula The FY2006 HUD Appropriations Act ( P.L. 109-115 ) distributed renewal funding using roughly the same formula as FY2005. HUD allocated renewal funds to PHAs based on the amount they were eligible to receive in CY2005 (prior to proration), plus inflation (using the AAF), adjusted for additional tenant protection vouchers or vouchers that were reserved for project-based use, and prorated to fit within the amount appropriated. The act provided the Secretary with $45 million to adjust the budgets of agencies in two categories: (1) those for whom the May-July period used as the basis for CY2005 funding represented unusually low leasing or costs and who applied to the Secretary for an adjustment; and (2) those whose costs had risen due to unforeseen circumstances or portability billings. The prohibition on maximized leasing was retained in FY2006. HUD issued projected funding letters to all PHAs on January 19, 2006; PHAs were directed to respond with concerns by February 3, 2006. Again, the amount provided by Congress was insufficient to fund PHAs at their full CY2006 formula eligibility, so PHAs were funded at about 94% of their eligibility. Implications of Changes, FY2003-FY2006 The changes enacted up through FY2006, particularly those enacted in FY2005 and FY2006, gave incentives to PHAs to reduce their costs. Those changes, partnered with a cooled rental housing market, worked together to reverse the "spiraling" cost growth trend seen in 2003. According to CRS analysis of data provided by the Congressional Budget Office, average annual per voucher costs remained flat from calendar year 2004 to calendar year 2005 and declined by about 1.5% from calendar year 2005 through September 2006. Utilization also declined, from a peak of over 98% in 2004 to around 90% as of September 2006. This drop in utilization translated into nearly 100,000 fewer households receiving assistance in 2006 compared to 2004. Most PHAs were not spending all of their funding and therefore had accumulated reserve funds. CRS analysis of HUD data indicated that PHAs had accumulated, on average, unspent balances of 10% of their budget authority from January 2005 though September 2006. Nationally, budget utilization dropped from a high of over 98% in 2003 and 2004 to under 92% in 2006. FY2007-Present: A Cost and Utilization-Based Funding Model FY2007 Funding Formula In FY2007, the debate continued between a strictly "budget-based" funding formula, in which PHAs are given a fixed pot of funding in which to administer their programs (such as in FY2006), and a "unit-based" formula, in which PHAs are funded based on what they need to maintain a certain voucher level (such as pre-FY2003). For FY2007, then-President Bush requested that Congress continue to fund the voucher program using a budget-based formula similar to the one adopted in FY2005 and FY2006. The then-President's budget also requested that Congress lift the prohibition on maximized leasing, noting that, in a budget-based funding environment, some PHAs may be receiving more funding than they are permitted to use. According to CRS analysis of HUD data, as of the end of September 2006, 168 PHAs (or about 7% of all PHAs), were at their cap on authorized vouchers, so had excess funding they were not permitted to use to serve additional families from their waiting lists. In the final FY2007 appropriations law ( P.L. 110-5 ), Congress rejected President Bush's proposal. Instead, the law adopted a formula based on how much funding PHAs were using (similar to the formula enacted in FY2004), rather than a formula based on how much funding PHAs had received in the previous year. Specifically, in FY2007, PHAs received funding based on their leasing and cost data from their most recent 12 months of reported data, adjusted for the first-time renewal of tenant protection and HOPE VI vouchers and vouchers reserved for project-based contracts, inflated by the AAF, and prorated to fit within the amount appropriated. The law included a central reserve fund which the Secretary could use (1) for adjustments for PHAs that experienced a significant increase in renewal costs resulting from unforeseen circumstances or from voucher portability; and (2) for adjustments for public housing agencies experiencing a significant decrease in voucher funding, due to the formula shift, that could result in a loss of voucher units. The act continued the prohibition on over-leasing. P.L. 110-28 , an emergency supplemental funding bill, later amended the formula to provide exceptions for three categories of PHAs. First, certain Hurricane Katrina-affected agencies were funded on the basis of the higher of what they would have received under the FY2007 formula or what they received in FY2006. Second, agencies that would have lost funding under the FY2007 formula and had been placed under receivership within the prior 24 months were funded on the basis of the higher amount they received in FY2006. Third, agencies that spent more in FY2006 than their FY2006 allocations plus their unspent voucher and administrative fee balances were funded on the basis of what they received in FY2006. Under the FY2007 formula change, PHAs (except for those noted above) were funded based on the amount of funding they were using in FY2006, rather than the amount of funding they received in FY2006. Those PHAs with higher costs and utilization rates relative to their FY2006 budgets did better under the FY2007 enacted formula than they would have done under President Bush's proposed formula; those PHAs with lower costs and utilization relative to their FY2006 budgets did worse. However, the funding provided was sufficient to fund all PHAs at more than 105% of their eligibility. And, given that the eligibility was set on current usage, the amount provided should have been sufficient for agencies to continue to serve at least the same number of families and, in some cases more (as long as they were within their caps). The FY2007 formula contained elements of both a unit-based funding formula and a budget-based funding formula. The formula was unit-based, in that PHAs' funding allocations were based, in part, on the number of vouchers they were using, and they were subject to caps in the number of vouchers they could use. The formula was also budget-based, in that PHAs were given a fixed budget in which to administer their programs. FY2008 Funding Formula Then-President Bush's FY2008 budget request again included a proposal for a strictly "budget-based" voucher funding formula, similar to the one requested in FY2007 and in place for FY2005 and FY2006. Specifically, he requested that agencies be funded in FY2008 based on what they were eligible to receive in calendar year 2007, adjusted for the AAF, and for costs associated with Family Self Sufficiency (FSS) program deposits and tenant protection vouchers, and pro-rated to fit within the amount appropriated. The accompanying text indicated that the President would seek to re-benchmark the formula using more recent cost and utilization data in the future, possibly in FY2009, as a part of a larger reform proposal. The FY2008 Consolidated Appropriations Act ( P.L. 110-161 ) adopted a cost and utilization-based funding formula similar to the one adopted in FY2007. Specifically, it funded agencies based on their leasing and costs in the prior calendar year, adjusted for the AAF, and for costs associated with FSS deposits, tenant protection vouchers, and vouchers set-aside for project-based commitments. As in FY2007, it provided a central reserve fund to allow HUD to make adjustments to the budgets of certain agencies, and provided an alternative formula for several categories of agencies: Katrina-affected agencies, those under receivership, and those that spent beyond their allocations. Unlike FY2007, the FY2008 Act included a rescission that affected agencies' total funding. Specifically, the act reduced each PHA's funding level by the amount by which their unusable reserves exceeded 7% of the total they received in FY2007. Unusable reserves are reserves—or Net Restricted Assets (NRA)—in excess of what agencies need to reach 100% leasing. They were called "unusable" because the prohibition on maximized leasing (or over-leasing) had been maintained, so PHAs were legally unable to use those reserves, or NRA, to lease additional vouchers and serve additional families. The FY2008 Act rescinded $723 million in FY2008 renewal funding, which is the amount that PHAs were estimated to have in unusable reserves above 7% of their funding. These provisions "freed-up" unusable NRA, allowing Congress to reduce the total amount of new appropriations it provided for voucher renewals in FY2008, without reducing the total amount of funding available to PHAs to use for renewals in FY2008. FY2009 Funding Formula Again in FY2009, then-President Bush asked Congress to adopt a strictly "budget-based" funding formula like the one adopted in FY2005 and FY2006, basing PHA renewal funding on the amount of funding they received in the previous year. Again, Congress rejected the President's request. The FY2009 omnibus funding bill directed HUD to fund PHAs using roughly the same hybrid, cost and utilization-based formula adopted in FY2008. It directed HUD to fund PHAs based on the number of vouchers they had leased, and the cost of those vouchers in FY2008, adjusted for inflation and a few other factors. Then, each PHA's allocation was prorated, or reduced, by an amount that corresponded with HUD's estimate of a portion of their Net Restricted Assets (NRA), both usable and unusable. The aggregate NRA offset equaled the amount rescinded ($750 million). PHAs were expected to then supplement their allocations of new funding with their unused NRA. The act also included a $100 million renewal set-aside, to make adjustments for agencies under certain circumstances (i.e. PHAs that faced an increase in renewal costs due to portability or unforeseen circumstances, faced an increase in leasing between the end of the fiscal year and the start of the calendar year, or had unused project-based vouchers and special vouchers for veterans). CY2009 Shortfall As directed by Congress, HUD based the CY2009 allocations on the utilization and cost data submitted by PHAs for FY2008. HUD used this same data to estimate PHAs' NRA. In some cases, HUD's estimates of costs (plus inflation), utilization, and NRA did not accurately represent PHAs' CY2009 costs, utilization, and NRA balances. In some cases, the inaccurate estimates resulted from inaccurately reported data; in some cases, the difference resulted from significant changes in the cost and leasing conditions of agencies between the end of FY2008 and the start of CY2009 (a period not captured in the data). Regardless of the reason, some PHAs found that their CY2009 funding was insufficient to cover the costs of all the vouchers they were using to serve families. HUD estimated that as many as 15% of PHAs administering the voucher program faced such shortfalls. The department worked with agencies to determine which were facing shortfalls. Some were assisted with additional funding from the FY2009 $100 million renewal set-aside or $30 million in administrative fee funding that the department had set aside for this purpose. HUD had also been advising agencies as to how they could cut costs to stay within their budgets. Generally, if a PHA does not have sufficient funding to renew all of its vouchers, the PHA may have to stop issuing vouchers, and, in some cases, families may lose assistance. HUD asked that agencies that were facing shortfalls first contact the department before terminating assistance to families. In response to concerns about families losing assistance, Congress enacted legislation permitting HUD to access some additional funding (up to $200 million) to shore-up the budgets of PHAs that were at risk of terminating assistance to families as a result of insufficient funding in CY2009. This policy change effectively increased the amount of set-aside renewal funding provided to HUD in FY2009 to adjust agencies' budgets (originally, $100 million) and expanded its purposes to allow it to be used to prevent the termination of assistance. FY2010 Funding Formula FY2010 was the first budget request of the Obama Administration and it represented a different approach to voucher funding than that of the former Bush Administration. Specifically, the President's FY2010 budget requested a funding formula very similar to the model that had been in place since FY2007, based on PHAs' costs and utilization. The biggest difference in the request was that the Administration asked for the authority to offset agencies' budgets for excess reserves, at the Secretary's discretion, and then reallocate that offset funding to high-performing agencies or to agencies based on need. The budget also requested that the prohibition on over-leasing be lifted to allow PHAs to fully utilize their budgets. The final FY2010 funding law ( P.L. 111-117 ) adopted a funding formula similar to the one requested by the Administration and based on FY2009 cost and leasing data, adjusted for inflation and other factors. However, it did not provide the Secretary with the authority to offset agency budgets based on reserves, nor did it lift the prohibition on over-leasing. Unlike FY2008 and FY2009, the FY2010 allocation formula included no offset for unspent agency reserves. FY2011 and FY2012 Funding Formula As in FY2010 and each year since FY2007, in FY2011 and FY2012 Congress directed HUD to allocate Section 8 Housing Choice Voucher renewal funding to PHAs based on their costs and utilization. The FY2011 law ( P.L. 112-10 ) contained no offset from PHA reserves; the FY2012 law ( P.L. 112-55 ) included a rescission of $650 million, to be offset from allocations to PHAs with reserves above a certain level (to be determined by HUD). Implications of Changes, FY2007-Present As noted earlier, just prior to, and shortly after, the formula changes that began in FY2003, PHAs were serving as many, and in some cases more families, than they were authorized to serve, and they were spending nearly every federal dollar they received. Following the funding formula changes that were enacted between FY2003 and FY2006, PHAs were serving fewer families and spending a smaller share of the federal funding they received. Low utilization of both funding and vouchers was prevalent when the voucher funding formula was changed again in FY2007. Since the change from a strictly "budget-based" funding formula to the recent hybrid cost and utilization-based model, the utilization patterns of PHAs have begun to change again. Funding utilization has begun increasing from a low of around 91% in 2006 to 95% by the end of 2009. Further, by the end of 2009, PHAs were serving over 150,000 more families than they were serving in 2006. This means that by 2009, PHAs were serving more families than they had in 2003, the previous high point in families served. While PHAs had accumulated large reserves during the budget-based formula days of 2005 and 2006, by the end of FY2009, much of those reserves had been spent down as a result of the rescissions enacted in FY2008 and FY2009. Per voucher costs, which remained relatively flat in CY2005 and CY2006, began rising again in CY2007, continued through CY2008 and CY2009, and were anticipated to continue rising in CY2012. Legislative Reform Proposals In recent years, some Members of Congress from both parties have introduced voucher reform legislation containing statutory changes to the voucher renewal funding formula, generally similar to the cost and utilization based formulas contained in recent appropriations acts. However, it is important to note that even if a new funding formula were to be adopted through the authorizing process, the Appropriations Committees could override the formula by adopting a different allocation formula in the annual appropriations act, as they have each year since FY2003. It is unclear whether the Appropriations Committees would defer to the authorizing committees in this circumstance. Summary and Policy Considerations Prior to FY2003, the Section 8 voucher program was funded much like an entitlement program; the amount provided by Congress was largely determined by a formula, limiting Congress's ability to constrain funding without facing the prospect of reducing the number of vouchers and providing little incentive for PHAs to restrain costs. In response to concern about inefficient funding allocations, as well as, later, rising costs, and in an attempt to obtain greater control over future cost growth, Congress enacted a series of funding changes, beginning with those enacted for FY2003. These changes resulted in a conversion of the program's funding structure into one more similar to other discretionary programs, in which grantees received an annual fixed sum of money, regardless of changes in their costs or the number of people served. While these changes gave Congress greater control over the program's budget, many PHAs argued the changes made the program more difficult to administer. PHAs have only limited control over their costs since the value of the subsidies provided to families is statutorily set (as roughly the difference between rent and 30% of income). In areas where they did have control, such as in setting payment standards, selecting families from the waiting list, and issuing vouchers, many PHAs made changes. Some lowered their payment standards from 110% to 100% or less of local fair market rents. Since changes in payment standards only affect future families in the program, some PHAs undertook rent reasonableness reviews and reduced rents paid to landlords, some of whom accepted the cut, others of whom chose to no longer participate in the program. PHAs had the option of selecting higher-income families from their waiting lists (for whom subsidy costs are lower), although PHAs were still constrained by a requirement that 75% of all vouchers be targeted to the lowest-income families. Many PHAs intentionally reduced their utilization rates by not reissuing vouchers when families left the program. Agencies that intentionally lowered their utilization rates in order to save money in FY2004 likely encountered problems in FY2005, as their budgets were capped at their costs and utilization rates as of the third quarter of FY2004. It is likely that, at least for some PHAs whose costs had risen faster than their funding under the new formula, these changes resulted in fewer households receiving vouchers. Data from HUD indicate that voucher costs leveled off and utilization rates declined from 2005 to 2006. According to CRS analysis of HUD data, average voucher costs declined by around 1.5% and average utilization declined by over 2% during that period. At the same time, some agencies were receiving more money than they were legally permitted to spend. Under the budget-based funding formulas in place in FY2005 and FY2006, PHAs' funding did not necessarily decrease if their costs decreased (for example, due to changes in the types of families served or changes in the rental market). Since maximized leasing was prohibited, some PHAs had funds that they were not permitted to spend, even if they had waiting lists for vouchers in their communities (7% of all PHAs had unusable funds, as of September 2006, according to CRS analysis). The budget-based funding formula changes enacted through FY2006 were controversial with low-income housing advocates and PHA industry groups. Most low-income housing advocates called for a return to an actual-cost and unit-based formula. PHA advocacy groups were vocal about the difficult predicament they felt that the current formula put them in, given the statutory constraints under which they run their programs. The FY2007 funding bill reversed recent trends by enacting a voucher renewal funding formula similar to the one that was in place when the changes first began. In FY2007, PHAs were funded based on the amount of funding they were using in the previous year, rather than the amount of money they had received in the previous year. As a result, PHAs that had large funding surpluses were eligible for less funding in FY2007, although funding for the program was sufficient to provide all PHAs with over 105% of their formula eligibility, meaning PHAs could continue to serve at least all of the families they had been serving, and additional families, as long as they were not overleasing. The FY2008 and FY2009 formulas followed the FY2007 formula closely, although they included reductions in the budgets of agencies that had more reserve funding than they were legally permitted to spend, paired with rescissions. These rescissions and offsets made unusable funding usable, and reduced the amount of appropriations needed to fund the program. The FY2010 and FY2011 formulas were similar to the FY2009 formula, except without a reduction related to reserves. In FY2012, again, agency reserves were used to offset the cost of renewals. Now that the strictly "budget-based" funding model has been replaced with a cost and utilization-based model, PHAs again have an incentive to increase their utilization and spend all of their funding. As a result, costs and utilization have begun rising again. Since costs and utilization are rising, so is the cost of the program to Congress. As in FY2003 and FY2004, these rising costs could put pressure on policy makers to find ways to again contain costs in the program. Past cost containment strategies have been effective at reducing costs, but have also led to a reduction in the number of families served, and accumulations of unspent and unusable funds. Policy makers wishing to pursue future cost containment strategies may want to tailor policies that attempt to maintain a level of service to families, while minimizing the accumulation of unspent funds. Section 8 voucher reform legislation has proposed formula changes designed to maximize the number of families served, but not necessarily to firmly cap future cost growth. Further, even if such legislation is enacted, it could be overridden by future appropriations legislation.

Changes enacted by Congress during the appropriations process in each of the past several years have significantly altered the way that public housing authorities (PHAs) receive funding to administer the Section 8 Housing Choice Voucher program. Prior to FY2003, PHAs received funding for each voucher they were authorized to administer, based on their average costs from the previous year, plus inflation, referred to as "unit-based" funding. Most PHAs were not using all of their vouchers, due in part to rental market conditions, and each year the Department of Housing and Urban Development (HUD) was able to recapture unspent funds. In FY2001 and FY2002, some Members of Congress began expressing concern about the underutilization of vouchers and the amount of recaptures. Beginning in FY2003, and culminating in FY2006, Congress fundamentally changed the way PHAs received voucher funding. The changes were designed to limit the amount of unspent funds held by PHAs and limit the cost of vouchers, which had begun to grow rapidly in 2001 and 2002, due in part to market changes and in part to policy changes. In FY2006, PHAs were funded based on the amount of funding they had received in the previous year (regardless of changes in their costs and utilization), plus an inflation adjustment, prorated to fit within the amount appropriated. Under this formula, the funding needs of the program became more predictable, but some agencies received more funding than they were legally permitted to spend, while other agencies did not receive enough funding for all of the vouchers they were authorized to administer. The Bush Administration supported this conversion to a "budget-based" formula and requested that Congress enact permanent reforms to complement the new funding method. Low-income housing advocates and PHA industry groups generally opposed both the funding changes and the Bush Administration's proposed policy reforms. In FY2007, Congress again changed the funding formula through the appropriations process. PHA funding was based on what they were spending in the previous year (rather than what they had been allocated in the previous year). As a result, PHAs that had not been spending all of their funding in FY2006 saw a reduction in funding in FY2007. Nonetheless, the funding provided was sufficient so that all PHAs received more than 100% of their 2006 costs and utilization. In FY2008 and FY2009, Congress adopted a cost and utilization-based formula similar to FY2007, but with a reduction in funding for PHAs with excess unspent funding in reserve. In FY2009, concerns were raised about how the implementation of the FY2009 formula may have left some PHAs without sufficient funding to continue serving all eligible families. Ultimately, Congress provided HUD with access to additional funding to help address shortfalls that could have resulted in families losing assistance. In FY2010-FY2012, Congress again adopted a cost and utilization-based formula, a hybrid of the "unit-based" and "budget-based" models. While Congress did not include a reduction for excess reserves in FY2010-FY2011, they did in FY2012. During the period of solely "budget-based" funding formulas, utilization of both authorized vouchers and of available funding declined. Since the adoption of a cost and utilization-based funding model, utilization has begun to increase again. As utilization increases, the cost of the program to Congress increases. This presents a set of policy tradeoffs between the goal of cost containment and the goal of serving as many eligible families as possible. The Section 8 voucher renewal funding formula continues to be a source of debate in the annual appropriations cycle, as well as in Section 8 voucher reform bills, which have contained proposals for statutory formula changes. This report describes changes in the formula included in appropriations bills for FY2003 to the present.

Introduction Agencies promulgate rules to implement statutorily authorized regulatory programs. These rules, although established by an administrative agency, maintain the force and effect of law. To be able to promulgate rules, an agency must be granted by Congress the power to do so, either explicitly or implicitly, through statute. To control the process by which agencies create these rules, Congress has enacted statutes, such as the Administrative Procedure Act (APA), that dictate what procedures an agency must follow to establish a final, legally binding rule. Often, the organic statute that allows an agency to implement a program through rulemaking may be ambiguous. The agency must then interpret the ambiguous terms of the statute in order to establish the regulatory program. The Supreme Court, in Chevron U.S.A., Inc. v. Natural Resources Defense Council , established the Chevron test, which requires courts to defer to an agency's interpretation of an ambiguous statute if the agency's interpretation is reasonable. The Chevron test has been a staple in the canon of administrative law since it was handed down from the Court in 1984. However, what happens if an agency's regulation is ambiguous? The Supreme Court's decision from Bowles v. Seminole Rock & Sand Co. addresses when an agency's regulation, as opposed to its organic statute, is ambiguous. Seminole Rock deference—which provides an agency judicial deference when an agency interprets its own regulations—arguably has become an equally important, if slightly less recognizable, canon of administrative law as the Chevron test. Just as statutes enacted by Congress occasionally lack clarity, sometimes regulations enacted by administrative agencies can be unclear. The Supreme Court ruled in Seminole Rock that a court must accept an agency's interpretation of its own regulations unless it is "plainly erroneous." Legal scholars have noted that this deference has benefits and drawbacks. By enabling agencies to interpret their own regulations, agencies are provided with flexibility to enact broad rules and refine them as specific circumstances arise. This process may help agencies administer complex regulatory schemes with greater efficiency. Furthermore, courts often note that the agency—as opposed to a reviewing court—has a better understanding of what the regulation is intended to accomplish. On the other hand, it may be troubling that the author of these legally binding rules also possesses the power to interpret the meaning of those regulations when the text is not clear. Furthermore, imprecise regulations can lead regulated industries to lack the necessary knowledge of how a regulation will be interpreted or enforced. Without concrete knowledge of the meaning of a regulation, a regulated entity will not easily be able to ensure that its behavior and practices conform to the required standards. Indeed, although Seminole Rock deference has been a long-standing tenet of administrative law—the case was decided in 1945—at least three Justices of the Supreme Court have recently questioned whether this deference is still appropriate. In the recent Supreme Court opinion from Decker v. Northwest Environmental Defense Center , Justice Scalia attacked the concept of Seminole Rock deference directly, noting "[f]or decades, and for no good reason, we have been giving agencies the authority to say what their rules mean ..." Justices Roberts and Alito, in a one-page concurrence, simply noted that "it may be appropriate to reconsider the principle" of Seminole Rock deference. Justice Thomas also appears to have previously questioned whether continued reliance on Seminole Rock is appropriate. Although the holding in Seminole Rock remains in place, these opinions reflect the possibility that the Court may be willing to consider whether this judicial deference should remain in effect in a future case. The Administrative Procedure Act (APA) and Seminole Rock Deference Although the APA prescribes the procedures that agencies must undertake in order to promulgate agency rules, there is no provision within the APA that requires agency regulations to meet any standard of clarity or precision. During the rulemaking process, persons and organizations that are affected by proposed rules may submit comments to the agency (if the agency is using "notice and comment" rulemaking procedures) or present evidence (if the agency must use the "formal" rulemaking procedures). During this process, those submitting comments or presenting evidence could raise issues relating to the clarity of the proposed rule, but there are no set standards that ensure an agency will enact clear regulations. The Supreme Court has noted that "[t]he APA does not require that all the specific applications of a rule evolve by further, more precise rules rather than by adjudication." This principle allows an agency to adopt broad guidelines, established by a rulemaking, that can then be further clarified through individualized adjudication proceedings. The reasoning behind this is that courts do not believe that agencies should have to engage rulemaking procedures that may be lengthy and demanding to be able to capture every instance in which a rule will be applied. However, what happens when a regulated entity believes that it has complied with a regulation, but the agency interprets the rule in a different manner? In Bowles v. Seminole Rock & Sand Co. , the Court declared that agencies are entitled to significant deference when they are interpreting their own regulations. The Court applied a "plainly erroneous" standard—if the agency's interpretation is plausible, it will be given effect. When determining the meaning of an administrative regulation, the Court announced that [A] court must necessarily look to the administrative construction of the regulation if the meaning of the words used is in doubt.... [T]he ultimate criterion is the administrative interpretation, which becomes of controlling weight unless it is plainly erroneous or inconsistent with the regulation ... [a court's] only tools, therefore, are the plain words of the regulation and any relevant interpretations of the Administrator. The decision in Seminole Rock arose from a dispute concerning the interpretation of the Maximum Price Regulation No. 188, which was promulgated by the Office of Price Administration pursuant to the Emergency Price Control Act of 1942. The rule—which established price ceilings—commanded that a seller could not charge a higher price for delivery of any article than the seller's highest price charged during the month of March 1942. In order to determine what qualified as the "highest price charged during March, 1942," the regulation established that it should equal "the highest price which the seller charged to a purchaser of the same class for delivery of the article or material during March, 1942." Seminole Rock & Sand Company had delivered crushed rock to a purchaser in March 1942 for a price of 60 cents per ton; however, Seminole Rock had charged the purchaser on this sale several months earlier. Seminole Rock argued that because there was no charge in March 1942, but only a delivery, its price ceiling should not be set at 60 cents per ton. The Administrator argued that the rule is satisfied whenever there has been a delivery of the specified articles during that month, regardless of when the sale actually occurred. The Court looked to the agency's previous interpretations of the rule, and determined that the agency's interpretation of its own rule should be controlling "unless it is plainly erroneous or inconsistent with the regulation." Thus, although there could be two possible readings of the regulation, the agency's interpretation was not plainly erroneous and, therefore, was determined to be controlling. With the Court's decision, the precedent for giving judicial deference to an agency's interpretation of its own rules was set. Since Seminole Rock , the Court has continued to follow this "plainly erroneous" standard. In Thomas Jefferson Univ. v. Shalala , the Court stated, "[w]e must give substantial deference to an agency's interpretations of its own regulations. Our task is not to decide which among several competing interpretations best serves the regulatory purpose." The Court reiterated that the agency's interpretation should be followed unless it is plainly erroneous or clearly inconsistent with the agency's "intent at the time of the regulation's promulgation." The Court has clearly stated that "the power authoritatively to interpret its own regulations is a component of the agency's delegated lawmaking powers." Even more recently, in 2008, the Court again stated, "[j]ust as we defer to an agency's reasonable interpretations of the statute when it issues regulations in the first instance, the agency is entitled to further deference when it adopts a reasonable interpretation of regulations it has put in force." This statement may suggest that Seminole Rock deference is even more deferential than what is provided to an agency during the application of the Chevron test. Limitations on the Applicability of Seminole Rock Deference Although this judicial deference is substantial, it is not without limit. In some circumstances a court must refuse to defer to an agency's interpretation. Courts will not defer to an agency's interpretation if the regulation itself is clear, if the agency suddenly changes its interpretation, or if the agency's regulation merely "parrots" the statutory language. Finally, courts generally prevent agencies from levying punitive fines against regulated entities if the regulated party could not have reasonably known how the agency planned to interpret the regulation. These exceptions are discussed in further detail below. No Seminole Rock Deference if the Regulation is Unambiguous In order for an agency's interpretation to be granted Seminole Rock deference, the agency's regulation must first be ambiguous. As the Court noted in Seminole Rock , the agency's interpretation should only be controlling if it is not "plainly erroneous or inconsistent with the regulations." Therefore, if the regulations are clear, then the agency is not permitted to interpret them in any manner that suits its immediate needs. The Court ruled in Christensen v. Harris County that Seminole Rock deference is "warranted only when the language of the regulation is ambiguous.... To defer to the agency's position [in this circumstance] would be to permit the agency under the guise of interpreting the regulation, to create de facto a new regulation." In Christensen , the regulation in question stated that an agreement between an employer and employee " may include other provisions governing the preservation, use, or cashing out of compensatory time ..." The agency purported to "interpret" this regulation as requiring an agreement to address these issues. The Court noted that deference to the agency's interpretation was not warranted because the use of the word "may" clearly and unambiguously illustrates that the regulation "is permissive, not mandatory." No Seminole Rock Deference if Interpretation Is Inconsistent with Previous Construction The Supreme Court has found that "an agency's interpretation of a ... regulation that conflicts with a prior interpretation is entitled to considerably less deference than a consistently held agency view." The Court has thus suggested that agency "flip-flopping" on interpretations would be unacceptable. Lower courts have applied this restriction on Seminole Rock deference. For example, the United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit) declined to provide the Mine Safety and Health Administration (MSHA) with Seminole Rock deference because the agency changed its position on its regulations regarding requirements for having two "escapeways" from mines. The MSHA had previously stated that the second escapeway did not have to be continually functioning if it could be made ready for use within one hour. Later, during litigation, the MSHA contended that its new interpretation of the regulation required that both escapeways be continuously functioning. The D.C. Circuit held that "the flip-flops here mark the Secretary's position as the sort ... to which courts will not defer." Similarly, the United States Court of Appeals for the Ninth Circuit has also declined to defer to an agency's interpretation because the agency's position differed from case to case. No Seminole Rock Deference if Regulation Merely "Parrots" the Statutory Language The Supreme Court has ruled that Seminole Rock deference is not appropriate when an agency's regulation merely restates or paraphrases the statutory language enacted by Congress. In Gonzales v. Oregon , the Court noted that "[a]n agency does not acquire special authority to interpret its own words when, instead of using its own expertise and experience to formulate a regulation, it has elected merely to paraphrase the statutory language." This decision attempts to prevent agencies from circumventing the requirements of the APA. If the agency could simply restate the ambiguous statutory language in its rules and then rely on broad deference to interpret its own rules, the agency would have an easy way to avoid potentially difficult rulemaking procedures. The holding in Gonzales establishes that agencies must use rules, and the rulemaking process, to clarify the ambiguous terms of the statute, and cannot merely parrot the statutory language and rely on Seminole Rock deference to avoid complex rulemaking procedures. Requirement of Notice to Punish—Lower Courts' Implementation of Seminole Rock Deference in Enforcement Proceedings Some regulations may impose civil fines or criminal penalties if a regulated entity violates a properly issued rule. This could potentially lead to problems where a regulated entity believes it is in compliance with agency regulations, but the agency interprets the rule differently. However, lower courts have acknowledged the potential to subject regulated entities to surprise fines, and have prohibited agencies from taking punitive action if the regulated entity has not received sufficient notice of the agency's interpretation. In General Electric Co. v. EPA , the D.C. Circuit afforded the Environmental Protection Agency (EPA) Seminole Rock deference and declared that it would defer to the EPA's reasonable interpretation of its own regulation relating to proper disposal of transmission fluids. However, despite the controlling weight given to the agency's interpretation, the court determined that the EPA could not "punish" General Electric (GE) with fines because GE did not have sufficient notice regarding the agency's interpretation of the regulation. The court held that GE's interpretation of the regulation was also reasonable, and, because GE was not aware of how the EPA intended to apply the regulation, GE could not be punished for its reasonable attempt to comply with the regulation. The court stated, "Where, as here, the regulations and other policy statements are unclear, where the [regulated entity's] interpretation is reasonable, and where the agency itself struggles to provide a definitive reading of the regulatory requirements, a regulated party is not 'on notice' of the agency's ultimate interpretation of the regulations, and may not be punished." Essentially, the court stated that the agency's permissible interpretation could be enforced in the future, but could not be used to punish a party who did not have adequate notice of the agency's interpretation. Such lack of notice violated constitutional due process requirements. As a result, GE would have to comply with the EPA's interpretation of the regulation in the future, but the EPA could "not hold GE responsible in any way ... for the actions charged in this case." Similarly, in Satellite Broadcasting Co. v. FCC , the D.C. Circuit ruled that although agency interpretations are entitled to deference, they may not cut off a party's right or punish a party without giving full notice of its interpretation. Other circuits have similarly applied this notice requirement in order for an agency to punish a regulated party either criminally or civilly. Justifications for and Potential Benefits of Seminole Rock Deference The Supreme Court's treatment of ambiguous agency rules illustrates the challenges that arise when agencies promulgate regulations lacking clarity. Many authors note that the Court is less explicit with its reasoning for granting Seminole Rock deference than it is with its justifications for Chevron deference. Indeed, Justice Scalia, in his recent dissent from Decker v. Northwest Environmental Defense Center , notes that the Court in Seminole Rock "offered no justification whatever" for providing the agency such deference. However, the most common justifications for giving agencies this power closely mirror the justifications for granting Chevron deference —that is, agencies have greater expertise in their policy field and they are more politically accountable than Article III courts. Agency regulatory schemes are often intricate and complex, and the expert agency is expected to understand how its rules fit into the larger regulatory system. Therefore, the expert agency presumably should be most able to interpret its regulations in a manner consistent with its policy goals. The Supreme Court put emphasis on this justification in Thomas Jefferson University when it stated that "broad deference is all the more warranted when, as here, the regulation concerns a complex and highly technical regulatory program, in which the identification and classification of relevant criteria necessarily require significant expertise and entail the exercise of judgment grounded in policy concerns." Furthermore, the reasoning in Chevron regarding political accountability can easily be transferred to the Seminole Rock context—agencies are in a better position to interpret their own regulations because they are more politically accountable than independent courts. If an agency's interpretations are truly undesirable, the incumbent Administration—unlike the insulated courts—can be held accountable by political processes. Some scholars note further justifications based on efficiency and flexibility. It is potentially easier and more efficient for agencies to enact broad rules and then clarify or refine them as the scheme is put into place. This flexibility allows an agency to implement a comprehensive regulatory scheme without having to constantly revise its regulations through the daunting rulemaking process. Arguably, perfect clarity in the rulemaking process is essentially impossible, and issues concerning these regulations will necessarily have to be resolved through agency interpretation. Finally, some authors note that attempting to achieve perfect clarity in agency regulations comes with a cost and is not necessarily desirable. For example, the more precise a regulation must be, the longer it will take to issue and the more it will cost for an agency to gather all of the needed data to promulgate the regulation. Agencies, if they were unable to rely on clarifying interpretations, would have to undertake an effort to promulgate rules that could be applied perfectly in all situations—this could take a considerable amount of time and resources. In some circumstances, being too precise can have a negative effect on the overall regulatory scheme. Professor Colin Diver gives an example of this phenomenon, hypothesizing about a regulation aimed to prevent unsafe pilots from flying. An agency could promulgate a clear rule that prevents any pilot over 60 years of age from flying—but this would still allow some unsafe pilots to fly while prohibiting other perfectly capable pilots from flying. A less clear regulation that prohibits pilots that create an "unreasonable risk" from flying may be more difficult for regulated entities to interpret, but could provide the groundwork for a more effective regulatory scheme to be implemented. Criticisms and Potential Problems with Seminole Rock Deference There are also possible concerns connected with granting an agency Seminole Rock deference. A commonly cited concern is the potential for Seminole Rock deference to incentivize the promulgation of vague agency rules. If an agency knows that its own interpretation will become controlling, there is little need for the agency to promulgate a clear rule from the start—the agency can instead promulgate a broad rule and then attach more precise interpretations of the rule at a later time. This behavior could have a negative effect on regulated entities that are left without knowledge of how to comply with the regulations. Justice Thomas illustrates this concern in his dissenting opinion in Thomas Jefferson University : It is perfectly understandable ... for an agency to issue vague regulations, because to do so maximizes agency power and allows the agency greater latitude to make law through adjudication rather than through the more cumbersome rulemaking process. Nonetheless, agency rules should be clear and definite so that affected parties will have adequate notice concerning the agency's understanding of the law. Professor John F. Manning echoes this concern in his article: In a regime in which a regulation may be interpreted in several permissible ways, regulated parties may find it difficult, if not impossible, to plan their affairs with confidence until the regulation has been definitively interpreted by the agency. Conclusive adjudications do not occur overnight, and they are not costless. The agency, as opposed to its lower functionaries, may take years to address the meaning of unclear regulatory norms, leaving regulated parties to plan their conduct based on often-conflicting or unclear signals of the lesser agency functionaries who may make the important day-to-day enforcement and adjudication decisions. If an agency regulation, for example, requires an investment in pollution abatement equipment, and the regulation may be read to require process X or Process Y, the regulated parties compelled to act cannot know with confidence which process to install until the end of the often-lengthy gestation period of a definitive agency interpretation. This lack of notice for how a rule could be interpreted potentially raises serious concerns for regulated industries. Even though courts have declined to allow agencies to "punish" regulated entities for rule violations when how the promulgating agency would interpret the rule was not readily apparent, a regulated entity must still bear the potentially large cost required to come into compliance with the agency's interpretation. Justice Scalia recently attacked Seminole Rock deference for incentivizing the promulgation of ambiguous regulations. However, Justice Scalia framed his argument as a violation of the doctrine of separation of powers. He noted that an important aspect of the separation of powers principle is that "the power to write a law and the power to interpret it cannot rest in the same hands." He distinguished Seminole Rock deference from Chevron deference by showing that when an agency is interpreting a statute passed by Congress, the author of the vague statute is not the entity tasked with interpreting the statute. However, he stated, "when an agency interprets its own rules—that is something else. Then the power to prescribe is augmented by the power to interpret; and the incentive is to speak vaguely and broadly." Justice Scalia also attacked the principal arguments for maintaining Seminole Rock deference. Agreeing that agencies possess special expertise in their policy areas, Justice Scalia noted that this expertise "leads to the conclusion that agencies and not courts should make regulations," but is not indicative of who should have power to interpret regulations. He noted that it should be up to the courts to "say what the law is." Furthermore, he noted that although agencies may have a better understanding and insight into the intent of a regulation, agencies should not get credit for what they intended to do, but, rather, should be bound by what the regulation actually says. Conclusion Seminole Rock deference has been a mainstay in administrative law since the decision was handed down in 1945. It is important to understand the implication this deference has on the behavior and functioning of administrative agencies. Seminole Rock provides a significant amount of flexibility to agencies in the implementation of their regulatory programs. There are costs and benefits associated with permitting an agency to promulgate broad rules and then allowing the agency to refine them through interpretations accorded with judicial deference. While the Supreme Court has not acted to change the deferential standard provided to agencies in these circumstances, Justice Roberts recently announced that "the bar is now aware that there is some interest in reconsidering" Seminole Rock deference. If the Court decides to take a case to reconsider this judicial deference, it would be considering a question that goes "to the heart of administrative law" because "[q]uestions of Seminole Rock ... deference arise as a matter of course on a regular basis."

Agencies promulgate rules to implement statutorily authorized regulatory programs. These rules, although established by an administrative agency, maintain the force and effect of law. To be able to promulgate rules, an agency must be granted by Congress the power to do so, either explicitly or implicitly, through statute. To control the process by which agencies create these rules, Congress has enacted statutes, such as the Administrative Procedure Act (APA), that dictate what procedures an agency must follow to establish a final, legally binding rule. Often, the organic statute that allows an agency to implement a program through rulemaking may be ambiguous. The agency must then interpret the ambiguous terms of the statute in order to establish the regulatory program. The Supreme Court, in Chevron U.S.A., Inc. v. Natural Resources Defense Council, established the Chevron test, which requires courts to defer to an agency's interpretation of an ambiguous statute if the agency's interpretation is reasonable. However, what happens if an agency's regulation is ambiguous? The Supreme Court ruled in Bowles v. Seminole Rock & Sand Co., back in 1945, that a court must accept an agency's interpretation of its own regulations unless it is "plainly erroneous." Since the Court handed down the Seminole Rock decision, the Court has outlined certain exceptions to the rule. Courts will not defer to an agency's interpretation if the regulation itself is clear, if the agency suddenly changes its interpretation, or if the agency's regulation merely "parrots" the statutory language. Finally, courts generally prevent agencies from levying punitive fines against regulated entities if the regulated party could not have reasonably known how the agency planned to interpret the regulation. Agency regulations provide the backbone of a large number of federal programs. It is important to understand how courts treat an agency's promulgated regulations in order to understand how a rule may be applied to the public and regulated entities. This report discusses how courts currently treat an agency's interpretation of its own ambiguous regulations and discusses the arguments raised in the recent Supreme Court opinion from Decker v. Northwest Environmental Defense Center, in which some members of the Court indicated a willingness to reconsider Seminole Rock deference. The report also discusses the justifications for and arguments against maintaining this judicial deference.

Introduction The Federal Pell Grant program, authorized by Title IV-A-1 of the Higher Education Act of 1965, as amended (HEA; P.L. 89-329), is the single largest source of federal grant aid supporting postsecondary education students. The program provided approximately $31 billion to approximately 8.2 million undergraduate students in FY2015. Pell Grants are need-based aid that is intended to be the foundation for all federal need-based student aid awarded to undergraduates. The U.S. Department of Education (ED) data suggest that in FY2015, Pell Grants constituted approximately 23% of all HEA Title IV student aid—including grants, loans, and work opportunities—that benefit postsecondary education students at all levels. The statutory authority for the Pell Grant program was most recently reauthorized through FY2017 by the Higher Education Opportunity Act of 2008 (HEOA; P.L. 110-315 ). Additional legislation, referred to in this report, includes the following: The American Recovery and Reinvestment Act (ARRA; P.L. 111-5 ) provided substantial discretionary and mandatory supplemental funding for the Pell Grant program in FY2009, and when combined with the FY2009 Omnibus Appropriations Act ( P.L. 111-8 ), also established a $619 increase in the Pell Grant maximum award for award year (AY) 2009-2010; The SAFRA Act (enacted as part of the Health Care and Education Reconciliation Act of 2010; P.L. 111-152 ) established indefinite mandatory appropriations for the Pell Grant program, changed the method by which future additional mandatory add-on amounts are determined, and provided additional mandatory funds in FY2011 for general use through the end of FY2012; The FY2011 Continuing Appropriations Act ( P.L. 112-10 ) amended the HEA to eliminate a provision that allowed for a student to receive two scheduled Pell Grant awards in the same year, and provided additional mandatory funds in FY2012 and select future years for general use in the program; The Budget Control Act of 2011 (BCA; P.L. 112-25 ) provided additional mandatory funds for the Pell Grant program for FY2012 and FY2013; The FY2012 Consolidated Appropriations Act ( P.L. 112-74 ) amended the HEA to make several changes to the eligibility criteria and award rules for the Pell Grant program, and provided additional mandatory funds in FY2012 and select future years for general use in the program; and The Consolidated and Further Continuing Appropriations Act, 2015 ( P.L. 113-235 ) permitted individuals enrolled in career pathway programs to receive a reduced Pell Grant award. This report reviews how the program works and provides an analysis of recent program costs and funding, recipients (numbers and characteristics), and the role the program plays in the distribution of federal student aid. In addition, this report highlights some of the current legislative issues pertaining to the program. The appendices at the end of the report describe the Pell Grant mandatory add-on calculation ( Appendix A ), Pell Grant recipient count history ( Appendix B ), and acronyms commonly used in the report ( Appendix C ). How the Program Works This section of the report provides an overview of the structure of the Pell Grant program and the process through which grants are made to students. It describes student eligibility, underlying concepts and award rules for determining students' grants, and the role played by postsecondary institutions in the program. Briefly, the Pell Grant program provides grants (i.e., aid that does not have to be repaid) to needy undergraduates. In any year, federal funding is made available to ensure that all eligible students attending eligible institutions receive Pell Grants. To apply for a Pell Grant, students must complete the Free Application for Federal Student Aid (FAFSA), providing requested financial and other information, and submit it to a "central processor" under contract with ED. The central processor provides each applicant with a Student Aid Record (SAR) and provides each institution of higher education (IHE) designated by the applicant with an Institutional Student Information Record (ISIR). These documents contain the information submitted on the FAFSA and the calculated expected family contribution (EFC). The EFC is the amount expected to be contributed by the student and the student's family toward postsecondary education expenses for the upcoming award year. Pell Grants are portable , that is, the grant aid follows students to the eligible postsecondary education institutions in which they enroll. Institutions that receive valid SARs or valid ISIRs for eligible Pell applicants are required to disburse Pell funds to students who successfully enroll in approved coursework. The size of the grant is based, principally, on the financial resources that students and their families are expected to contribute toward postsecondary education expenses, and the discretionary base maximum award amount that is set in the annual appropriations process and any additional increases to the discretionary base maximum award funded with mandatory appropriations specified for each year in the HEA. Student Eligibility To be eligible for a Pell Grant, a student must meet requirements that apply to HEA Title IV student aid in general as well as requirements specific to the Pell Grant program. Among the requirements generally applicable to federal student aid for AY2015-2016 include the following: Students must be accepted for enrollment or enrolled in an HEA Title IV eligible program for the purpose of earning a degree or certificate at an eligible institution. Students must not be enrolled in an elementary or secondary school and must either have a high school diploma (or equivalent) or on or after July 1, 2014, be enrolled in an eligible career pathway program and demonstrate an ability to benefit from the education or training. An eligible career pathway program combines adult education with a HEA Title IV eligible program. Students must maintain satisfactory academic progress while enrolled in postsecondary education in order to be eligible for federal student aid. Satisfactory progress is delineated by policies developed by each participating IHE, but these policies must meet minimum federal standards. Students with a federal or state conviction for possession or sale of drugs while receiving HEA Title IV student aid may be disqualified for federal student aid for a period of time. Students are ineligible if they are in default on a Title IV student loan, have failed to repay or make an arrangement to repay an overpayment on a Title IV grant or loan, or are subject to a judgment lien for a debt owed to the United States. Students are ineligible if they have not repaid Title IV funds obtained fraudulently. Students must meet citizenship requirements. Males between 18 and 25 years of age must register with the selective service system in order to be eligible for federal student aid. Specific eligibility requirements for the Pell Grant program include the following: Full-time and part-time undergraduates in non-foreign institutions are eligible to receive Pell Grants. All recipients are subject to a cumulative lifetime eligibility cap on Pell Grant aid of 12 full-time semesters (or the equivalent). Prior to July 1, 2012, only students who were enrolled after July 1, 2008, were subject to a lifetime eligibility cap on Pell Grant aid of 18 full-time semesters (or the equivalent). The program provides assistance only to financially needy students as determined under the program's award rules (see below). Students with an intellectual disability must be accepted for enrollment or enrolled in a comprehensive transition and postsecondary program but do not require a high school diploma (or equivalent) and do not have to be enrolled for the purpose of obtaining a certificate or degree. Students who are incarcerated in a federal or state penal institution are ineligible for Pell Grants. Students who are subject to an involuntary civil commitment following incarceration for a sexual offense (as determined under the FBI's Uniform Crime Reporting Program) are ineligible for Pell Grants. Underlying Concepts and Award Rules An eligible student's annual Pell Grant award is determined on the basis of a set of award rules. In general, these award rules are designed to ensure that the neediest students (as determined by the amount of their EFC) receive the highest Pell Grant awards in each award year. Conversely, students with the lowest need receive the smallest Pell Grant awards in a given award year. Students who demonstrate a level of need that falls between these two extremes are awarded Pell Grant aid on a sliding scale. Additionally, Pell Grant awards are prorated for students who attend on a less-than-full-time basis. An important feature of the Pell Grant award rules is that the grant is determined without consideration of any other financial assistance a student may be eligible to receive or may be receiving. This reflects the intention to make the Pell Grant the foundation of a financial aid package to which other assistance is added. Some of the underlying concepts associated with the Pell Grant program, as well as the program's award rules, are discussed below. In general, provisions are discussed as in effect following the enactment of the SAFRA Act (enacted as part of the Health Care and Education Reconciliation Act of 2010; P.L. 111-152 ) and as amended by subsequent legislation and explained at the end of each heading. Underlying Concepts Total Maximum Award The total maximum award amount is the maximum Pell Grant amount that a student may receive in an award year. The actual amount may be reduced in accordance with the primary award rules (described below). The total maximum award amount is the sum of the discretionary base maximum award and the mandatory "add-on" award. Discretionary Base Maximum Award The discretionary base maximum award is the amount specified in annual appropriations laws. The annual appropriations laws also determine the amount of discretionary funding available for the program for the corresponding award year. Mandatory "Add-On" Award The mandatory "add-on" award is the amount specified in the HEA by which the discretionary base maximum award amount may be increased to yield a total maximum award amount. The mandatory "add-on" award is funded though permanent mandatory appropriations. The SAFRA Act amended the HEA to establish the mandatory add-on award amount for AY2010-2011 and all subsequent award years. For AY2010-2011 through AY2012-2013, the mandatory add-on amounts were $690 in each year. For AY2013-2014 through AY2017-2018, the mandatory add-on amount is determined according to a statutorily defined formula that allows the amount to increase with inflation. The add-on amount for AY2013-2014 was determined by (1) adjusting the total maximum award amount of $5,550 (i.e., the $4,860 discretionary base maximum award for AY2012-2013 plus the $690 add-on amount) for inflation—the change in the Consumer Price Index for All Urban Consumers (CPI-U) over the period from December 2011 to December 2012; (2) subtracting $4,860 from this amount; and (3) rounding this amount to the nearest $5. Per this formula, the add-on amount for AY2013-2014 was $785, as published by ED. For AY2014-2015 through AY2017-2018, the mandatory add-on amount in each year is determined by (1) adjusting the previous year's total maximum award for inflation—the change in the CPI-U, as measured from the most recently completed calendar year before the start of each applicable award year; (2) subtracting the previous year's discretionary base maximum award; and (3) rounding this amount to the nearest $5. If in any year during this period the previous year's discretionary base maximum award is less than or equal to $4,860, then the mandatory add-on amount is determined by adjusting the previous year's total maximum award amount for the change in the CPI-U, as measured from the most recently completed calendar year before the start of each applicable award year; subtracting $4,860 from this amount; and finally rounding to the nearest $5. ED calculated a mandatory add-on amount of $870 for AY2014-2015 and $915 for AY2015-2016, and estimated an amount of $985 for AY2016-2017. Appendix A provides a mathematical expression and example of this formula for AY2014-2015 through AY2017-2018. For AY2018-2019 and all subsequent award years, the mandatory add-on amount will be the same amount as determined for AY2017-2018 by the formula described above. Authorized Maximum Award Prior to the SAFRA Act, the authorized maximum award was the annual maximum Pell Grant specified for each award year in the HEA. The authorization is intended to provide guidance regarding the appropriate amount of funds to carry out the policy objectives of a program. The authorized maximum award and total maximum award were equal in only three instances during the program's history (AY1975-1976, AY1976-1977, and AY1979-1980). In all other years, the total maximum award was less than the authorized maximum award. The elimination of the authorized maximum award levels from the HEA has no impact on the determination of maximum award levels. Qualifying Minimum Award The qualifying minimum Pell Grant award is the minimum amount of Pell aid on which qualification for the program is based. In other words, a student must qualify for at least this minimum amount to be eligible for the program. Under the SAFRA Act, the qualifying minimum award in AY2010-2011 and AY2011-2012 was equal to 5% of the total maximum award . For example, in AY2011-2012 the qualifying minimum award was $277, or approximately 5% of $5,550. The FY2012 Consolidated Appropriations Act revised the basis for determining the qualifying minimum award. The current qualifying minimum Pell Grant award is equal to 10% of the total maximum award. For example, in AY2015-2016 the statutory minimum award is $577, or 10% of $5,775. "Bump" Award The so-called bump award was an additional statutory increase to the qualifying minimum Pell Grant award, ensuring that students who were eligible for the qualifying minimum award received a small increase in Pell aid. In AY2010-2011 and AY2011-2012 under the SAFRA Act, the bump award could equal up to 5% of the total maximum award. For example, in AY2011-2012 the bump award was $277, or approximately 5% of $5,550, for students who were eligible to receive the qualifying minimum award. The FY2012 Consolidated Appropriations Act eliminated the bump award for AY2012-2013 and future years. Therefore, no additional aid will be added to the qualifying minimum award under current award rules. Effective Minimum Award The effective minimum award is the minimum amount of Pell Grant aid available to a student in any given year as determined by law. The effective minimum award for AY2010-2011 and all future years is equal to 10% of the total maximum award amount. Since the FY2012 Consolidated Appropriations Act eliminated the bump award beginning on July 1, 2012, the qualifying minimum award and effective minimum award are now the same. Table 1 shows the award levels associated with the concepts discussed above—the authorized maximum award, the discretionary base maximum award, the mandatory add-on award, the total maximum award, and the effective minimum award—from 1973-1974 award year through AY2018-2019 and beyond. Primary Award Rule With one exception, the primary Pell Grant award rule, as revised by the SAFRA Act, is that a student's annual grant is the least of (1) the total maximum Pell Grant minus the student's EFC, or (2) Cost of Attendance (COA) minus EFC, and is ratably reduced for a student who enrolls on a less-than-full-time basis. Most students are awarded Pell Grant aid based on the first condition of this rule (i.e., Pell Grant Award = Total Maximum Pell Grant – EFC), since the total maximum Pell Grant award available to a student in an award year is typically less than the student's COA at the attending institution. The exception to the primary award rule applies to students who first enroll in an HEA Title IV eligible program on or after July 1, 2015, who enroll in an eligible career pathway program, and who demonstrate an ability to benefit from the education or training. For such students, the Pell Grant award rule is that a student's annual grant is the least of (1) the discretionary maximum Pell Grant minus the student's EFC, or (2) Cost of Attendance (COA) minus EFC, and is ratably reduced for a student who enrolls on a less-than-full-time basis. Some of the concepts that are specifically related to the primary award rule are discussed in detail below. Expected Family Contribution (EFC) The EFC is the amount that, according to the federal need analysis methodology, can be expected to be contributed by a student and the student's family toward the student's cost of education. This calculation is based on consideration of available income and, for some families, available assets. Basic living expenses, federal income tax liability, retirement needs, and other expenses are taken into account in this process. Different EFC formulas are applied to three different groups of students: those who are considered dependent on their parents (the EFC formula assesses the financial resources of both the parents and the dependent student); independent students with no dependents, other than a spouse (if any); and independent students with dependents other than a spouse (e.g., children). The EFC determination utilizes financial information submitted by the aid applicant on the FAFSA. Automatic Zero EFC Students who apply for federal student aid and meet certain qualifications automatically receive a zero EFC: Only dependent students and independent students with dependents other than a spouse can qualify for an automatic zero EFC if, in general, the parents of the dependent student or the independent student (and spouse, as appropriate) have income below a specific threshold and meet one of three additional criteria. The additional criteria are receipt of means-tested benefits from other federal programs, eligibility to file or having filed certain federal income tax returns, and having been a dislocated worker. Independent students without dependents are not eligible for an automatic zero under these criteria. A student whose parent or guardian was a member of the U.S. Armed Forces and died as a result of performing military service in Iraq or Afghanistan after September 11, 2001, receives an automatic zero EFC provided the student was under 24 years old or was enrolled at an IHE at the time of the parent or guardian's death. A student with a zero EFC would receive the total maximum Pell Grant award if enrolled full-time for a full year at an institution where the COA is equal to or exceeds the total maximum Pell Grant award. The FY2012 Consolidated Appropriations Act changed the annual income threshold for determining whether a student automatically qualifies for a zero EFC from $31,000 to $23,000 beginning in AY2012-2013, with thresholds in future award years indexed to inflation. The income threshold has accordingly increased to $25,000 for AY2016-2017. Maximum EFC for Pell Grant Eligibility For AY2010-2011 and AY2011-2012 under the SAFRA Act, the maximum EFC for Pell Grant eligibility was equivalent to 95% of the total maximum Pell Grant award. The FY2012 Consolidated Appropriations Act effectively changed the maximum eligible EFC for Pell Grant eligibility to 90% of the total maximum award beginning in AY2012-2013 by eliminating the bump award (as explained earlier). In AY2015-2016, a student with an EFC of $5,198 would receive a minimum award of $588. A student with an EFC above $5,198 would not be eligible for a Pell Grant in AY2015-2016. Cost of Attendance (COA) The cost of attendance (COA) is a measure of a student's educational expenses for the period of enrollment. In general, it is the sum of (1) tuition and fees; (2) an allowance for books, supplies, transportation, and miscellaneous personal expenses; (3) an allowance for room and board; and (4) for a student with dependents, an allowance for costs expected to be incurred for dependent care. For determining a student's Pell Grant award, the cost of attendance amount is based on the full-year (i.e., approximately nine months of a traditional college calendar) costs for a full-year student and must be prorated for students who attend on a less-than-full-time basis. Additionally, for the purpose of determining a student's Pell Grant award, institutions may use average costs for students at their school, rather than calculating actual expenses for each student. Year-Round Pell Grants Eligible students enrolled from July 1, 2009, to June 30, 2011, were eligible to receive so-called "year-round" Pell Grants, or up to two scheduled awards in a single award year. For example, a second scheduled Pell Grant award may have supported a summer term in addition to the regular academic year. To qualify, students were required to be enrolled on at least a half-time basis in a program of study longer than one academic year in length and to have received 100% of the first scheduled award during the academic year. This provision was enacted in the HEOA. The FY2011 Continuing Appropriations Act eliminated this provision effective July 1, 2011. Institutional Role To be eligible for the HEA Title IV programs, including the Pell Grant program, an IHE must meet several statutory and regulatory eligibility criteria. For a description of institutional eligibility requirements, see CRS Report R43159, Institutional Eligibility for Participation in Title IV Student Financial Aid Programs , by [author name scrubbed]. The IHE may be a public or private nonprofit IHE, a private for-profit (sometimes referred to as proprietary) postsecondary institution, or a postsecondary vocational institution. An eligible institution's role in the Pell Grant program primarily involves determining student eligibility, disbursing awards, adjusting awards to ensure students do not receive more assistance than they are eligible for, record keeping, and reporting to ED. An eligible institution calculates a student's Pell Grant award using the COA and enrollment status it has determined for the student, and applying these values with the student's EFC to the Pell Grant payment schedules published annually by ED. Pell Grants must be paid out in installments over the academic year. A student receives a Pell Grant only for the payment period for which he or she is enrolled. Generally, institutions credit a student's account with the Pell payment to meet unpaid tuition, fees, room, and board; any remaining Pell funds are paid directly to the student to cover other living expenses. ED makes funds available to schools so that they can disburse Pell Grant awards. In addition, the Pell Grant program pays participating institutions an administrative cost allowance of $5 per enrolled recipient. Description of Pell Recipients and Participation This section provides descriptive statistics of Pell Grant recipients (numbers and characteristics) and the institutions that they attend. The data may inform discussion regarding the extent to which the program achieves the policy goal of improving access to higher education for financially needy individuals. Number of Recipients The Pell Grant program reaches a significant portion of undergraduates each year. In AY2011-2012, the latest available data, 41% of all undergraduates were estimated to have received Pell Grants. During the program's first year in AY1973-1974, approximately 176,000 students received a Pell Grant award. Since then, the annual number of Pell Grant recipients has risen substantially. Based on public data reported annually by ED, the number of Pell Grant recipients reached an all-time high of 9.4 million in AY2011-2012, before declining by 782,000, or 8.28%, to 8.7 million in 2013-2014. Table 2 shows the number of Pell Grant recipients over the last five years, from AY2009-2010 to AY2013-2014, as well as the annual change and annual percentage change during this time. Appendix B displays Pell Grant recipients from AY1973-1974 to AY2013-2014. It is important to note that myriad factors can affect the number of Pell Grant recipients in any given award year. Income of Recipients There is no absolute income threshold that determines who is eligible or ineligible for a Pell Grant award. Nevertheless, Pell Grant recipients are primarily low-income. In AY2013-2014, an estimated 61% of dependent Pell Grant recipients had a total family income at or below $30,000. Independent Pell Grant recipients' income is generally lower than their dependent counterparts. In AY2013-2014, an estimated 83% of independent Pell Grant recipients had a total income at or below $30,000. It is important to note, however, that a small percentage of Pell Grant awards go to mid- and high- income families. For the most part, these awards are smaller than the average Pell Grant award for all students and are typically provided to dependent students from families who have multiple students enrolled in postsecondary education at the same time. Participation Rate by Income Although the primary purpose of the program is to aid needy undergraduate students, a significant number of low-income undergraduate students who enroll in postsecondary education do not receive a Pell Grant, primarily because they did not apply for federal financial aid. Table 3 , which presents a CRS analysis of data from the National Postsecondary Student Aid Study (NPSAS), shows the percentage of dependent and independent undergraduates from different income levels who were Pell recipients in AY2007-2008 and AY2011-2012. Two participation rates are provided for each income level and dependency status; one measuring the percentage of all undergraduate students (of the relevant dependency status) who were Pell recipients and the other providing the percentage of undergraduate aid applicants (of the relevant dependency status) who received a Pell Grant. In all but one income category, Table 3 shows that the percentage of undergraduates and aid applicants receiving a Pell Grant, regardless of dependency, is higher in AY2011-2012 than in AY2007-2008. For example, approximately 81.8% of all dependent undergraduates from families with total family income of less than $10,000 were Pell recipients in AY2011-2012 compared to 63.8% in AY2007-2008. Also, Table 3 shows that receipt of Pell Grants is higher among aid applicants than among total undergraduates. In AY2011-2012, approximately 65.0% of all independent undergraduates with total income of less than $5,000 were Pell recipients, and about 81.3% of aid applicants in that income category received a Pell Grant. Finally, Table 3 shows that, in general, as income rises, participation rates in the Pell program fall for dependent and independent students. Comparing dependent undergraduates in AY2011-2012, over 81% with total family income of less than $10,000 were Pell recipients, and less than 5% with total family income of $60,000 or more were Pell recipients. It is noteworthy that some low-income undergraduate students, particularly independent undergraduates, did not receive a Pell Grant in either AY2007-2008 or AY2011-2012. Of undergraduates with total family income of $10,000-$19,999, approximately 82.1% of dependents and 65.2% of independents received a Pell Grant in AY2011-2012 ( Table 3 ). The discrepancy may be related to the portion of low-income undergraduate students who do not apply for federal student aid, students not following up with the school financial aid office, family assets that make them ineligible for a Pell Grant, or other factors. The fact that some low-income undergraduates do not apply for aid is evidenced by the higher percentage of aid applicants receiving a Pell Grant compared to all undergraduates in the same income category. It is possible that some low-income students who did not apply for aid may have believed they were not eligible, or they may have had sufficient resources to meet their costs. At least some of those who believed they were ineligible for aid may have actually been eligible. Among other possible explanations are that very low-income students in particular find the federal financial aid application process too complex to pursue, or that such students may not be aware of the availability of federal student aid. Additionally, aid outreach efforts at low-cost institutions may be less vigorous. Furthermore, some students and family members do not wish to disclose information related to their financial resources, and thus, do not apply for aid. Sector of Participating Institutions Recently, there has been a renewed focus on the distribution of Pell Grant aid by sector of institution. Table 4 shows the AY2011-2012 enrollment distribution by institutional sector of undergraduates who do not receive a Pell Grant and undergraduates who do receive Pell Grants. Each group is disaggregated for dependent and independent students. Pell Grant recipients were more likely to attend private for-profit institutions than undergraduates who did not receive a Pell Grant. For example, 8.8% of dependent Pell Grant recipients attended a private for-profit institution compared to 3.4% of undergraduates who did not receive a Pell Grant. In addition, a smaller proportion (37.3%) of independent Pell Grant recipients attended public 2-year institutions than independent undergraduates who did not receive a Pell Grant (50.7%). Role of the Pell Grant The Pell Grant is intended to function as the foundation aid for financially needy undergraduates; all other need-based and non-need-based federal student aid is to build on the Pell Grant. As described earlier, other financial aid received by a student is not taken into account in determining a student's Pell Grant. How well does the Pell Grant currently function as the foundation aid? This section explores this question by analyzing the purchasing power of the Pell Grant and the distribution of other federal aid to Pell recipients. Purchasing Power The total maximum Pell Grant, available to students with a zero EFC who enroll on a full-time full-year basis, is often used as a gauge of the Pell Grant program's level of support in each year. In AY2013-2014, the total maximum grant ($5,645) covered approximately 61% of the average tuition, fees, room, and board at public two-year institutions, 31% at public four-year institutions, 24% at private two-year institutions, and 15% at private four-year institutions. Figure 1 compares the total maximum grant to average undergraduate tuition, fees, room, and board charges at public two-year, public four-year, private two-year, and private four-year institutions between AY1973-1974 and AY2013-2014. It is evident that the maximum was at its peak relative to these average charges during the 1970s. From the mid-1980s through the early 1990s, the total maximum Pell Grant lost ground relative to average tuition, fees, room, and board at public and private four-year institutions. Despite recent increases in the Pell Grant maximum award level, the coverage for AY2013-2014 is slightly below that of AY2010-2011 due to an increase in tuition, fees, room, and board at all institutions. Another approach to measuring the purchasing power of the maximum Pell Grant is to compare its coverage of only the average tuition and fees published by IHEs. For example, in AY2013-2014, the maximum Pell Grant covered approximately 68% of the average published in-state tuition and fees at four-year public institutions. At two-year public institutions, where students often commute to classes, the maximum Pell Grant in AY2013-2014 exceeded the average published tuition and fees at these institutions ($5,645 compared to $2,882). At for-profit institutions, where tuition and fees are typically higher, the maximum Pell Grant covered only 41% of the average published tuition and fees in AY2013-2014. Finally, at four-year private (not-for-profit) institutions, the maximum Pell Grant covered only 19% of the average published tuition and fees in AY2013-2014. It is also important to note that in all sectors of higher education, published tuition, fees, and room and board have consistently risen more rapidly than average prices in the economy for a number of years. An analysis of the purchasing power of the Pell Grant maximum award as a percentage of the COA or tuition and fees only, therefore, could also include an examination of why published prices at institutions of higher education have risen at such a rapid rate and what is the role of federal student aid, including Pell Grants, in rising published prices. Receipt of Pell Grants and Other Federal Aid One measure of the role that the Pell Grant plays as the foundation award is the extent to which undergraduates who received federal need-based student aid from Title IV of the HEA were Pell recipients. AY2011-2012 NPSAS data suggest that Pell Grants alone may not have constituted the primary foundation for these students. In AY2011-2012, approximately 77% of undergraduate federal need-based aid recipients received Pell Grants, whereas a lower portion (67%) of undergraduate need-based aid recipients borrowed Direct Subsidized Loans from the William D. Ford Federal Direct Loan (Direct Loan) program. Another approach to delineating the role of Pell Grants is to explore the extent to which Pell recipients, as a group, relied solely on the grant to meet college costs without choosing to secure other federal aid, particularly loans with their repayment obligation. In AY2011-2012, only 32.4% of Pell recipients relied on a Pell Grant as their only source of aid and many participated in other federal student aid programs, sometimes at a high rate. Among the other types of federal need-based student aid available to students, Pell recipients were most likely to also borrow Direct Subsidized Loans (over 59.8% of Pell recipients received these loans—with an average amount of $3,441). Table 5 shows the average percentage of Pell Grant recipients' cost of attendance covered by their Pell Grant award, their loans from all sources, and their total aid package in AY2011-2012, by total family income. This table allows one to examine the extent to which Pell Grants and other aid helped Pell Grant recipients meet their cost of attendance. Table 5 shows, for example, that among all Pell Grant recipients, Pell Grant aid covered, on average, 23.6% of the cost of attendance and all loan sources covered, on average, an additional 22.7% of the cost of attendance for these recipients. For Pell Grant recipients, total aid from all sources supplies less than two-thirds (60.2%) of the cost of attendance, on average. In addition, Table 5 illustrates that, in general, as family income for Pell Grant recipients increases, the percentage of cost of attendance covered by Pell Grants declines. Several factors, including the overall price of education, income availability, and the choice of institutional type, have an impact on the extent to which Pell Grant recipients secure Direct Loans. For Pell Grant recipients attending public two-year institutions, where the average cost of attendance is typically lower than at public four-year institutions, and particularly lower than at private four-year institutions, the propensity for borrowing was much less than for Pell Grant recipients as a whole. For AY2012-2013, 30% of Pell Grant recipients at public two-year institutions borrowed Subsidized Direct Loans, and 19% borrowed Unsubsidized Direct Loans. For Pell Grant recipients attending for-profit institutions, which include less-than-two-year, two-year, and four-year institutions, the propensity to borrow was much higher. For AY2012-2013, 86% of Pell Grant recipients borrowed Subsidized Direct Loans at for-profit institutions, and 80% borrowed Unsubsidized Direct Loans. Program Costs Costs for the Pell Grant program are award year-specific and are primarily affected by the number of students who apply for and receive aid under the program's eligibility parameters and award rules. From AY2008-2009 to AY2010-2011, the program experienced both anticipated and unanticipated increases in program costs in each award year. Beginning in AY2011-2012, program costs have declined or stabilized when compared to original estimates as a result of (1) the changes enacted in the FY2011 Continuing Appropriations Act and the FY2012 Consolidated Appropriations Act; and (2) declines in enrollment, particularly at public and private for-profit institutions. This section reviews recent trends in program costs and also presents some of the possible causes behind the changes in program costs since AY2007-2008. Current Estimates of Program Costs Table 6 provides a summary of estimated Pell Grant program costs from AY2007-2008 through AY2014-2015 as of January 2016. Costs associated with the discretionary base maximum award and costs associated with the mandatory add-on award, where appropriate, are specified. Table 6 shows that the total program cost doubled from AY2007-2008 to AY2009-2010 and increased an additional 18% in AY2010-2011. As mentioned earlier, program costs have declined since AY2010-2011 and stabilized during the past three years, due in part to changes in enrollment trends and recently enacted provisions by Congress. Program Cost Escalation: AY2008-2009 through AY2010-2011 In general, several factors contributed to the unprecedented escalation in program costs from AY2008-2009 to AY2010-2011 that became the focus of Congress. These factors included a combination of (1) legislative changes during these years and prior years that led to increased benefits for more students; (2) increases in the number of students enrolling in postsecondary education and applying for Pell Grant aid; and (3) a weakened economy. The following section examines the details of some of the possible reasons behind increased program costs during this time period. Large Increase in the Discretionary Base Maximum Award The American Recovery and Reinvestment Act (ARRA) and the FY2009 Omnibus Appropriations Act established a $619 increase ($4,241 to $4,860) in the discretionary base maximum Pell Grant award from AY2008-2009 to AY2009-2010, which represented the largest one-year increase in the base maximum award in the history of the program. Although funding provided by ARRA was treated as a temporary supplement to existing appropriations in many federal programs, the increase has been sustained in each subsequent appropriations act. An increase to the discretionary base maximum award was estimated to cost, in general, between $500 million and $700 million per $100 increase in a single award year. Moreover, an increase to the discretionary base maximum award in any year may result in additional residual baseline costs that must be absorbed in future years, absent a reduction to the discretionary maximum grant or other changes to program eligibility. Increase in FAFSA Applications and College Enrollments According to data provided by ED, the number of students who submitted a valid application for a Pell Grant increased 74% from AY2007-2008 to AY2010-2011. Efforts by ED and Congress to simplify the web-based version of the Free Application for Federal Student Aid (FAFSA) during this time period may have been a factor contributing to increased FAFSA applications. Additionally, the coordination between ED and the U.S. Department of Labor to notify Unemployment Insurance (UI) beneficiaries of their potential eligibility to receive a Pell Grant may also have contributed to increased enrollments and FAFSA applications. In general, students may have been made more aware of federal financial aid as a result of efforts to promote its availability and the overall perceived benefits of higher education. All of these factors, when considered collectively, could have had a measurable impact on the costs of the program. Economic Conditions Economic trends during this time period may also have contributed to increased Pell Grant costs. For example, students may have chosen to enroll in college and attend at a higher intensity since the opportunity costs of forgoing employment in a weak job market are much less. More importantly, displaced workers may have found it necessary to return to college to gain new technical and vocational skills to compete in the changing job market. The financial resources of some families may have been substantially less during this time period, given higher unemployment figures, stagnant wages, and weakened investment markets. Furthermore, guidance issued by ED in April and May 2009 encouraged financial aid administrators to use their professional judgment authority, pursuant to Section 479A of the HEA, to make adjustments, on the basis of adequate documentation and on a case-by-case basis, to address circumstances not reflected in the FAFSA of a recently unemployed individual. Legislative Changes to the Federal Need Analysis Calculation and Award Rules Legislative changes to the federal need analysis calculation and Pell Grant award rules enacted prior to the FY2011 Continuing Appropriations Act, for the most part, benefited students and expanded eligibility for the Pell Grant program. Typically, when changes to the federal need analysis calculation and program award rules are enacted under authorizing or budget reconciliation legislation, the additional discretionary costs in the program are paid for in subsequent annual appropriations. The award rule allowing "year-round" Pell Grants had a significant impact on program costs, in part due to the regulatory interpretation of the provision, as well as unanticipated participation (see the previous section entitled " Year-Round Pell Grants "). Regulatory interpretation required that the cross-over payment period be assigned to the award year that would produce the higher Pell Grant payment amount, allowed payment of up to 200% of the scheduled award for the award year, and defined eligible individuals as those exceeding 24 credit hours (cumulatively) during the three or more terms in the award year rather than limiting eligibility to those exceeding 30 credit hours in the award year.  Some of the legislative changes to the need analysis calculation enacted prior to the FY2011 Continuing Appropriations Act that resulted in higher discretionary costs include, but are not limited to, (1) expansion of the automatic zero EFC qualification in both the Higher Education Reconciliation Act of 2005 (HERA) and the College Cost Reduction and Access Act of 2007 (CCRAA); (2) the increase in the income protection allowance levels for all students in the HERA and the CCRAA; (3) the elimination of certain untaxed income and benefits in the CCRAA; and (4) a variety of exclusions and benefits regarding the treatment of veterans education benefits, and military benefits and allowances enacted under the HEOA. Program Cost Decline and Stabilization: Post AY2010-2011 Pell Grant program costs have generally decreased since AY2010-2011. However, from AY2013-2014 to AY2014-2015 the increase in costs associated with the mandatory add-on award outweighed the decrease in costs related to the discretionary award level ( Table 6 ). Several factors have contributed to the general reduction in Pell Grant program costs since AY2010-2011. The factors include, but are not limited to, levelling of the discretionary base maximum award since AY2009-2010 (see Table 1 ); levelling of the mandatory add-on award from AY2010-2011 to AY2012-2013 (see the previous section entitled " Mandatory "Add-On" Award "); raising the qualifying minimum award beginning in AY2012-2013 (see the previous section entitled "Qualifying Minimum Award"); reducing the income threshold for an automatic zero beginning in AY2012-2013 (see the previous section entitled " Automatic Zero EFC "); eliminating "year-round" Pell Grants beginning in AY2011-2012; reducing the cumulative lifetime eligibility for Pell Grant aid from 18 semesters to 12 semesters beginning in AY2012-2013; changing the ability to benefit eligibility allowance beginning in AY2012-2013; declining undergraduate enrollment since AY2010-2011; For AY2012-2013 and future years, the cumulative lifetime eligibility for Pell Grant aid is reduced from 18 semesters to 12 semesters. Eligibility is based on the current full-time-equivalent basis. Any Pell Grant aid received prior to July 1, 2012, will count towards a student's lifetime limit. Prior to AY2012-2013, qualifying students could demonstrate an ability to benefit from postsecondary education to be eligible for Pell Grant aid. Qualifying students were those who did not have a high school diploma (or equivalent). An ability to benefit may be demonstrated by passing an examination approved by ED to be eligible for federal student aid or successfully completing six credits or 225 clock hours of college work applicable to a certificate or degree offered by a postsecondary institution. The FY2012 Consolidated Appropriations Act eliminated the ability to benefit provision for individuals who first enrolled in a program of study on or after July 1, 2012. The Consolidated and Further Continuing Appropriations Act, 2015, included provisions enabling a subset of the students who would have previously been eligible to demonstrate an ability to benefit —those who enroll in an eligible career pathway program after July 1, 2014, to once again be eligible to do so. Total undergraduate fall enrollment in degree-granting postsecondary institutions has steadily declined from a high of 18.1 million in 2010 to 17.5 million in 2013. The declining undergraduate enrollment is reflected in a reduction of Pell Grant recipients from 9.4 million in AY2011-2012 to 8.7 million in AY2013-2014 ( Table 2 ). Program Funding This section reviews the latest program funding trends. Although the program is currently operating with a surplus, addressing periodic funding shortfalls contributes significantly to changes regarding eligibility and award rules, and to appropriations decisions. This section explores the concepts of and provides a historic look at discretionary funding surpluses and shortfalls in the program. Additionally, this section provides insight into how funding shortfalls in the program have been addressed in the past. Role of Discretionary Funding Annual discretionary appropriation bills provide the largest portion of funding for the Pell Grant program, and this funding typically remains available for use for two fiscal years. An annual appropriation is usually available for obligation on October 1 of the fiscal year in which the appropriation is made and remains available for obligation through September 30 of the following fiscal year. Thus, while FY2016 funds are provided with the purpose of supporting awards made from July 1, 2016, to June 30, 2017, these funds are available for obligation from October 1, 2015, to September 30, 2017, and may support multiple award years. As mentioned earlier, annual discretionary appropriation bills also establish the base discretionary maximum grant for each applicable award year. Increasing Role of Mandatory Funding Specified Mandatory Appropriations to Augment Discretionary Funding The SAFRA Act, the FY2011 Continuing Appropriations Act, the Budget Control Act of FY2011, and most recently the FY2012 Consolidated Appropriations Act amended the HEA to provide specified mandatory appropriations for the Pell Grant program to augment current and future discretionary appropriations. That is, these funds, while mandatory from a budgetary perspective, can be used to pay for costs in the program for which annual discretionary appropriations are typically provided. The concept of providing advance mandatory funding to augment or supplant discretionary funding in the program is relatively new. Prior to FY2007, mandatory funding had been infrequently provided for the Pell Grant program, but usually to supplement discretionary funding to pay for accumulated funding shortfalls. From a budgetary perspective, these recent increases in mandatory appropriations have been offset largely by enacted provisions that have resulted in estimated savings from the federal student loan programs, which are classified as mandatory programs. Additionally, some of the mandatory appropriations provided for the program in the FY2011 Continuing Appropriations Act and FY2012 Consolidated Appropriations Act were offset by enacted provisions that resulted in mandatory savings in the Pell Grant program. Indefinite Mandatory Appropriations for the Add-On Award The SAFRA Act also established indefinite mandatory appropriations for the program to provide for increases to the discretionary base maximum award amount in FY2010 and beyond. That is, mandatory appropriations are available to fund add-on award amounts indefinitely for "such sums as necessary," but the specific amount provided for each year will be determined based on costs associated with the add-on amount specified in the SAFRA Act. For FY2013 through FY2017, the amount of the mandatory add-on award is, in part, contingent on the amount of the discretionary base maximum award. In general, if the discretionary base maximum award increases above $4,860 in future years, add-on amounts will also increase, along with the amount of required mandatory appropriations. In contrast, the amount of required mandatory appropriations would decrease if the discretionary base maximum award falls below the level of $4,860. Summary of Recent and Projected Funding (FY2010-FY2021) An appropriate timeline for summarizing recent funding could commence with FY2010, since it marks the first year of the current indefinite mandatory funding sources. Table 7 provides a history of funding for the program from FY2010 to FY2016. A distinction is made between discretionary appropriations, mandatory appropriations provided to augment discretionary appropriations, and mandatory appropriations provided to fund the add-on award amounts specified in the SAFRA Act. Table 7 also displays the mandatory appropriations that have been provided through FY2021. Mandatory appropriations that will be necessary to fully fund the add-on award amount are available indefinitely, but the specific amount required in each year cannot be reported until the add-on amount is determined and all funds are disbursed to eligible students. Discretionary Funding Shortfalls and Surpluses The annual discretionary appropriation level and base maximum Pell Grant level are determined in advance of the award year they are intended to support, and are based on estimates of program costs at that time. The annual appropriation is determined on the basis of estimates of the program costs that are likely to be incurred at the chosen discretionary base maximum award level. To the extent those estimates of future program costs are inaccurate, the annual appropriation may be too much or too little. The HEA requires the Secretary of Education, when he has determined that the appropriated funds are insufficient to satisfy all Pell entitlements, to notify each chamber of Congress of the funding shortfall, identifying how much more funding is needed to meet those entitlements. Table 8 provides a history of annual discretionary appropriations, estimated expenditures, and estimated annual shortfall or surplus levels from FY1973 to FY2016. Beginning with FY1990, the estimated cumulative funding shortfall or surplus is also provided. The annual funding shortfall or surplus differs from the cumulative shortfall or surplus, which may accumulate over multiple award years. It is also important to note that Congress may have provided a reduced appropriation level in a given year when a funding surplus was available for use from the previous year. Conversely, Congress may have provided additional appropriations in a given year to pay for an estimated funding shortfall from the previous year. Measures to Address Funding Shortfalls Over the years, federal policymakers and Congress have taken a variety of measures to address the vexing issues associated with funding shortfalls in the Pell Grant program. Funding shortfalls in the Pell Grant program have, on infrequent occasions in the past, led to reductions in students' awards, recipient caps, the need for supplemental appropriations, or to stagnating award levels from award year to award year. For the most part, funding shortfalls in the program have been accepted as common occurrences, but the measures employed to deal with them have varied. The relative size of the estimated funding shortfall in any given year is of particular interest to Congress, officials at ED, and student aid advocacy groups. It is important to note that the Pell Grant program is often referred to as a "quasi-entitlement" and has for the most part been operated as an appropriated entitlement given the infrequency of reductions in students' awards or imposed recipient caps since the 1990s. Most recent funding shortfalls in the Pell Grant program have not directly impacted eligible students' awards. This section provides a brief chronological history of the measures adopted to address funding shortfalls in the program. Pre-2002 From the inception of the program in 1972 until the enactment of the Higher Education Amendments of 1992 ( P.L. 102-325 ), the Secretary of Education had statutory authority under the HEA to reduce awards to respond to a shortfall in appropriated funds. Reductions were made in awards in eight years using this authority (the last in AY1990-1991). After this HEA authority was repealed, appropriations legislation for FY1994-FY2001 continued to provide the Secretary with reduction authority, but that authority was not used. FY2002 and subsequent appropriations legislation have not included such language. The Secretary can respond to a shortfall in Pell Grant funding by allocating funds from the most recently enacted appropriation to pay for obligations incurred in previous award years. This permits ED to use funds from multiple fiscal years' appropriations to meet one award year's cost. Funding Shortfalls from FY2002 to FY2006 During the period between FY2002 and FY2006, a very large funding shortfall accumulated, culminating at $4.1 billion in AY2005-2006—approximately equivalent to one-third of the AY2005-2006 program expenditure. In short, the funding shortfall was a result of unexpected and significant growth in the number of Pell Grant applicants, driven primarily by a weakened economy, and a sustained misalignment between program cost estimates and annual appropriations. The accumulated shortfalls during this time period, however, did not result in a reduction of awards for any eligible student. The maximum grant level, on the other hand, remained stagnant at $4,050 from AY2003-2004 through AY2006-2007. Congress responded to the accumulated shortfall in FY2006 by providing $4.3 billion in mandatory appropriations to eliminate the shortfall that had accumulated through AY2005-2006. These mandatory funds were appropriated in the FY2006 appropriations legislation for Labor, Health and Human Services, and Education ( P.L. 109-149 ). Refer to Table 8 for more information on the annual funding and expenditure levels that led to the $4.1 billion shortfall at the end of AY2005-2006. Adoption of FY2006 CBO Scoring Rule In addition to eliminating the AY2005-2006 funding shortfall, Congress took steps in FY2006 to limit the possibility of large accumulated funding shortfalls in the future. H.Con.Res. 95 established a permanent rule that applies to the scoring of the Pell Grant program by the Congressional Budget Office (CBO). The rule provides that if the appropriations of new discretionary budget authority enacted for the program are insufficient to cover the full costs in the upcoming year—including any funding surplus or shortfall from prior years—the budget authority counted against the bill for the program will be equal to the adjusted full cost (i.e., total need). The rule also states that the budget authority for the program will be based on the maximum appropriated award amount and any changes to the eligibility criteria. Prior to the implementation of the FY2006 scoring rule, CBO accounted for budget authority in the Pell Grant program according to the level provided in each appropriation bill. While this approach is typical for most discretionary programs, the Pell Grant program is unique since it operates like an entitlement program and annual appropriations can be used to fund multiple award years. Prior to the adoption of the scoring rule, Congress could choose to fund new programs or increase the funding of existing programs subject to discretionary appropriations while providing less funding than required for the Pell Grant program. While the scoring rule cannot fully account for the challenges of estimating the cost of the program, it does constrain the accumulation of the funding shortfall by requiring Congress to annually reconcile previous years' appropriation levels with updated estimates of previous years' program obligations. Funding Shortfalls and Surpluses (Post-Scoring Rule to FY2010) During the period from FY2006 to FY2010, the program experienced a mix of accumulated funding shortfalls and surpluses. From FY2006 to FY2008, CBO estimates that the program's cumulative funding shortfall culminated at $2.7 billion. In FY2009, American Recovery and Reinvestment Act (ARRA) and the FY2009 Omnibus Appropriations Act ( P.L. 111-8 ) provided a combined discretionary funding level of $32.9 billion. These funds were used to retire the accumulated $2.7 billion funding shortfall in FY2008; increase the discretionary base maximum award by $619 to $4,860 in AY2009-2010; and provide for a surplus of funds totaling $3.4 billion available for use through FY2011. In December 2009, the Consolidated Appropriations Act of FY2010 ( P.L. 111-117 ) provided $17.5 billion in discretionary funds based on estimates of program costs for AY2010-2011 and the funding surplus in FY2009 as of March 2009. Between March 2009 and March 2010, however, the number of students applying for a Pell Grant in AY2009-2010 increased beyond historic trends as overall economic conditions continued to weaken and college enrollments increased. In March 2010, CBO published revised estimates of the program costs for AY2009-2010 and AY2010-2011, which incorporated the new economic trends and application growth not captured in the previous year's estimates. Revised estimates released by CBO in March 2011 showed a cumulative funding shortfall of $10.7 billion through the end of FY2010. In response to this funding shortfall, the SAFRA Act provided $13.5 billion in advance mandatory appropriations for general use in the program that were made available October 1, 2010, through September 30, 2012. These mandatory appropriations were offset by changes in federal student loan programs and effectively eliminated the estimated $10.7 billion discretionary funding shortfall and created a funding surplus available in FY2011 to augment discretionary funding needs. Responding to Additional Funding Needs: FY2011 Although additional mandatory funds were provided in the SAFRA Act for use in FY2011 to pay for the FY2010 funding shortfall and augment FY2011 discretionary funding needs, Congress was required to consider a significant "funding gap" between the previous year's discretionary funding level in FY2010 of $17.5 billion and the amount needed in FY2011 to maintain the FY2010 award and eligibility parameters in FY2011. Moreover, Congress recognized the implications of a continued funding gap in discretionary appropriations for the subsequent FY2012 and took steps to address these needs in FY2011. To address these concerns, Congress took the following steps: In April 2011, the FY2011 Continuing Appropriations Act provided approximately $23 billion in discretionary appropriations for FY2011. In addition, a total of $8.8 billion in mandatory appropriations were provided for general use in the program beginning in FY2012 through FY2021, of which $3.2 billion was made available for use beginning in FY2012. These appropriations were offset by estimated mandatory savings from the elimination of a provision that allowed for two scheduled Pell Grants in one award year. In August 2011, the Budget Control Act of 2011 provided an additional $10 billion in mandatory appropriations for general use in the program beginning in FY2012 and an additional $7 billion in mandatory appropriations for general use in the program beginning in FY2013. These appropriations were offset with estimated mandatory savings from the elimination of provisions in the William D. Ford Direct Loan (DL) program. The additional mandatory funding provided above, when combined with the additional funds provided in the SAFRA Act in FY2010 for use in FY2011, resulted in an estimated $7.4 billion surplus of mandatory funds that could be used in FY2012 to augment discretionary funding needs. FY2012 Appropriations Despite the availability of approximately $7.4 billion in mandatory appropriations to augment discretionary funding in FY2012, Congress was required to consider an approximately $1.3 billion funding gap in FY2012. Congress responded to this $1.3 billion funding gap by amending the HEA to make changes to federal student aid programs and redirecting most of the available savings from these changes to the Pell Grant program in FY2012 and future years. Changes enacted in the FY2012 Consolidated Appropriations Act that affect the Pell Grant program are discussed below. In December 2011, the FY2012 Consolidated Appropriations Act provided $22.8 billion in discretionary funding for the program for FY2012. The discretionary base maximum award for AY2012-2013 was $4,860, and the total maximum award for which a student was eligible in AY2012-2013 was $5,550. These amounts were unchanged from the previous award year. The FY2012 Consolidated Appropriations Act also provided an additional $3.1 billion in mandatory funding for general use in the program from FY2012 to FY2021, of which $612 million was available beginning in FY2012. These mandatory funds were offset by the estimated mandatory savings from policy riders also included in FY2012 Consolidated Appropriations Act that made changes to federal student aid programs in the HEA. Changes that were specific to the eligibility criteria and award rules for the Pell Grant program included the following: For AY2012-2013 and future years, the qualifying minimum Pell Grant award was set to 10% of the total maximum Pell Grant. For AY2012-2013 and future years, the cumulative lifetime eligibility for Pell Grant aid was reduced from 18 semesters to 12 semesters. The following change affected eligibility for need-based federal student aid (e.g., Pell Grants, Subsidized Direct Loans, etc.): For AY2012-2013, the income threshold for determining whether certain students are eligible to receive an automatic zero expected family contribution (EFC) changed from $31,000 to $23,000. Income threshold levels for future years will be indexed to inflation. The following change affected eligibility for most federal student aid programs under Title IV of the HEA: Students will no longer be able to qualify for federal student aid on the basis of passing an ability-to-benefit test or completing six credit hours of postsecondary work. Only students who have a high school diploma (or equivalent) are eligible for federal student aid. Only students who first enroll on or after July 1, 2012, are affected by this change. Mathematical Expression for Calculating the Pell Grant Mandatory Add-On Award Amounts for AY2014-2015 (FY2014) Through AY2017-2018 (FY2017) Expressed As: IF DB AY(n-1) ≤ $4,860, THEN MI AY(n) = ( TM PAY(n-1) X (1 + CPI-U CY(n-1) )) – $4,860 IF DB AY(n-1) > $4,860, THEN MI AY(n) = ( TM PAY(n-1) X (1 + CPI-U CY(n-1) )) – DB AY(n-1) WHERE DB AY(n-1) = Discretionary base maximum award for previous award year (n-1); MI AY(n) = Mandatory add-on amount for the current award year (n), rounded to the nearest $5 increment; TM PAY(n-1) = Total maximum Pell Grant award for previous award year (n-1); and CPI-U CY(n-1) = Change (increase or decrease) in CPI-U from most recently completed calendar year prior to start of current award year (n-1). Example: For example, consider what the mandatory add-on amount would be in AY2017-2018 if (1) the discretionary base maximum amount is $4,860 in AY2016-2017; (2) the calculated mandatory add-on amount is $985 in AY2016-2017; and (3) the change in the CPI-U from calendar year December 2015 to December 2016 is measured at 2%. This would be determined as follows: MI AY1617 = ($4,860 + $985) X (1 + .02) – $4,860 MI AY1617 = ($5,845 X 1.02) – $4,860 MI AY1617 = $5,962 – $4,860 MI AY1617 = $1,102 MI AY1617 = Round $1,102 to nearest $5 MI AY1617 = $1,100 Source: CRS analysis of P.L. 111-152 and President's FY2015 Budget. Federal Pell Grant Recipients, AY1973-1974 to AY2013-2014 Acronyms

The federal Pell Grant program, authorized by Title IV of the Higher Education Act of 1965, as amended (HEA; P.L. 89-329), is the single largest source of federal grant aid supporting postsecondary education students. The program provided approximately $31 billion to approximately 8.2 million undergraduate students in FY2015. For FY2015, the total maximum Pell Grant was funded at $5,775. The program is funded primarily through annual discretionary appropriations, although in recent years mandatory appropriations have played a smaller yet increasing role in the program. The statutory authority for the Pell Grant program was most recently reauthorized by the Higher Education Opportunity Act of 2008 (HEOA; P.L. 110-315). Pell Grants are need-based aid that is intended to be the foundation for all federal student aid awarded to undergraduates. There is no absolute income threshold that determines who is eligible or ineligible for Pell Grants. Eligibility may be based on a combination of familial circumstance, income, and assets. Nevertheless, Pell Grant recipients are primarily low-income. In FY2011, an estimated 74% of all Pell Grant recipients had a total family income at or below $30,000. In the same year, over half of Pell Grant recipients attended public schools, and approximately two-thirds of Pell Grant assistance was received by public schools. The Pell Grant program has garnered considerable attention over the past several years as Congress has tried to balance program funding with changes in eligibility and award rules. Legislative changes to eligibility and award rules in combination with changes in the number of students enrolling in college and applying for Pell Grant aid have led to anticipated and unanticipated changes in Pell Grant receipt and program costs. These changes have in different years resulted in funding shortfalls or surpluses. Congress has responded to recent funding needs through numerous legislative efforts in FY2010 through FY2012 by providing additional mandatory funding to augment discretionary funding for current and future years. Most recently, the Consolidated Appropriations Act, 2016 (P.L. 114-113) provided $22.5 billion in discretionary funding for the program in FY2016. This funding is augmented by mandatory appropriations provided by the SAFRA Act (enacted as part of the Health Care and Education Reconciliation Act of 2010; P.L. 111-152). Funding provided for the Pell Grant program is exempt from sequestration, pursuant to provisions included in Section 255(h) of the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA, Title II of P.L. 99-177), as amended.

The Demand and Supply for Business Loans Most economic and financial analysts view the market for business loans in the U.S. economy in a traditional supply and demand framework that takes into consideration alternative ways to finance a business and various ways for those controlling capital to invest. A business—large or small—with a project it thinks will meet its profit requirements considers internal and external funding sources. Many times, these businesses weigh borrowing money (debt) against selling an ownership (equity) stake. Those with money to lend—the current owners, friends of the current owners, banks, pension funds, hedge funds, trusts, mutual funds, etc.—examine the financial returns and risks on a loan, compare what one company offers against the offers of other firms, and examine alternatives to business loans such as consumer loans or government bonds. This report analyzes the factors influencing the decision to borrow for businesses in general and for small businesses in particular. Demand for Loans A business undertakes the projects expected to most increase its value. It does this by proceeding with the projects that have the greatest risk-adjusted rate of return. A risky project should be anticipated on average to produce a greater yield than would a riskless investment, such as U.S. Treasury bonds, to compensate for the risk of a loss (or less than expected profit). When there are a large number of projects that are expected to be profitable after adjusting for risk, a company will typically desire to borrow more money than when it finds fewer projects that are profitable after adjusting for risk. As the economy fluctuates, the supply and demand for loans change. When the economy is growing rapidly, a typical company will find many more projects that would be profitable than when the economy is growing slowly or shrinking. Changes in specific business sectors increase or decrease the supply and demand for capital in those business sectors. All economic sectors (consumers, businesses, and government) at times compete with each other to borrow for various purposes. Businesses borrow long term to finance plant and equipment and short term to obtain working capital to meet payrolls or finance inventory. Business borrowing is sensitive to interest rates, other loan terms (such as the life of the loan, any collateral, and any other restrictions), and the economic outlook. Interest rates matter because the cost of borrowing can be critical in determining whether a project will be profitable. The economic outlook is more important for long-term borrowing because of its impact on a project's profitability. Frequently, these two factors work together. An increase in interest rates or a deteriorating economic outlook can impact some sectors, such as new home construction, more than others, such as fast food. Some other factors influencing business demand are the cost of investment goods, the durability of the goods, and tax treatment of investments. These factors are discussed in more detail in " Likely Impact of Economic Fluctuations on Small Business Borrowing ." A business's alternatives to finance a project may depend in part on its size. Many lenders, whether banks, other corporations, individuals, or governments, have minimum- and maximum-size loans that they will make. Some loans could be too small for a large lender to process and service. Some lenders have application or processing fees that could make borrowing small amounts uneconomical. These concerns are one reason that the Small Business Administration (SBA) created its microloan program. Large loans could exceed the financial capacity or legal limits on lending. If a firm decides to finance through debt, it can take out a loan or sell bonds to the public (in some cases by private placement). The advantage to those who purchase bonds is that, unlike many business loans, they can be sold in the secondary market. For some companies there is a ready, liquid market for bonds. The disadvantage of bonds is that they have high fixed costs; as a result, bond issues typically are for tens of millions of dollars. This size makes it uneconomical for small businesses to issue bonds. Consumers and governments compete with businesses to borrow money. Consumers frequently borrow to purchase homes and consumer durables, such as cars and large home appliances. Consumers also borrow to meet short-term needs or shortfalls in income. In general, household income is the largest determinant of consumer borrowing. Other factors that influence the demand for consumer loans include fluctuations in income, seasonal factors, interest rates, and expectations about the future. Governments (federal, state, local, and foreign) borrow to allow spending to exceed revenues. The federal government is relatively insensitive to changes in interest rates. State and local governments, especially those required to balance their budgets, can be sensitive to interest rates. Foreign governments are sensitive to inflation, interest, and exchange rates. Supply of Loans The same sectors—individuals, companies, or governments—that borrow also lend funds. Sometimes, this is done to take advantage of differences in interest rates, and in other cases timing differences are important. In general, the motivation to save depends on current interest rates, current and expected future inflation, and the timing of future income and expenditures. Financial intermediaries like banks regularly borrow money for the purpose of lending to others. For example, one business model used by banks is to offer the Federal Deposit Insurance Corporation's (FDIC's) guarantee to collect inexpensive, relatively small deposits that are then combined into much larger loans. Businesses lend money to other businesses for a variety of purposes, including financing the purchase of goods and services from the first firm. Profitable companies may accumulate funds for possible future investment. For example, in 2011, Microsoft bought Skype Communications, a telecommunications firm, for $8.5 billion, and in 2012, it invested $605 million in Barnes & Noble, a book retailer. Consumers supply money for lending through deposits in banks and other financial intermediaries. In addition to traditional deposits, such as checking accounts, savings accounts, and certificates of deposit, consumers have specialized tax-favored vehicles like Individual Retirement Accounts (IRAs) and Section 529 college savings accounts. Governments use financial intermediaries to lend either short or long term. For example, local tax revenues might be put into a certificate of deposit for several months before they are used to pay salaries or other expenses. Foreign governments put their money in other countries for a variety of reasons, including the desire to hold reserves in "stronger" currencies and greater security. Over the past few decades, many governments have created sovereign wealth funds (SWFs) to invest internationally. Debt and Equity An alternative to borrowing to finance projects is to find investors to purchase ownership shares or equity. There are numerous differences between debt and equity. Holders of common stock (usually just called stockholders) do not have a claim on a specific amount of money. They are entitled to a share of profits (usually called dividends), but management may decide to retain the profits so that the firm can take advantage of a good opportunity in the future. Shareholders unhappy with a management decision have little recourse unless they can convince the board of directors to change its policy. Some companies issue preferred stock, which combines some characteristics of debt and equity. Preferred stock promises to pay a certain dividend; it has a lower claim on company revenues than bonds, but a higher claim than common stock. Preferred stockholders cannot force a firm into bankruptcy for failure to pay dividends, but common stockholders cannot receive a dividend unless the preferred stockholders are paid. Lenders, whether through loans or bonds, are contractually entitled to specified interest payments for a specified time period. The principal is repaid according to the loan agreement. If a company fails to make its payments, lenders can force it into bankruptcy and seize the company's assets to pay off the loan. Sometimes lenders require collateral to secure the debt. A company might agree to set aside money in a sinking fund that is pledged to pay the interest or principal. Lenders to small businesses sometimes require an SBA 7(a) or 504 guarantee to reduce the loan's risk to an acceptable level. The SBA seeks, but does not require, to have the business owners pledge real estate or other assets as collateral. The SBA requires holders of at least 20% of the ownership of a company to personally guarantee the loan. Business interest payments are tax deductible from corporate profits, which are subject to corporate income taxes. Dividends and interest are taxable to their recipients. The SBA's Small Business Investment Company (SBIC) program is designed to stimulate private equity investments and long-term loans to small businesses. The Jumpstart Our Business Startups Act (JOBS Act; P.L. 112-106 ) makes it easier for certain small firms to sell stock to investors. How Do Small and Large Businesses Differ? For many purposes, the Small Business Administration defines a small business as one with 500 or fewer employees. Small businesses by their nature have fewer employees than do large firms. They have fewer assets, less equipment, and undertake smaller projects. As a result, a representative small business needs to raise less money than a large business in the same industry. On the one hand, small businesses are unable to take advantage of economies of scale in raising capital such as bonds. For example, a small business borrowing $10,000 may pay a higher interest rate than an equally risky large business borrowing $10 million. On the other hand, large businesses may find only a few lenders who can accommodate their financing needs, whereas small businesses may borrow from any of several lenders. Those who are concerned about the availability of credit to small businesses frequently suggest a number of reasons that small businesses may pay a higher interest rate or face more requirements to get a loan than an equally creditworthy larger business. These include the following: Small businesses are thought to be more affected by swings in the economy and consequently are riskier. Small businesses have a higher failure rate than comparable larger businesses and consequently are riskier. Potential lenders have a harder time assessing how creditworthy a small business is. There are great differences between small businesses in the same industry and many reasons for borrowing money. This variation makes it difficult to develop general standards that can be applied to all small businesses. There is limited reliable financial information on many small businesses. Many small businesses are young, have a short credit history, and have not been through a full business cycle. Most small businesses are privately owned and do not publish current, detailed financial information. Many small businesses use staff instead of independent accountants to create financial reports. Small businesses have less collateral to pledge for a loan than do large businesses. This can lead to lenders (and the SBA) requiring owners to pledge personally owned real estate as collateral. Financial institutions, such as commercial banks, that have ongoing relationships with a small business are considered by many to have an advantage in lending because of their experience working with the small business. The history between a small business and the bank that serves it gives the bank information on the owners, managers, markets, and potential of the loan applicant that is not available to other lenders. This can lead to better lending decisions and may facilitate monitoring the business's financial health, which reduces the risk to the lender. Likely Impact of Economic Fluctuations on Small Business Borrowing Over a business cycle, small business borrowing is likely to fluctuate. Normally, as the economy slows down, lending (including to small businesses) declines. Business lending tends to pick up during an economic recovery. An economic slowdown (recovery) could have several impacts on small business borrowing. As lenders become more (less) risk averse, they could decline (agree) to make loans that they would have made in other times. SBA loan guarantees might offset this caution during a slowdown and help small businesses to expand. An economic slowdown (recovery) could reduce (increase) the risk-adjusted profitable opportunities for small businesses to invest, reducing (increasing) small businesses' demand for loans. Small businesses might become more (less) risk averse and decline (decide) to undertake projects with risk and profit characteristics that previously would (not) have been undertaken. The 2007-2012 decline in house prices is likely to have reduced the collateral value of any real estate owned by a small business and of the business owner's home. The SBA seeks, but in general does not require, collateral for its guarantees. Figure 1 illustrates the supply and demand for capital during times of economic prosperity and slowdown. The prevailing interest rate and the total dollar volume of loans made are determined by the intersection of the supply and demand curves. Economists refer to the interest rate where the supply and demand for business loans is equal as the equilibrium interest rate. The supply curve, which shows the amount of capital (measured on the horizontal axis) that is available in the economy at the interest rates (measured on the vertical axis), shifts to the left during a slowdown indicating that less capital is available at the same interest rate. The demand curve, which shows the volume of loans (also measured on the horizontal axis) that business would obtain at various interest rates (also measured on the vertical axis), shifts to the left during a slowdown illustrating that fewer business loans are desired at the same interest rate. The graph shows the interest rate declining, but this depends on the steepness of the supply and demand curves and the amount that each shifts. If the supply curve shifts more to the left during a slowdown than is drawn, or if the demand curve shifts less to the left than is drawn, interest rates could rise. In this case, although supply and demand have both decreased, supply declined more than demand. In both cases, however, loan volume falls. Figure 1 represents the overall market for business loans. Most businesses will pay a higher or lower rate depending on their relative riskiness. A more risky loan carries a higher interest rate. This risk premium can change as lenders' attitudes toward risk change. Monitoring Small Business Borrowing Information on small business borrowing is available from several sources. Statistics on the SBA's two largest business loan guarantee programs—7(a) and 504/CDC Loan Guaranty programs—can be found in CRS reports. The SBA's Office of Advocacy publishes research based on surveys concerning small business loans, annual reports on small business lending, and occasional reports on other small business issues. The SBA makes certain unpublished data available upon congressional request. The Federal Reserve also publishes occasional research from surveys. The Federal Reserve's Senior Loan Officer Opinion Survey on Bank Lending Practices is conducted quarterly, in January, April, July, and October. It asks those surveyed about changes in lending terms to small businesses (defined as those with annual sales volume of $50 million or less). It also asks about the demand for small business loans. Given that the Federal Reserve does not use the SBA's industry based definition of "small," the results are more indicative than an exact measure of what is happening to small business lending as viewed by the SBA. The Federal Reserve administers a quarterly Survey of Business Lending on loans made by various types of banks to businesses. Some of the information is broken down by the size of the loan ($3,000 to $99,000; $100,000 to $999,999; $1,000,000 to $9,999,000; and $10,000,000 and more). The survey is released in the last month of the quarter (March, June, September, and December). Policy Analysis Analysis of how different events affect small business lending can provide different guidance on policy options. For example, if lending standards are becoming stricter, it may, or may not, be the case that this is an appropriate reaction to the economic conditions and recent experience with loan performance. In general, there can be many reasons for declining employment by small businesses. It could be that small businesses could expand and hire more workers, but that problems in other parts of the economy are discouraging lending to small businesses. In this case, expanding SBA loan guarantees might help. In a recession, consumers purchase less and the problem faced by small businesses is usually a lack of demand for their products, not an inability to obtain loans. In this case, expanding SBA loan programs is likely to have little impact. It could be that the market is not purchasing the products made by certain small businesses, resulting in layoffs. Here the problem might be changing consumer tastes. Loans to expand production would not be helpful, but loans to update products or enter new markets might be useful. Economic analysis usually concludes that competitive markets are beneficial for the national economy because they deliver the goods that consumers want at the lowest cost. Markets with less competition deliver less at a higher price, and government intervention is sometimes justified to correct this reduced competition, which economists term market failures . One policy challenge is to correct the market failure without overcorrecting, which would result in diverting resources from other more productive uses. Conclusion A number of factors affect the supply and demand for small business loans, independent of the SBA's guarantee. Forecasting the impact of the business cycle on the demand for SBA guarantees on loans to small businesses is particularly difficult for two reasons. First, the impact on SBA guarantees of declining small business investment may or may not be offset by an increase in lenders seeking to avoid risk. Second, there is only limited information on which to base such a forecast.

Small businesses (usually defined as companies with 500 or fewer employees) are an important part of the nation's economy. At various times during the business cycle, concern is voiced about the difficulties that small businesses have obtaining loans. There can be many reasons for periodic declines in small business lending over the business cycle: loan standards change, the quality of projects to be financed changes, and small businesses' demand for loans fluctuates with anticipated customer demand. Congress created the Small Business Administration (SBA) to assist small businesses in many ways, including by guaranteeing loans made by the private sector. This guarantee reduces a lender's potential loss on a small business loan and should make lenders look more favorably on small business loan requests. Nevertheless, there are several reasons why the volume of small business loans varies over time despite the availability of the SBA's guarantee. The business cycle's impact on the volume of SBA guarantees is not clear. When the economy is growing, demand for SBA loan guarantees can increase as small business expands to take advantage of opportunities or small businesses might reduce their demand because they can obtain loans without the SBA's guarantee. In an expanding ecomomy, lenders are more willing to make loans on more favorable terms. In slowdowns, concern over potential losses leads lenders to tighten all loan standards, perhaps affecting small businesses disproportionately. The demand for SBA loan guarantees can increase as small businesses are unable to obtain loans without the government's backing or interest in SBA loan guarantees can fall because there are fewer reasons to borrow. Even with an SBA guarantee, small business owners frequently pledge their personal residences as collateral for business loans. During the 2007-2009 recession, the widespread decline in home prices reduced owners' abilities to provide such credit enhancement. The ultimate impact of these factors on SBA loan volume, which work in opposite directions, cannot, however, be predicted with confidence. This report analyzes reasons used to justify government intervention in small business lending and discusses how making the proper analysis of problems improves the policy outcome. For program information on SBA loan guarantees, see CRS Report R41146, Small Business Administration 7(a) Loan Guaranty Program, by [author name scrubbed] and CRS Report R41184, Small Business Administration 504/CDC Loan Guaranty Program, by [author name scrubbed]. This report also identifies some sources of information about the condition of the small business loan market. This report will be updated as developments warrant.

Authority and Purpose Congressional authority over immigration is not explicit in the U.S. Constitution, but generally is considered to derive from several constitutional clauses. The U.S. Supreme Court has noted that, "The Constitution grants Congress the power to 'establish an uniform Rule of Naturalization.' Art. I., § 8, cl. 4. Drawing upon this power, upon its plenary authority with respect to foreign relations and international commerce, and upon the inherent power of a sovereign to close its borders, Congress has developed a complex scheme governing admission to our Nation and status within our borders." Further, the Fourteenth Amendment defines citizens as "[a]ll persons born or naturalized in the United States and subject to the jurisdiction thereof." Amend. XIV, § 1, cl. 1. Although some legal scholars have argued that the phrase "uniform Rule of Naturalization" precludes Congress from enacting legislation granting relief to a specific individual, the courts have interpreted the phrase as simply requiring geographic uniformity throughout the States, meaning that Congress cannot enact legislation applying different rules to different States. The constitutional basis for private immigration bills generally is found in the First Amendment prohibition against Congressional enactments abridging the right of the People "to petition the Government for a redress of grievances" (Amend. I, cl. 3.) and in the power of Congress to pay the debts of the United States (Art. I, § 8, cl. 1). Regardless of academic concerns about the clarity of authority for private immigration legislation, clearly, Congress has a long history of such enactments. When the public laws relating to immigration operate to prevent someone from entering or remaining in the United States or obtaining some other benefit such as citizenship, private immigration bills provide for exceptions for named individuals or small groups of individuals whose circumstances merit special consideration. Private bills are intended to be a last resort for relief after all administrative and judicial remedies are exhausted. Aside from the individual relief granted, the number and type of private bills introduced and of private laws enacted often revealed flaws in the public laws which led to amendments to resolve such problems. Conversely, expansion of immigration restrictions and elimination of relief in the public immigration laws may lead to an increase in private bills. Overall, 7321 private immigration laws have been enacted since the first such law was enacted in 1839. General Procedure and Precedents Subcommittee Procedure Although the first private immigration laws enacted were related to naturalization, naturalization waivers constitute the lowest percentage of private laws because of the serious ramifications of conferring citizenship and its rights and obligations and of the United States' undertaking the protection of its new citizens. The majority of private immigration bills confer lawful permanent resident (LPR) status by waiving a general law provision which prevents the granting or maintenance of such status, whether that provision concerns grounds of inadmissibility or deportation, numerical allocation limits, definitions of eligible immigrant categories, etc. Stays and Administrative Review As noted above, under the rules of both the Senate Subcommittee on Immigration, Border Security and Citizenship and the House Subcommittee on Immigration, Border Security and Claims, no private bill shall be considered or acted upon by the Subcommittee until all avenues for administrative and judicial relief have been exhausted. If the beneficiary is subject to removal/deportation, the mere introduction of a bill does not stay such removal/deportation. A stay will generally be authorized by the U.S. Immigration and Customs Enforcement (ICE) in the Department of Homeland Security (DHS) when it receives a request for a report on information concerning a beneficiary's case from either the Senate or House Subcommittee Chairman. However, this stay is granted as a matter of custom and courtesy by the agency to the congressional subcommittee and thus is purely discretionary, not legally mandated. Under the Senate Subcommittee rules, requests for reports on private bills will be made by the Subcommittee Chairman only upon a written request addressed to the Chairman by the author of the bill. The Senate Subcommittee will not request a report or make other communications to defer deportation of beneficiaries who entered the United States as nonimmigrants, stowaways, in transit, deserting crewmen, or without inspection through the land or sea borders. The Subcommittee may make an exemption from this rule where the bill is intended to prevent "unusual hardship" to the beneficiary or to U.S. citizens related to the beneficiary and the author of the bill has submitted complete documentary evidence to the Subcommittee in support of a request to make an exception to the rule. Under the House Subcommittee rules, the Subcommittee will not intervene in removal/deportation proceedings or request a stay by requesting a report from ICE unless the bill is designed to prevent "extreme hardship" to the beneficiary or a U.S. citizen spouse, parent or child. The distinction between the Senate and House Subcommittee rules is that the Senate Subcommittee will generally request a report upon the request of the author of a bill without an initial consideration of the merits of the case and only requires a showing of hardship for certain disfavored categories, whereas the House Subcommittee will not request a report in any case unless a motion to request a report has been made at a formal meeting of the Subcommittee and a consideration of whether the "extreme hardship" requirement has been met. When ICE has received a request for a report on a private bill beneficiary and granted a stay of removal/deportation, the date established for removal/deportation or voluntary departure under any final order shall be February 1 of the next odd-numbered year, or in other words, of the first session of the next Congress following the one in which the bill was introduced. However, if the beneficiary's continued presence in the United States would be or becomes contrary to the best interests of the United States, removal/deportation may be carried out after consultation with the author of the private bill and the Judiciary Committee that requested a report. If adverse action is taken on a private bill for which a stay of removal/deportation has been granted, ICE will establish a date by which removal/deportation or voluntary departure must be effected; ICE may extend the deadline at its discretion. Exactly what constitutes an adverse action or disposition is not defined in the laws, regulations, or Operations Instructions concerning immigration. It appears that such actions would include a decision by the Subcommittees to not recommend a private bill for action by the full Committee; a decision by the full Committee to not report a bill favorably to the entire Chamber; a negative vote by either Chamber; or a veto by the President. Presumably, adverse dispositions may also include a decision at a formal meeting under the House Subcommittee rules to not request a report because the extreme hardship requirement has not been met or a decision in the Subcommittee or full Committee to table a private bill. If no adverse action or final positive action has been taken on a bill by the end of a Congress, the February 1 deadline affords the author of a private bill time to reintroduce a bill in the following Congress; ICE may extend the deadline at its discretion. ICE notifies the beneficiary if a bill has had an adverse disposition or is not reintroduced and informs them of the new date set for execution of any outstanding order of removal/deportation or deadline for any voluntary departure granted. A complete report on the beneficiary of a private bill is transmitted by ICE to the requesting Subcommittee. If classified or confidential information exists with regard to the beneficiary that ICE is not authorized to transmit, ICE will refer the Subcommittee to the pertinent agency for further information. After the submission of a report, if further material information is received or any material action is taken concerning a beneficiary which may affect congressional consideration of a private bill, a supplementary report shall be submitted to the Committee or Subcommittee. ICE may advise the Committee or Subcommittee informally if the new information concerns the granting of administrative relief or is particularly adverse. If a private bill for which a report was made is reintroduced in the following Congress in the same chamber whose Subcommittee requested the report, any additional material developed from a review of the file and any new background checks or interviews shall be in transmitted to the Subcommittee in a supplemental letter. If the previous report was made to a different chamber in the immediately preceding Congress or to the same chamber in a previous Congress not immediately preceding the one in which the bill has been reintroduced, a new full report shall be submitted to the requesting Subcommittee. If adverse action was taken on a private bill at any time and a new bill is subsequently introduced for the same purpose for the same beneficiary in either chamber, ICE will not honor a request for a report concerning the new bill unless the adverse action on the previous similar bill is reconsidered and ICE is notified of such reconsideration. If a private bill beneficiary holds a nonimmigrant visa status, the introduction of a private immigration bill to confer permanent resident status raises a presumption of termination of such status, which will be handled as described below. Any pending removal/deportation proceedings are conducted to a final determination; any resulting order of removal/deportation may be stayed according to procedural practice described above. If such proceedings are not already pending and the beneficiary had a lawful B (visitor), C (transit), D (crewmen), or H (temporary worker) visa status when the private bill was introduced, ICE will notify the beneficiary of the termination of nonimmigrant status due to the private bill introduction and request a response from the beneficiary within 30 days from receipt of notice about whether he/she desires to have status adjusted through the private bill. If the beneficiary does not desire adjustment by the private bill, nonimmigrant status will likely be restored. If a report has been requested, ICE shall submit the report with an explanation of why the beneficiary does not desire adjustment through the private bill. If adjustment through the private bill is desired, removal/deportation proceedings shall be initiated and conducted to a final determination. If removal/deportation proceedings have not been initiated and the beneficiary had a lawful A (foreign government official) or G (representative to an international organization) visa status when the bill was introduced, he/she shall be considered to have voluntary departure for the remaining period of such status. Upon the expiration of this period, if the beneficiary has not departed, removal/deportation proceedings shall be initiated and conducted to a final determination. If the beneficiary had lawful E (treaty trader/investor), F (academic/language student), I (media), J (exchange visitor), or M (vocational student) visa status, removal/deportation proceedings shall not be initiated, however, any request for an extension of the visa period shall be denied unless the presumption of termination of nonimmigrant status is overcome. Instead, voluntary departure shall be granted in increments of one year if the beneficiary otherwise maintains visa status. Removal or deportation proceedings shall not be initiated in any case involving appealing humanitarian factors. If a private bill is enacted, ICE and relevant offices of the State Department shall take appropriate action in accordance with the terms of the private law and ICE shall not subsequently institute removal/deportation proceedings against the beneficiary on grounds based solely on information developed and contained in the Judiciary Committees' reports on the legislation. For further information on parliamentary procedure re private bills, see CRS Report 98-628, Private Bills: Procedure in the House , by [author name scrubbed] (pdf). Precedents House Subcommittee Rules Aside from the hardship factor, the most important factor considered by the Subcommittees is whether a private immigration bill falls within the precedents for past private laws. Although the Senate Subcommittee rules do not explicitly address precedents, the House Subcommittee rules expressly provide that, "It is the policy of the Subcommittee generally to act favorably on only those private bills that meet certain precedents" and that it will only review "those cases that are of such an extraordinary nature that an exception to the law is needed." The House Subcommittee rules provide that certain types of bills shall be subject to a point of order unless two-thirds of the Subcommittee votes to consider the bill, including those that do not comply with the rules, those that waive the two-year foreign residence requirement for doctors with a J-visa adjusting to LPR status, and those waiving any law regarding naturalization. The House Subcommittee rules include a Statement of Policy concerning certain types of bills, the criteria for reviewing them, and the favorable precedential conditions for those categories. The categories include: waivers of existing requirements for adopted children—favored if the child is young and there has been a longstanding parent-child relationship; waivers permitting non-immigrant doctors and nurses to adjust status—disfavored; waiver of criminal grounds for deportation requires testimony and affidavits regarding rehabilitation and good conduct subsequent to the conviction to determine whether the bill is in the best interests of the community; waivers permitting persons who entered the United States for advanced medical treatment to remain permanently (typically for conditions requiring monitoring or continuous treatment)—disfavored generally and requires an advisory opinion from international health organizations regarding the availability of adequate medical treatment in the beneficiary's home country; waivers permitting persons with deferred action or parole status to adjust to LPR status—disfavored; waivers of health exclusion grounds will require the posting of a bond—disfavored; waivers of exclusion for those seeking LPR status to avoid military conscription in their home country—disfavored; waivers of exclusion for visa fraud—disfavored; expedited naturalization for athletes seeking to compete as U.S. citizens, waivers of naturalization requirements, restoration of citizenship to those who have previously renounced U.S. citizenship, and posthumous citizenship are all disfavored generally and the authors of such bills must provide evidence that they would be in the national interest, not merely the personal interest of the beneficiary. Historic Trends Historically, the majority of private immigration laws have granted lawful permanent resident (LPR) status to persons who needed expedited status under the quota system which existed from 1921 until 1965 or waivers from certain requirements of the immigration family or employment/occupational preference system, such as those for foreign orphans adopted or in the process of being adopted by U.S. citizen parents but who did not meet the requirements under the law and to war brides and children of U.S. citizen servicemen and displaced persons/refugees after World War II prior to public legislation addressing gaps in the law. The other major category concerning conferral of LPR status was the waiver of certain grounds of exclusion/inadmissibility. A minority of private immigration laws provided for citizenship. Generally, it appears that most of these laws did not grant citizenship outright, but instead they waived the application of certain requirements, which would either have barred the naturalization of a certain individual or would have presented a hardship to the individual by prolonging the naturalization process, such as residence requirements. Cases where it appears citizenship may have been granted outright generally involved either (1) women who had lost their citizenship through marriage to a foreigner and a move abroad under now obsolete laws and who sought to regain their citizenship upon being widowed or divorced and moving back to the United States; (2) children born abroad to U.S. citizens who had moved back to and resided in the United States, who mistakenly believed they were U.S. citizens, and subsequently discovered that they were not citizens, in some cases after years in the United States, including military service; or (3) persons who, while born U.S. citizens, had lost citizenship because of retention requirements under now-obsolete laws and sought to regain citizenship. In the 1970s, a series of corruption scandals such as Abscam, involving payoffs for the sponsorship of private immigration laws, culminated in the expulsion of one Member of the House of Representatives and led to a decline in private immigration laws, which were perceived as tainted in general by the scandals. In the past decade, the trend reached a low point with only 2 private immigration laws enacted in the 104 th Congress. The late 1990s, after the enactment of the Illegal Immigration Reform and Immigrant Responsibility Act of 1996 (IIRIRA), saw a brief increase in the number of private laws, with a decline in the wake of 9/11. Four private immigration laws were enacted in the 108 th Congress; none have yet been enacted in the 109 th Congress, although 72 private immigration bills have been introduced as of the date of this report. Recent Practice During the past decade, beneficiaries of private immigration laws are persons who generally were unable to receive permanent resident status through no fault of their own. Despite the efforts of relatives petitioning for them, errors or delays on the part of the agencies responsible for processing petitions rendered the beneficiaries ineligible for an immigrant visa or adjustment to permanent resident status. The two most common circumstances that can be generalized into categories appear to be errors or delays that result (1) in an orphan adoptee aging out before the adoption and the immigrant petition or permanent resident adjustment can be completed and (2) in a conditional permanent resident petition for an alien spouse not being approved before the untimely death of a U.S. citizen spouse. In the orphan adoption cases, a frequent circumstance appears to be the efforts of U.S. citizens to adopt older children whose deceased parents or guardians were friends or extended family of the petitioners. Historically, the precedents regarding juveniles generally concern the natural or adopted children of U.S. citizen parents who for various reasons fell in the gaps in the public law and thus needed special dispensation to emigrate immediately to rejoin the U.S. citizen parent(s) or legal guardian(s). The justification for such expeditious treatment would be family reunification, one of the fundamental policies behind U.S. immigration and nationality laws. In certain cases, beneficiaries came to the United States as very young children but reached adulthood without obtaining LPR status because of the errors or deaths of their parents or guardians. Often, minor siblings dependent on the beneficiary are either U.S. citizens or are still eligible for administrative or judicial relief and family unification again is a factor in granting private law relief. The faultless actions of the beneficiary and the bureaucratic delays combined with other hardships or sympathy resulting from the death of an immediate relative who was a U.S. citizen or LPR seem to be the most common factors. Generally, the relative had a pending petition for an immigrant visa/adjustment of status for the beneficiary of the private bill, but the petition expired due to the death of the petitioning relative. Typically, the beneficiary had no other avenue for immigration or adjustment of status, has strong ties to other family members in the United States and no remaining familial ties to his/her native country. Despite having other close relatives in the United States, those relatives may be minor U.S. citizen children who are not yet old enough to petition for the beneficiary, or may be relatives who do not have a degree of relation close enough to petition for the beneficiary, such as the parents of a deceased spouse. In certain cases, special circumstances raise a case out of the ordinary, such as the death, arising out of a hate crime in the wake of the 9/11 attacks, of a person petitioning for family members or the death of a foreign national employed abroad by the U.S. Government whose dedication to his job could have cost his family the opportunity to emigrate to the United States. Certain cases appear to have had unique circumstances of particular national foreign-policy interest. These include the high-profile human rights activist Wei Jingsheng. His case is particularly notable because he had a pending employment-based immigration petition and was a visiting university scholar at the time the private law was enacted, so he had not exhausted other avenues for permanent lawful resident status pursuant to Subcommittee rules. Thus, enactment of the private law appears to have been an act of support for the activist and the human rights and democracy movements he represented more than relief for someone with no other recourse. Other laws benefitted Persian Gulf War evacuees with U.S. ties, persons technically ineligible for Nazi reparations, and a Swiss bank employee who exposed an attempt to unlawfully destroy the bank-account records of Holocaust victims. The House and Senate Subcommittee rules both favor cases of extreme or unusual hardship, which would appear to be the operative factor in cases generally disfavored according to the House Subcommittee rules discussed above. The Senate Subcommittee rules require the author of a private bill to set forth the equities of a case and why other remedies are not available in a written statement to the Subcommittee. As noted above, the Senate Subcommittee rules do not discuss specific precedents; it would appear that these rules provide greater latitude in permitting the equities of a particular case to overcome any negative precedent. Honorary Citizenship Distinguished A private law to grant citizenship should not be confused with honorary citizenship. Honorary citizenship is a rare and extraordinary honor granted to foreigners who have rendered great service. Only a handful of individuals have received this honor, including Mother Teresa, renowned for her charitable works on behalf of the destitute; Raoul Wallenberg, the Swedish diplomat who saved the lives of thousands of Jews during World War II; Winston Churchill, Prime Minister of the United Kingdom during World War II; and William Penn, the founder of Pennsylvania, and Hannah Callowhill Penn, his wife. Honorary citizenship "is a symbolic gesture. It does not grant any additional legal rights in the United States or in international law. It also does not impose additional duties or responsibilities, in the United States or internationally, on the honoree." It "does not give the recipient any voting privileges. This has been a concern in the past. It is crystal clear from the legislative history of the Churchill, Wallenberg, and Penn bills that conferral of honorary citizenship is purely a symbolic gesture. It is recognition of their outstanding commitment to their fellow man and to America." Then-Representative Pat Schroeder noted that Mother Teresa would not automatically have the right to reside in the United States even with the honorary citizenship unless she met the usual immigration requirements. Honorary citizenship is normally granted through a joint resolution enacted as a public law , not a private law, since it is a public honor granted by the United States to a meritorious individual, not private relief waiving the application of the public immigration and nationality laws for an individual. For further information on honorary citizenship laws, see CRS Report RS21471, Recipients of Honorary U.S. Citizenship , by [author name scrubbed]. Appendix. Private Laws, 104th-110th Congresses 104 th Congress Private Law No. 104-3 H.R. 1031 Title: Private Bill; For the relief of Oscar Salas-Velazquez. Sponsor: Rep. Ramstad, Jim [R-MN-3] (introduced 2/23/1995) Cosponsors: (none) Committees: House Judiciary H.Rept. 104-810 Latest Major Action: Enacted 10/09/1996. Serious Family Medical Conditions. Oscar Salas-Velazquez had been deported to Mexico because of a prior fraudulent marriage to obtain lawful permanent resident (LPR) status in the 1980s. There was a genuine health risk for his second wife, a U.S. citizen, and possibly one of their children were they to join or even visit Mr. Salas-Velazquez in Mexico, as well as the financial and emotional hardship normally suffered in such cases. The wife and child suffered from Reiter's syndrome, a severe, disabling, incurable arthritic disease triggered by intestinal infection with certain organisms which are widespread in the food and water supplies of Mexico. The House Report noted: It is not the Committee's intent in any way that this legislation serve as a precedent for other private legislation to waiver the exclusion standard for marriage fraud. Rather, this legislation acknowledges the previously set precedent in private legislation that separation due to medical circumstances is viewed by the Congress as satisfying the standard of extreme hardship to an American citizen. Because of almost certain development of Reiter's syndrome, Mrs. Salas-Velazquez, and possibly one of her children, cannot even visit Mexico to maintain a familial relationship. Private Law No. 104-4 H.R. 1087 Title: Private Bill; For the relief of Nguyen Quy An and Nguyen Ngoc Kim Quy. Sponsor: Rep. Lofgren, Zoe [D-CA-16] (introduced 2/28/1995) Cosponsors: (none) Committees: House Judiciary H.Rept. 104-811 Latest Major Action: Enacted 10/19/1996. South Vietnamese Disabled War Veteran Ineligible for Special Entry Program. Major Nguyen Quy An was a 52-year old South Vietnamese national living in the United States on humanitarian parole. He was a South Vietnamese helicopter pilot in Vietnam. During the war he saved the lives of four American airmen. Later on in the war, the Major sustained injuries which resulted in the amputation of both of his arms. As a result of his inability to perform work tasks, in a 're-education' camp, the North Vietnamese expelled him from the camp after nine weeks. An entry program was set up by the United States to help Vietnamese immigrate to this country who were severely punished for siding with the United States during the war. One of the requirements of that program was that the individual had to have been placed in a re-education camp for a period of one year. Because the Major was kicked out of the camp after only nine weeks, he did not meet the requirement for entry through that program. If Major An had not lost his arms, he would have stayed in the camp for the time required to qualify for entry through the program set up for South Vietnamese allies. The legislation originally included Major An's daughter, who was also here on humanitarian parole. Because Major An could file a petition for his daughter, an amendment was adopted at the subcommittee to remove the daughter from the legislation. The version of the legislation reported by the Subcommittee allowed Major An to file for permanent residence. An amendment was offered and accepted at full Committee to allow Major An to forego the permanent residence period and file for naturalization. 105 th Congress Private Law No. 105-1 S. 768 Title: Private Bill; A bill for the relief of Michel Christopher Meili, Giuseppina Meili, Mirjam Naomi Meili, and Davide Meili. Sponsor: Sen. D'Amato, Alfonse [R-NY] (introduced 5/20/1997) Cosponsors: 8 Committees: Senate Judiciary; House Judiciary H.Rept. 105-129 Latest Major Action: Enacted 7/29/1997. Permanent Residency Granted to Whistle-blower re Holocaust-era Bank Records. The beneficiary was a security guard in a Swiss bank who discovered that Holocaust-era bank records possibly pertaining to assets of Holocaust victims were unlawfully being destroyed. Upon saving and turning records over to the Swiss authorities, the beneficiary was fired from his job and blacklisted from obtaining other employment. He and his family were harassed and received death threats. They fled to the United States, entering as visitors for pleasure under the Visa Waiver Program. No immigration relief or benefit was immediately available to them. The Immigration and Naturalization Service (I.N.S.) reported that the beneficiary likely was ineligible for asylum since he probably could not claim that the Swiss authorities were unable or unwilling to protect him from persecution or that he was being persecuted for one of the statutorily recognized grounds for asylum. Private Law No. 105-3 H.R. 2731 Title: Private Bill; For the relief of Roy Desmond Moser. Sponsor: Rep. Delahunt, William D. [D-MA-10] (introduced 10/24/1997) Cosponsors: (none) Committees: House Judiciary H.Rept. 105-361 Latest Major Action: Enacted 11/21/1997. Technical Ineligibility for Nazi Reparations. This law was one of two uniquely intended to make the beneficiary eligible for reparations for Nazi persecution under a 1995 agreement between the United States and Germany rather than enabling him to receive any actual immigration benefit. The beneficiary emigrated from Canada as a child and served in the U.S. military during World War II before he completed naturalization. During the war he was among a group of American prisoners of war who were transferred to the Buchenwald concentration camp. After surviving the brutal conditions there and returning home after the war, the beneficiary became a naturalized U.S. citizen. Upon applying for reparations pursuant to the agreement, he was informed that he was ineligible because he was not a U.S. national at the time of persecution, one of only two such persons. The private law deemed him to have been a naturalized U.S. citizen retroactive to the date he entered the U.S. military. Private Law No. 105-4 H.R. 2732 Title: Private Bill; For the relief of John Andre Chalot. Sponsor: Rep. Delahunt, William D. [D-MA-10] (introduced 10/24/1997) Cosponsors: (none) Committees: House Judiciary H.Rept. 105-360 Latest Major Action: Enacted 11/21/1997. Technical Ineligibility for Nazi Reparations. This private law benefitted the other individual determined to be ineligible for reparations for Nazi persecution because he was not a U.S. citizen at the time of persecution. The beneficiary emigrated to the United States from France as a child, but did not complete naturalization before enlisting in the military. He entered the Canadian military because he was too young to enlist in the U.S. military and later transferred to the U.S. Army Air Corps. As a prisoner of war, the beneficiary was transferred to the Buchenwald concentration camp. After the war, he became a naturalized U.S. citizen, but his claim for reparations under the agreement was rejected for the reasons noted above. The private law deemed him to have been a naturalized U.S. citizen retroactive to the date he entered the U.S. military. Private Law No. 105-5 H.R. 378 Title: Private Bill; For the relief of Heraclio Tolley. Sponsor: Rep. Hunter, Duncan [R-CA-52] (introduced 1/7/1997) Cosponsors: (none) Committees: House Judiciary; Senate Judiciary H.Rept. 105-125 Latest Major Action: Enacted 11/10/1998. Adoption Final after 16 th Birthday. According to the House Report, Heraclio and his brother, Florencio, became orphans when their mother died and their father abandoned them at the ages of 2 and 4 respectively, leaving them to be raised by their maternal grandparents in Mexico. Several years later, when their uncle visited, he learned that the boys were living with little or no supervision, so he brought them back to the United States with him and took over full responsibility and care for the boys. The uncle, who worked for the adopting family, was killed in an auto accident a year later. At that time, the Tolleys contacted an adoption attorney and instructed him to start proceedings for guardianship so that they could become legally responsible for the boys as well as enroll them in school. However, because they began guardianship proceedings prior to adoption proceedings, the completion of the adoption process was delayed until four months after Heraclio's 16 birthday. Immigration law requires that in order for an adopted child to qualify for permanent residence status as a ‛child' of an American citizen, the child must have been adopted by the age of 16. The petition for adoption was filed prior to Heraclio Tolley's sixteenth birthday. If the Tolleys had begun adoption proceedings before the guardianship proceedings, the adoption would have been finalized before he turned 16. Private Law No. 105-6 H.R. 379 Title: Private Bill; For the relief of Larry Errol Pieterse. Sponsor: Rep. Linder, John [R-GA-11] (introduced 1/7/1997) Cosponsors: (none) Committees: House Judiciary; Senate Judiciary H.Rept. 105-644 Latest Major Action: Enacted 11/10/1998. Waiver of Deportation—Victim of Being Framed for a Drug Conviction and Sole Financial Support for a U.S. Citizen Spouse with a Chronic Illness. During a bitter marital break-up ultimately resulting in divorce, the beneficiary's first wife planted drugs in his home and called police. Due to financial difficulties, rather than complete trial proceedings, the beneficiary agreed to a plea bargain for a misdemeanor drug conviction. Subsequent changes in the immigration laws rendered him deportable. Subsequent attempts at relief failed, thus a private bill was the only remaining avenue for relief. The Subcommittee on Immigration and Claims consulted with the parole investigator for the Governor of Florida and the I.N.S. agent in charge of the case and also received the confidential case analysis of the Florida Parole and Probation Commission's Office of Executive Clemency. Investigations by all three sources were exhaustive. All found that the ex-wife clearly planted the drugs, and that Mr. Pieterse was guilty of no crime whatsoever. The beneficiary was the sole provider for his second wife, a U.S. citizen who suffered from a chronic illness, and assisted financially in the care of her children from a previous marriage. In addition to waivers of deportation and inadmissibility upon reentry as a returning resident after future departures from the United States, the law stipulated that the offense at issue in this case could not be used as evidence of bad moral character, so it would not render the beneficiary ineligible for naturalization. Private Law No. 105-7 H.R. 1794 Title: Private Bill; For the relief of Mai Hoa "Jasmine" Salehi. Sponsor: Rep. Sherman, Brad [D-CA-24] (introduced 6/4/1997) Cosponsors: (none) Committees: House Judiciary H.Rept. 105-689 Latest Major Action: Enacted 11/10/1998. Death of the U.S. Citizen Spouse During Pendency of Conditional Permanent Resident Petition. The beneficiary and her husband filed a petition for her adjustment to conditional permanent resident status, but due to a 14-month backlog for applications in Los Angeles, where the beneficiary lived, her interview was scheduled 14 months after the filing. In the meantime, her husband was killed during an armed robbery of the restaurant of which he was a co-owner. Under immigration laws and regulations, the beneficiary was ineligible for waivers for which she would have qualified if her petition had already been approved. The House Report noted: By all accounts this was a legitimate marriage, and it is through no fault of her own that Mrs. Salehi has not met the marriage requirements of the [Immigration and Nationality Act (INA)].... [INA] regulations concerning the untimely death of a sponsoring spouse allow for a waiver of the two year marriage requirement only if the individual's petition for conditional permanent residence has been approved prior to the death. If there had not been a 14-month backlog on petition approvals in Los Angeles, Mrs. Salehi would have been eligible for that waiver. Although the occurrence of death prior to two years of marriage is rare, the waiver is routinely given for humanitarian reasons in a case of this type if the petition for conditional permanent residence has been approved. Private Law No. 105-8 H.R. 1834 Title: Private Bill; For the relief of Mercedes Del Carmen Quiroz Martinez Cruz. Sponsor: Rep. Bateman, Herbert H. [R-VA-1] (introduced 6/7/1997) Cosponsors: (none) Committees: House Judiciary H.Rept. 105-690 Latest Major Action: Enacted 11/10/1998. Death of the U.S. Citizen Spouse During Pendency of Conditional Permanent Resident Petition. The I.N.S. lost the petition for conditional permanent resident status filed by beneficiary's spouse; the beneficiary had a copy of the petition and a copy of its receipt from the office where the petition was filed. Subsequently, the couple had a son who was a U.S. citizen at birth. The beneficiary's husband died of a heart attack a little over a year after the petition was filed. At the time, the couple had been married about a month less than the two years which would have permitted the beneficiary to file as the widow of a U.S. citizen; her petition as the widow of a U.S. citizen was denied. If the agency had not lost her husband's original petition on her behalf, it likely would have been approved in a timely manner before her husband's death. The beneficiary would then have been eligible for a waiver of the two-year marriage requirement to remove the conditions from her permanent resident status. The private law classified her as an immediate relative, thus able to petition as a widow notwithstanding the length of her marriage, and permitted her to adjust her status. Private Law No. 105-9 H.R. 1949 Title: Private Bill; For the relief of Nuratu Olarewaju Abeke Kadiri. Sponsor: Rep. Yates, Sidney R. [D-IL-9] (introduced 6/17/1997) Cosponsors: (none) Committees: House Judiciary; Senate Judiciary H.Rept. 105-524 Latest Major Action: Enacted 11/10/1998. Alien Abandoned While a Minor by Parent Who, Unbeknownst to Her, Never Completed Her Adjustment to Permanent Resident Status. The beneficiary was brought to the United States as a minor child by her parents who subsequently separated and left their children with cousins who raised the children as their guardians. The mother's whereabouts were apparently unknown; the father returned permanently to their home country after filing for and receiving temporary resident status for his children under amnesty of the Immigration Reform and Control Act of 1986. He never completed the adjustment of status for his children to permanent residents. Neither the children nor their guardians realized this. By the time this was discovered, the deadline had passed for completing the amnesty process by filing for adjustment to permanent resident status. Although the beneficiary (still a minor at the time) immediately filed a petition upon discovering that she did not have permanent status, the petition was denied as not timely filed. Her only known family all resided in the United States where she had resided since she was a young child; she had no other ties. Private Law No. 105-10 H.R. 2744 Title: Private Bill; For the relief of Chong Ho Kwak. Sponsor: Rep. Gekas, George W. [R-PA-17] (introduced 10/24/1997) Cosponsors: (none) Committees: House Judiciary; Senate Judiciary H.Rept. 105-645 Latest Major Action: Enacted 11/10/1998. Waiver of Naturalization Oath for Incapacitated, Approved Applicant. The beneficiary was approved for naturalization and scheduled to take the oath of allegiance on June 14, 1996. On February 4, 1996, the beneficiary was shot in the head during the armed robbery of a grocery store he owned. Although in a stabilized semi-comatose state, he has never regained consciousness since the shooting. At the time this private law was enacted, immigration law prohibited the naturalization of anyone who was unable to take and understand the oath. The House Report noted, "It is clear Mr. Kwak intended to naturalize, that it was in no way his fault that he did not complete that process, and that this is a unique situation." Subsequent to this legislation, the INA was amended in 2000 to permit the waiving of the oath for a person who is unable to understand or communicate an understanding of the oath due to a physical or developmental disability or mental impairment. 106 th Congress Private Law No. 106-3 H.R. 322 Title: Private Bill; For the relief of Suchada Kwong. Sponsor: Rep. Rogan, James E. [R-CA-27] (introduced 1/6/1999) Cosponsors: (none) Committees: House Judiciary; Senate Judiciary H.Rept. 106-178 Latest Major Action: Enacted 12/3/1999. Death of the U.S. Citizen Spouse During Pendency of Conditional Permanent Resident Petition. Through no fault of the beneficiary and her deceased spouse, their petition for her conditional permanent resident status was not approved prior to his death in a car accident. Due to the beneficiary's pregnancy, she was unable to undergo chest x-rays to determine definitively whether she had tuberculosis, which would have rendered her inadmissible until she was cured. Her husband died shortly after she gave birth to their U.S. citizen child and had chest x-rays showing she did not have tuberculosis, but before their interview and approval of their petition. Immigration regulations only permit approval of a widow's self-petition where the couple has been married at least two years and a waiver of the two-year requirement is given only where the approval had already been granted at the time of the spouse's death. Therefore, the private law was necessary to enable the beneficiary to be granted permanent resident status. The House Report noted the recent precedent of Private Law 105-7 and the additional factor of a U.S. citizen child. Private Law No. 106-4 S. 452 Title: Private Bill; A bill for the relief of Belinda McGregor. Sponsor: Sen. Hatch, Orrin G. [R-UT] (introduced 2/24/1999) Cosponsors: (none) Committees: Senate Judiciary; House Judiciary H.Rept. 106-364 Latest Major Action: Enacted 5/15/2000. I.N.S. Error re Diversity Program. This private law deemed Belinda McGregor and any child of hers to have been selected for diversity visas under the FY2000 diversity visa program to correct errors by the I.N.S. that resulted in her not receiving a diversity visa. Due to I.N.S. mistakes arising out of confusion about her Austrian/British dual nationality and eligibility for a diversity visa and a simultaneous application by her husband, an Irish national, Belinda McGregor was not informed that she had been selected for a diversity visa until it was too late for her to send in additional documents to apply for one. The I.N.S. does not have the authority to correct such errors, therefore a private law was necessary. Private Law No. 106-7 S. 302 Title: Private Bill; A bill for the relief of Kerantha Poole-Christian. Sponsor: Sen. Torricelli, Robert G. [D-NJ] (introduced 1/25/1999) Cosponsors: (none) Committees: Senate Health, Education, Labor, and Pensions; Senate Judiciary; House Judiciary H.Rept. 106-906 Latest Major Action: Enacted 10/13/2000. Adoption Final after 16 th Birthday. The beneficiary's mother had been working and residing in the United States with the beneficiary. Leaving the beneficiary with friends in the United States, she returned to Jamaica to be interviewed for an immigrant visa but was denied. She and the natural father relinquished parental rights and authorized the friends to proceed with the adoption of the beneficiary before she was 16 years old; during the process, the natural mother passed away. The House Report noted: In order for an adoptee to lawfully immigrate to the United States, the immigration law requires an adoption to have occurred prior to the age of 16. Because Kerantha's adoption was not completed until her 17 th birthday, she would need a private bill in order to gain permanent residence.... The precedent concerning adoption cases is well-established. Precedent dictates that in order for favorable consideration of a private bill that allows an adoption to be considered legitimate for immigration purposes, the adoption needs to have been finalized and must have been initiated prior to the child's turning 16.... It is clear from the documentation provided that the Christians were actively proceeding with the adoption prior to Kerantha's 16 th birthday. Private Law No. 106-8 H.R. 3646 Title: Private Bill; For the relief of certain Persian Gulf evacuees. Sponsor: Rep. Rahall, Nick J., II [D-WV-3] (introduced 2/10/2000) Cosponsors: (none) Committees: House Judiciary; Senate Judiciary H.Rept. 106-580 Latest Major Action: Enacted 11/7/2000. Persian Gulf War Evacuees with U.S. Ties. This private law provided for the adjustment to LPR status for a group of named individuals who were evacuated from Kuwait during the Persian Gulf War because they were the parents of U.S. citizen children or had secretly protected U.S. citizens during the Iraqi invasion and occupation of Kuwait. A total of 2,227 persons were evacuated, the majority of whom were Palestinian. The group was initially paroled into the United States and later granted deferred enforced departure. Over the years, the majority adjusted status through employer-sponsored visas and other means. Kuwait declined to receive any deportees; although most had been long-time residents, they were not Kuwaiti nationals. Although most could have been deported to Jordan, which grants passports to Palestinians, most had never even been to Jordan. The private law was intended to permanently resolve the situation by enabling permanent resident status for the remaining evacuees who had not otherwise adjusted status and were unable to do so. The legislation was done as a private bill rather than as a public law because, under private bill procedures, a request for information from the I.N.S. would result in a stay of any further action regarding deportation of the evacuees until negative action on the bill. Private Law No. 106-10 H.R. 848 Title: Private Bill; For the relief of Sepandan Farnia and Farbod Farnia. Sponsor: Rep. Istook, Ernest J., Jr. [R-OK-5] (introduced 2/24/1999) Cosponsors: (none) Committees: House Judiciary H.Rept. 106-894 Latest Major Action: Enacted 11/9/2000. Aliens Brought to U.S. as Children with Only U.S. Family and Ties Remaining. This private law granted permanent residence to two young adult beneficiaries who were brought to the United States as young children by their mother. The mother and her two sons had fled Iran after the execution of the father and being in hiding for one year. Their asylum claims had been denied. In the meantime, the brothers had grown up and their mother had died. The factors favoring relief appear to have been the tragic circumstances and the fact that the two brothers were law-abiding, employed college students raised in the United States by extended family and had no familial, cultural, or linguistic ties to their native country. Private Law No. 106-11 H.R. 3184 Title: Private Bill; For the relief of Zohreh Farhang Ghahfarokhi. Sponsor: Rep. Waxman, Henry A. [D-CA-29] (introduced 10/28/1999) Cosponsors: (none) Committees: House Judiciary H.Rept. 106-893 Latest Major Action: Enacted 11/9/2000. Former Wife of Lawful Permanent Resident Needed Lawful Status to Remain in the United States with Children. This private law granted permanent residence to the beneficiary to prevent extreme hardship to her two daughters, the younger of whom was a U.S. citizen aged 11 years at the time of the law's enactment, if they were deprived of her support. The beneficiary had been recently divorced from her husband who according to the House Report had used the laws in their home country of Iran to prevent the beneficiary from returning to the United States after a visit there and had removed her name from his application for lawful permanent residency on behalf of himself, his wife, and their non-U.S. citizen elder daughter. Without the private law, the recently divorced beneficiary would have had no way to remain lawfully in the United States for the near future, since her U.S. citizen daughter was too young to file a petition for her mother and her elder daughter would not be eligible to become a citizen for several years. Private Law No. 106-12 H.R. 3414 Title: Private Bill; For the relief of Luis A. Leon-Molina, Ligia Padron, Juan Leon Padron, Rendy Leon Padron, Manuel Leon Padron, and Luis Leon Padron. Sponsor: Rep. Moran, Jerry [R-KS-1] (introduced 11/16/1999) Cosponsors: (none) Committees: House Judiciary H.Rept. 106-892 Latest Major Action: Enacted 11/9/2000. I.N.S. Error re Diversity Program. This private law deemed the Leon family to have been selected for diversity visas under the FY2001 diversity visa program to correct an error by the I.N.S. Although the beneficiaries had been denied asylum after their arrival from Ecuador, the head of the family was selected for a diversity visa under the program for FY1996. According to the House Report, although the family's applications for adjustment of status were approved and they were slated for the allocation of visas, the final processing of their visas was interrupted by the shutdown of the Federal Government in December 1995 and their file was misplaced without further action by the time the Diversity Visa Program for that fiscal year had expired. Private Law No. 106-13 H.R. 5266 Title: Private Bill; For the relief of Saeed Rezai. Sponsor: Rep. Cannon, Chris [R-UT-3] (introduced 9/21/2000) Cosponsors: (none) Committees: House Judiciary H.Rept. 106-905 Latest Major Action: Enacted 11/9/2000. Chronic Serious Illness of U.S. Citizen Spouse. This private law provided for LPR status for the beneficiary because of the serious illness of his spouse. The I.N.S. had denied a petition by his second wife for adjustment of status for the beneficiary due to marriage fraud concerns with respect to his first marriage. The I.N.S. acknowledged that the second marriage was valid. The House Report noted: Ms. Rezai has been diagnosed with multiple sclerosis. Her doctor has indicated that she may rapidly deteriorate as a result of any type of severe stress.... The standard for a private immigration bill being appropriate is that the case involves an alien who has an unusual problem that would result in extreme hardship to a United States citizen spouse, parent or child or to the alien beneficiaries themselves. Because of Mrs. Rezai's condition, this case meets that standard. Private Law No. 106-14 S. 11 Title: Private Bill; A bill for the relief of Wei Jingsheng. Sponsor: Sen. Abraham, Spencer [R-MI] (introduced 1/19/1999) Cosponsors: 10 Committees: Senate Judiciary; House Judiciary H.Rept. 106-955 Latest Major Action: Enacted 11/22/2000. Pro-Democracy Activist. This law provided for LPR status for the beneficiary, an internationally recognized pro-democracy and human rights activist from the People's Republic of China who served 18 years in prison and labor camps there for his pro-democracy political activities until he was released to seek medical treatment in the United States. He was a visiting scholar at Columbia University and had a pending employment-based immigration petition at the time this private legislation was under consideration. Private Law No. 106-15 S. 150 Title: Private Bill; A bill for the relief of Marina Khalina and her son, Albert Mifakhov. Sponsor: Sen. Wyden, Ron [D-OR] (introduced 1/19/1999) Cosponsors: (none) Committees: Senate Judiciary; House Judiciary H.Rept. 106-956 Latest Major Action: Enacted 11/22/2000. Chronic, Serious Medical Condition Requiring Ongoing Treatment. This private law provided for LPR status for the beneficiaries, a Russian woman and her son, who had cerebral palsy with spastic diplegia and was undergoing medical treatment in the United States which was unobtainable in Russia. The beneficiaries originally entered the country on visitor visas, which were extended, but deportation proceedings were initiated upon the expiration of all possible extensions and other avenues for relief. The son needed continued medical treatment including additional surgeries until he reached physical maturity between 18 and 21 years of age. The beneficiaries had no other avenue for staying in the United States on a more permanent basis, had successfully assimilated in the United States and had no ties to Russia other than the mother's parents. Private Law No. 106-16 S. 276 Title: Private Bill; A bill for the relief of Sergio Lozano. Sponsor: Sen. Feinstein, Dianne [D-CA] (introduced 1/21/1999) Cosponsors: (none) Committees: Senate Judiciary; House Judiciary H.Rept. 106-958 Latest Major Action: Enacted 11/22/2000. Death of Parent Sponsor Before Arrival of Immigrant Children in the United States . This private law provided for LPR status for the oldest of three siblings who arrived in the United States from El Salvador after the death of their mother. The three had been approved for immigrant visas to join their mother, a lawful permanent resident. While she was making final preparations to bring them to the United States, she passed away. The maternal grandmother instructed the children to board an airplane bound for the United States. Upon arrival, the immigration authorities determined that, due to the death of the mother, the immigrant visas of the children were invalid. They were paroled into the United States. The younger siblings became wards of the court, which applied for special immigrant juvenile visas on their behalf. Sergio Lozano, who turned 18 years old shortly after arrival in the United States, could not receive a visa in the manner his siblings had. He has no family in El Salvador and separation from his younger siblings would have been an extreme hardship for them. The private law was his only avenue for relief. Private Law No. 106-18 S. 869 Title: Private Bill; A bill for the relief of Mina Vahedi Notash. Sponsor: Sen. Feinstein, Dianne [D-CA] (introduced 4/22/1999) Cosponsors: (none) Committees: Senate Judiciary; House Judiciary H.Rept. 106-960 Latest Major Action: Enacted 11/22/2000. Former Battered Wife Needed Lawful Status to Remain in the United States and Dispute Child Custody. The private law provided for LPR status for the beneficiary, who otherwise would have been unable to remain in the United States to seek custody of her children. The beneficiary was brought to the United States illegally by her ex-husband, who abused her physically and threatened her with deportation. After their two children were born, he told her he would petition for her legal status, but that she had to return to Iran first. When she did so, he divorced her under Iranian law, which meant that she could not dispute the divorce or the custody in Iran. She returned to the United States on a fiancée visa, but her engagement ended when her fiancé learned that she wished to regain custody of her children. The beneficiary had no visitation rights with her children and was concerned that they might be suffering physical abuse. Without the private law, she would have been unable to remain in the United States to dispute custody and might never have seen her children again. Private Law No. 106-19 S. 1078 Title: Private Bill; A bill for the relief of Mrs. Elizabeth Eka Bassey, Emmanuel O. Paul Bassey, and Mary Idongesit Paul Bassey. Sponsor: Sen. Helms, Jesse [R-NC] (introduced 5/19/1999) Cosponsors: (none) Committees: Senate Judiciary; House Judiciary H.Rept. 106-961 Latest Major Action: Enacted 11/22/2000. Death of the Primary Visa Recipient (State Department Career Employee) Prior to Family Immigration. Paul Bassey, the husband and father of the beneficiaries, was a Nigerian national who was a career employee of the U.S. State Department. In 1991, he received special immigrant status from the State Department in recognition of his service to the U.S. Government and was later approved for an employment 4 th preference visa petition as a result of his special immigrant status. However, that same year, civil war broke out in Zaire and the U.S. Embassy there asked Mr. Bassey to delay his retirement for a year to assist them during this crisis. In 1992, Mr. Bassey passed away before he and his family could emigrate to the United States. His family was informed that they were not eligible to receive special immigrant status on their own, although they all would have been eligible as his accompanying immediate family. At the time of the private law enactment, the widow and one of the children had been paroled into the United States for humanitarian reasons; the other children were in the United States on student visas. The private law enabled them to adjust to LPR status. Private Law No. 106-20 S. 1513 Title: Private Bill; A bill for the relief of Jacqueline Salinas and her children Gabriela Salinas, Alejandro Salinas, and Omar Salinas. Sponsor: Sen. Thompson, Fred [R-TN] (introduced 8/5/1999) Cosponsors: (none) Committees: Senate Judiciary; House Judiciary H.Rept. 106-962 Latest Major Action: Enacted 11/22/2000. Serious Medical Condition Requiring Ongoing Treatment. This private law provided LPR status to the beneficiaries, a mother and three of her children, because of the extreme hardship they would otherwise suffer, particularly the child with a serious illness for which treatment could not be obtained in their home country. The child with a rare bone cancer came to the United States with her father from Bolivia. St. Jude's Children's Hospital offered treatment at no cost to the family. The rest of the family joined them in the United States. A car accident resulted in the death of the father, one child, and the permanent paralysis of the mother from the waist down. The mother, who was pregnant at the time of the accident, gave birth to a U.S. citizen child. The Hospital offered complete financial support to enable the family to reside permanently in the United States. The disability of the surviving parent and the need for ongoing cancer treatment for the sick child would have caused the family an extreme hardship if they had had to return to Bolivia. The private law was the only avenue by which they could obtain LPR status and a waiver for the public charge ground for inadmissibility. Private Law No. 106-21 S. 2000 Title: Private Bill; A bill for the relief of Guy Taylor. Sponsor: Sen. Feinstein, Dianne [D-CA] (introduced 1/24/2000) Cosponsors: (none) Committees: Senate Judiciary; House Judiciary H.Rept. 106-963 Latest Major Action: Enacted 11/22/2000. Permanent Residency for a Young Adult Paroled into the United States as a Minor. This private law provided for permanent resident status for a young adult who was the orphaned child born abroad to a U.S. citizen mother and a father of unknown citizenship and raised primarily in the United States, first by his mother and later by his maternal grandmother as guardian. The young man wished to enlist in the U.S. military, but needed to have LPR status to do so. He had been paroled into the United States, but was too old to qualify as a dependent of his grandmother at the time of his mother's death. The private legislation was necessary to enable him to enlist in the military and reside in the United States permanently. It is not clear from the legislative history why the beneficiary was not considered a U.S. citizen-at-birth through his mother. Private Law No. 106-22 S. 2002 Title: Private Bill; A bill for the relief of Tony Lara. Sponsor: Sen. Feinstein, Dianne [D-CA] (introduced 1/24/2000) Cosponsors: (none) Committees: Senate Judiciary; House Judiciary H.Rept. 106-964 Latest Major Action: Enacted 11/22/2000. Permanent Residency for a Young Adult Who Had Been Abandoned as a Minor. This private law provided for LPR status for the beneficiary, who was brought to the United States from El Salvador illegally by his parents when he was a young child. The mother drowned while trying to reenter the United States after being deported; the father was deported after several drug arrests and had no contact with the beneficiary. The beneficiary and his sister were eventually taken in by U.S. family friends who could only afford to adopt the sister. The beneficiary eventually moved in with the family of his high school wrestling coach; he became a champion wrestler. Although he wished to apply for permanent residency earlier, he was incorrectly advised that he would be deported. While he was a minor, he could have become a ward of the court and become a special juvenile immigrant. He had no ties with El Salvador, maintained ties to his sister, and was supported in his efforts by his wrestling coach and the coach's spouse. The private law was the only avenue by which the beneficiary could lawfully remain permanently in the United States since he was no longer a minor. Private Law No. 106-23 S. 2019 Title: Private Bill; A bill for the relief of Malia Miller. Sponsor: Sen. Kyl, Jon [R-AZ] (introduced 2/1/2000) Cosponsors: (none) Committees: Senate Judiciary; House Judiciary H.Rept. 106-965 Latest Major Action: Enacted 11/22/2000. Death of the U.S. Citizen Spouse During Pendency of Conditional Permanent Resident Petition. Through no fault of the beneficiary she was unable to satisfy the marriage requirements for an alien spouse petition because her U.S. citizen spouse was killed in a helicopter crash abroad before her petition for conditional permanent resident status was approved. The beneficiary had already entered the United States on a visitor visa and given birth to the couple's son. She was granted humanitarian parole to leave the United States to make arrangements concerning her husband's funeral and to reenter the United States. Immigration regulations only permit approval of a widow's self-petition where the couple has been married at least two years and a waiver of the two-year requirement is given only where the approval had already been granted at the time of the spouse's death. Therefore, the private law was necessary to enable the beneficiary to be granted permanent resident status. The House Report noted the recent precedent of Private Law 105-7 and the additional factor of a U.S. citizen child. It also emphasized the hardship that would be suffered by the child if he had to leave the United States and break the bond already established with his paternal grandparents and other family/friends in his community. Private Law No. 106-24 S. 2289 Title: Private Bill; A bill for the Relief of Jose Guadalupe Tellez Pinales. Sponsor: Sen. Grassley, Chuck [R-IA] (introduced 3/23/2000) Cosponsors: (none) Committees: Senate Judiciary; House Judiciary H.Rept. 106-966 Latest Major Action: Enacted 11/22/2000. Permanent Residency for a Young Adult Brought to the United States Illegally as a Child. The beneficiary's father had been killed in an accident and his mother was unable to support him in addition to another child. Therefore, he was brought into the United States from Mexico illegally by his great uncle when he was toddler and raised by his great uncle and his first wife, whom he believed to be his parents. The great uncle became a naturalized citizen and erroneously believed that the beneficiary derived citizenship through his naturalization. When the beneficiary was 15 years old, the uncle's second wife discovered that there had been no formal adoption, by which time it was too late to complete a formal adoption before the beneficiary's 16 th birthday. The House Report noted: Jose wished to join the U.S. Marine Corps, but found that he could not because he has no legal status. It would be an extreme hardship to Jose to be deported to Mexico. He has resided in the U.S. since the age of three, does not speak Spanish, and by all accounts has led an exemplary life. It is through no fault of his own that the adults in his life did not take appropriate actions to provide him legal status in the United States. He has no avenue available to him now to get that status. 107 th Congress Private Law No. 107-1 S. 560 Title: Private Bill; A bill for the relief of Rita Mirembe Revell (a.k.a. Margaret Rita Mirembe). Sponsor: Sen. Hatch, Orrin G. [R-UT] (introduced 3/19/2001) Cosponsors: (none) Committees: Senate Judiciary; House Judiciary H.Rept. 107-129 Latest Major Action: Enacted 7/17/2001. Terminal Illness Made it Impossible to Satisfy the Requirements for an Orphan-adoption Immigrant Petition. Mr. Dennis Revell and Ms. Maureen Reagan would have adopted Rita many years earlier if they had been given the opportunity. Ms. Reagan's terminal illness prohibited her from ever traveling to Uganda to adopt Rita. The only way Mr. Revell and Ms. Reagan could assure that Rita remained a part of their family in the United States was through a private bill. The combination of Uganda's adoption restrictions early in their relationship with Rita and Ms. Reagan's subsequent cancers had made it virtually impossible for Rita to be adopted under the adoption laws of Uganda and in accordance with U.S. immigration law. But for those factors, Rita would have been the adopted daughter of the only two people she had ever known to be her parents. The uniqueness standard and extreme hardship standard for approval of private bills was met through the combined facts of: (1) Ugandan adoption law prohibiting adoption of Rita prior to February 2000; (2) Ms. Reagan's illness being prohibitive of ever completing an adoption; (3) Mr. Revell's and Ms. Reagan's total support of Rita since the age of 3; and (4) the fact Rita had lived with Mr. Revell and Ms. Reagan since the age of 8 and they were the only parents she had ever known. Private Law No. 107-5 H.R. 2245 Title: Private Bill; For the relief of Anisha Goveas Foti. Sponsor: Rep. Lantos, Tom [D-CA-12] (introduced 6/19/2001) Cosponsors: (none) Committees: House Judiciary; Senate Judiciary H.Rept. 107-579 Latest Major Action: Enacted 11/5/2002. Death of the U.S. Citizen Spouse Who Was a Foreign Service Officer During Pendency of Conditional Permanent Resident Petition. The beneficiary, Mrs. Goveas Foti, was married to a United States citizen, Seth Foti, who perished in an airplane crash while performing official duties for the United States Government. I.N.A. regulations concerning the untimely death of a sponsoring spouse permit a waiver of the two-year marriage requirement only if the individual's petition for conditional permanent residence was approved prior to the death. The interview for approval of Mrs. Foti's petition for conditional permanent residence had not been scheduled before Mr. Foti was killed on August 23, 2000. Had the interview occurred, Mrs. Foti would have been eligible for that waiver. Although the occurrence of death prior to two years of marriage is rare, the waiver is routinely given for humanitarian reasons in a case of this type if the petition for conditional permanent residence has been approved. The House Report noted that, "By all accounts this was a legitimate marriage, and it is through no fault of her own that Mrs. Foti has not met the marriage requirements of the I.N.A. This case mirrors several other private laws enacted in the last few years." Private Law No. 107-6 H.R. 3758 Title: Private Bill; For the relief of So Hyun Jun. Sponsor: Rep. McCrery, Jim [R-LA-4] (introduced 2/13/2002) Cosponsors: (none) Committees: House Judiciary H.Rept. 107-729 Latest Major Action: Enacted 12/2/2002. Adoption Final after 16 th Birthday. According to the House Report, "The precedent concerning adoption cases is well-established. Precedent dictates that in order for favorable consideration of a private bill that allows an adoption to be considered legitimate for immigration purposes, the adoption must have been initiated prior to the child's turning 16 and must be finalized." 108 th Congress Private Law No. 108-1 S. 103 Title: Private Bill; A bill for the relief of Lindita Idrizi Heath. Sponsor: Sen. Nickles, Don [R-OK] (introduced 1/7/2003) Cosponsors: (none) Committees: Senate Judiciary; House Judiciary H.Rept. 108-532 Latest Major Action: Enacted 7/22/2004. Adoption Final after 16 th Birthday. As for Private Law 107-6, private bill precedent dictates that in order to make an adoption legitimate for immigration purposes, the adoption must have been at least initiated prior to the child's turning age 16. Private Law No. 108-3 H.R. 712 Title: Private Bill; For the relief of Richi James Lesley. Sponsor: Rep. Wicker, Roger F. [R-MS-1] (introduced 2/11/2003) Cosponsors: (none) Committees: House Judiciary; Senate Judiciary H.Rept. 108-530 Latest Major Action: Enacted 10/30/2004. Adjustment of Status for an Orphan Adoptee. The beneficiary was adopted abroad before his 16 th birthday (as an infant), but his parents apparently never complied with immigration requirements, perhaps not knowing that they had to apply for an immigrant visa and/or adjustment of status and, later, naturalization. The beneficiary thought he was a citizen until he belatedly discovered otherwise. Private Law No. 108-4 H.R. 867 Title: Private Bill; For the relief of Durreshahwar Durreshahwar, Nida Hasan, Asna Hasan, Anum Hasan, and Iqra Hasan. Sponsor: Rep. Holt, Rush D. [D-NJ-12] (introduced 2/13/2003) Cosponsors: (none) Committees: House Judiciary; Senate Judiciary H.Rept. 108-531 Latest Major Action: Enacted 10/30/2004. Death of Petitioner from a 9/11-related Hate Crime During the Pendency of a Petition for Adjustment to Permanent Resident Status for Immediate Relatives. On September 15, 2001, in reaction to the events of September 11, an unstable man killed Mr. Hassan. Because Mr. Hassan was the petitioner for the family's adjustment, that petition became invalid upon his death. Therefore, under the I.N.A. and its regulations, his wife and four daughters who lived in suburban New Jersey faced removal from the United States. According to the House Report, "This private bill, on behalf of the family, would not set any bad precedent. Though he did not die at the World Trade Center or the Pentagon, Mr. Hassan was indeed a victim of the events of September 11 th . The Committee is preceding with this bill only because the murder is linked to 9/11. [emphasis added] It is inappropriate, generally, for Congress to pass private bills to give status to the families of noncitizens because those noncitizens were killed while in the United States." A minority comment was that the public law should be amended to permit family-unification petitions to survive the death of the petitioner through no fault of the beneficiaries. Private Law No. 108-6 H.R. 530 Title: Private Bill; For the relief of Tanya Andrea Goudeau. Sponsor: Rep. Baker, Richard H. [R-LA-6] (introduced 2/4/2003) Cosponsors: (none) Committees: House Judiciary; Senate Judiciary H.Rept. 108-529 Latest Major Action: Enacted 12/23/2004. Adoption Final after 16 th Birthday. According to private bill precedent, in order to make an adoption legitimate for immigration purposes, the adoption must have been at least initiated prior to the child's turning age 16. The beneficiary satisfied this condition; the adoption process was begun before her 16 th birthday, but was not finalized until she had aged out of eligibility for an adopted orphan visa. 109 th Congress P.L. 109-149 , § 518 S. 103 Title: Departments of Labor, Health and Human Services, and Education, and Related Agencies Appropriations Act, 2006. Sponsor: Rep. Regula, Ralph [R-OH-16] (introduced 6/21/2005) Cosponsors: (none) Committees: House Appropriations; Senate Appropriations H.Rept. 109-143 ; S.Rept. 109-103 ; Conference Report: H.Rept. 109-337 Latest Major Action: Enacted 12/30/2005. Naturalization of Athletes for International Competition. Although no private laws for immigration relief were enacted in the 109 th Congress, this provision enacted as part of a public law was intended for the relief of a couple of award-winning athletes (Tanith Belbin and Maxim Zavozin) who wished to represent the United States with their respective partners in the figure skating events of the 2006 Winter Olympics. Under the Olympics rules, both partners in the ice dancing or pairs events must be citizens of the country they are representing by the deadline for submitting the final list of competitors representing a country. The athletes involved had not been lawful permanent residents for the five years required to become naturalized U.S. citizens. They could not benefit from changes in the processing of employment-based immigrant visas and adjustment of status to permanent residence that would have enabled them to naturalize by the deadline if the new rules had been in effect when they had applied for visas. The relief provision reduced the period of time required from five years to three years, which the athletes could satisfy, and was limited to aliens of extraordinary ability who requested expedited naturalization as necessary to represent the United States at an international event and who paid a premium processing fee of $1,000. The provision, although of general application, was widely known to be intended for the relief of these athletes and sunsetted on January 1, 2006, having been signed into law by the President on December 30, 2005. Zavozin and Belbin completed the naturalization process and were sworn in as citizens respectively on December 30 and 31, 2005. As noted above, the House Subcommittee Rules disfavor the naturalization of an athlete for international competition purposes, which may have been the reason for accomplishing the relief through a public law. Also, private immigration bills generally were not favored during the 109 th Congress, as reflected by the fact that none were enacted, which had not occurred in at least 70 years.

Private immigration bills warrant careful consideration with regard to precedent since they are a special form of relief allowing the circumvention of the public laws concerning immigration and nationality in uniquely meritorious cases. This report will give an overview of the congressional subcommittee procedure and precedents concerning private immigration bills. This report will not cover parliamentary procedural issues for private bills, which are covered by CRS Report 98-628, Private Bills: Procedure in the House, by [author name scrubbed] (pdf).

ARPA-E: An Overview Patterned after the widely lauded Defense Advanced Research Projects Agency (DARPA)—which played a key role in the development of critical technologies such as satellite navigation and the Internet—ARPA-E was established by the America COMPETES Act ( P.L. 110-69 ) in FY2008. The agency received its first appropriations in FY2009: $15 million in regular appropriations and $400 million in American Recovery and Reinvestment Act (ARRA; P.L. 111-5 ) funding. The America COMPETES Reauthorization Act of 2010 ( P.L. 111-358 ) amended and reauthorized ARPA-E's statutory authority, which is codified primarily at 42 U.S.C. 16538, and authorized appropriations to the agency through FY2013. Although ARPA-E is relatively young by federal science agency standards, the agency asserts that its awardees already have produced significant scientific and technological gains. ARPA-E states that its awardees have developed a 1 megawatt silicon carbide transistor the size of a fingernail; engineered microbes that use hydrogen and carbon dioxide to make liquid transportation fuel; [and] pioneered a near-isothermal compressed air energy storage system. At the February 2015 annual ARPA-E Energy Innovation Summit, the agency announced that [a]t least 30 ARPA-E project teams have formed new companies to advance their technologies and more than 37 ARPA-E projects have partnered with other government agencies for further development. Additionally, 34 ARPA-E projects have attracted more than $850 million in private-sector follow-on funding after ARPA-E's investment of approximately $135 million and several technologies have already been incorporated into products that are being sold in the market. To date, ARPA-E has invested approximately $1.1 billion across more than 400 projects through 23 focused programs and two open funding solicitations (OPEN 2009 and OPEN 2012). News reports indicate that ARPA-E also has cancelled 21 projects —an expected outcome for this type of agency, which is designed to support high-risk, high-reward research that sometimes produces unanticipated (positive and negative) results. Monitoring progress and recommending termination of research projects are express statutory responsibilities of ARPA-E program directors. Authorizations of Appropriations Authorizations of appropriations to ARPA-E, which were last enacted in the America COMPETES Reauthorization Act of 2010 ( P.L. 111-358 ), expired in FY2013. Members of the 114 th Congress have introduced measures to reauthorize provisions from P.L. 111-358 , including provisions that authorize appropriations to ARPA-E. An analysis of these bills may be found in CRS Report R43880, The America COMPETES Acts: An Overview , by [author name scrubbed]. Table 1 summarizes authorized funding levels for ARPA-E under selected, proposed reauthorization measures. FY2016 Budget Request and Appropriations The Obama Administration has requested $325 million for ARPA-E in FY2016, a $45 million (16%) increase over the FY2015 enacted level of $280 million. In keeping with its historical practice, the agency expects to use its FY2016 appropriations to support between 7 and 10 focused funding opportunity announcements (FOAs). Each FY2016 FOA would provide approximately $10 million to $40 million in funding for programs that focus on specific technical barriers in a specific energy area. ARPA-E groups its projects into two broad categories: transportation systems and stationary power systems. Project types can vary widely within these categories. In general, ARPA-E anticipates that the focus in FY2016 will be on transportation fuels and feedstocks; energy materials and processes; dispatchable energy; and sensors, information, and integration. The annual ARPA-E budget justification also contains a line item for program direction, which includes salaries and benefits, travel, support services, and related expenses. As passed by the House on May 1, 2015, the Energy and Water Development and Related Agencies Appropriations Act, 2016 ( H.R. 2028 ) would provide $280 million to ARPA-E in FY2016. This amount is $45 million (-14%) less than the FY2016 request. H.Rept. 114-91 accompanied H.R. 2028 when it was reported by the House Committee on Appropriations. The White House Office of Management and Budget (OMB) has indicated that the President's senior advisors will recommend a veto if the President is presented with H.R. 2028 , as passed by the House. The "Statement of Administration Policy" cites insufficient funding for ARPA-E as one of several reasons behind the Administration's opposition. As reported by the Senate Committee on Appropriations, H.R. 2028 would provide $291 million to ARPA-E in FY2016. This amount is $11 million more than both the FY2015 enacted and House-passed levels, but $33 million less than the Administration request. S.Rept. 114-54 accompanied H.R. 2028 when it was reported by the Senate Committee on Appropriations. Historical Funding Table 3 shows ARPA-E authorizations of appropriations, budget requests, and appropriations since the agency was first authorized in 2008. Congress has funded ARPA-E at approximately $280 million since FY2012—with the exception of FY2013, when the process commonly known as sequestration (as well as enacted rescissions) reduced the agency's funding level to about $250 million. Policy Issues and Observations ARPA-E is a comparatively new addition to the federal research and development (R&D) portfolio. Given the nature of R&D, which can take decades to produce widely recognized or transformative results, it may be many years before ARPA-E's ultimate impact is fully understood. Some early concerns about the agency focused on perceived differences between ARPA-E and the DARPA model. These include differences in the markets for defense and energy-related products. DARPA, for example, has a built-in customer (the U.S. military), which ARPA-E does not have. Further, some analysts have argued that industrial relationships and characteristics of the energy sector (including powerful incumbent firms and the wide array of energy-dependent products) have the potential to stop the dissemination of disruptive innovations. It is not clear whether these early concerns have become actual challenges for ARPA-E, or whether ARPA-E has been able to adjust and respond to its unique position. It is also possible that factors perceived (rightly or wrongly) as key to the success of DARPA may not be as important to the success of ARPA-E. Other early congressional concerns focused on whether ARPA-E would compete with, duplicate, or otherwise undermine other DOE research units, such as the Office of Science, and on whether the agency would focus too closely on late-stage technology development and commercialization activities that some policymakers perceive as best left to the private sector. The Government Accountability Office investigated such concerns in 2012 and found that ARPA-E had taken steps to avoid duplication with other DOE offices and that "most ARPA-E projects could not have been funded solely by the private sector."

The Advanced Research Projects Agency–Energy, or ARPA-E, was established within the Department of Energy to "overcome the long-term and high-risk technological barriers in the development of energy technologies" (P.L. 110-69, §5012). Patterned after the widely lauded Defense Advanced Research Projects Agency (DARPA)—which played a key role in the development of critical technologies such as satellite navigation and the Internet—ARPA-E has supported more than 400 energy technology research projects since Congress first funded it in FY2009. This budget and appropriations tracking report describes selected major items from the Administration's FY2016 budget request for ARPA-E and tracks legislative action on FY2016 appropriations to the agency. It also provides selected historical funding data. This report has been updated to include House-passed amounts for FY2016. It will be updated to include FY2016 Senate-passed amounts and final enacted FY2016 appropriations. Overall, the Obama Administration has requested $325 million for ARPA-E in FY2016, a $45 million (16%) increase over the FY2015 enacted level of $280 million. The House-passed Energy and Water Development and Related Agencies Appropriations Act, 2016 (H.R. 2028) would provide $280 million to ARPA-E in FY2016. The White House Office of Management and Budget (OMB) issued a "Statement of Administration Policy" opposing the House-passed version of H.R. 2028. OMB cited a number of factors in its decision to oppose H.R. 2028 as passed by the House, including insufficient funding levels for ARPA-E. As reported by the Senate Committee on Appropriations, H.R. 2028 would provide $291 million to ARPA-E in FY2016. With the exception of FY2013—when ARPA-E was subject to reductions as a result of certain rescissions and under the process commonly known as sequestration—Congress has funded ARPA-E at about $280 million since FY2012.

Introduction Budgetary pressures at all levels of government have increased concern about using resources for transportation projects as effectively as possible. The speed with which transportation projects are delivered, and the role the federal government plays in the project delivery process, have received particular attention. It is often claimed that the environmental review process required by the National Environmental Policy Act of 1969 (NEPA, 42 U.S.C. §4321 et seq.) and other federal environmental laws and regulations are major causes of delay in moving highway and transit projects from conception to completion. To more fully understand sources of delay in major highway and transit projects, this report examines the process from beginning to end, including environmental review, and looks at the available evidence on timelines in project delivery. Unfortunately, the evidence is scant and anecdotal, relying for the most part on the memories and opinions of transportation professionals involved in planning, designing, and constructing highway and transit facilities. What the evidence appears to show is that while major highway and transit facilities do take a long time to plan and build, typically on the order of 10 to 15 years, much of the delay is unrelated to federally mandated environmental review. Developing a community consensus on what to do, securing the funding, and dealing with affected residents and businesses, including utility companies and railroads, all appear to be significant causes of delay. While Congress has options that may accelerate project delivery, it may be necessary to temper expectations for dramatically shortening timelines on expensive, complex, and often contentious projects. The report begins with an overview of the project delivery process for highway and transit projects. This is followed by an examination of the evidence on the reasons for project delay, and a discussion of environmental streamlining efforts in past surface transportation reauthorization legislation. The final section identifies new legislative options for Congress to speed project delivery. Project Delivery Process Highway and transit projects range widely in purpose, scope, location, size, and cost. Although all types of projects can suffer delays, concerns about long delivery times are mostly focused on big highway, bridge, and transit projects. This includes major new highways and bridges, major expansions of existing highway facilities, and major public transit projects (often referred to as "new starts" along with the federal transit program of the same name). Because of the high costs involved in these types of projects, the federal government typically provides a share of the funding. In the case of major highway and bridge projects, state departments of transportation (state DOTs) receive funding from a number of different federal-aid highway programs. In the case of New Starts transit projects, transit agencies and other local government project sponsors receive federal funding from the New Starts program, but may also use smaller amounts of other federal highway and transit program funding. Along with federal funding come requirements established in federal law and regulation. Highways There may be as many as 200 steps in a major highway project, but these are typically grouped into five major phases: planning; preliminary design and environmental review; final design; right-of-way acquisition and utility relocation; and construction. During the planning phase, transportation needs are identified and projects to meet those needs, within the bounds of available resources, are brought forward. State DOTs, as well as metropolitan planning organizations (MPOs), are required to develop long- and short-range plans laying out capital and operational strategies and projects to support the movement of passengers and freight. The planning process is required to be a continuing, cooperative, and comprehensive endeavor involving a full spectrum of community interests including residents, businesses, freight shippers and carriers, transit agencies, and environmental groups (23 U.S.C. §134 and 23 U.S.C. §135). The preliminary design and environmental review phase involves consideration of possible alternatives to address the identified need and selection of a preferred alternative. This phase, which has drawn more attention from transportation stakeholders, including some Members of Congress, than any other element of the surface transportation project development process, is discussed in detail below. The final design phase begins once preliminary design and environmental review have identified the preferred alternative. Final design leads to decisions on what property is needed and final estimates of project costs. Final design is followed by the acquisition of right-of-way, the relocation of affected residents and businesses, and the relocation of utilities. The acquisition of property must be accomplished according to the requirements of the Uniform Relocation Assistance and Real Property Acquisition Act of 1970, as amended (P.L. 91-646, 49 CFR 24), a law designed to provide fair treatment of property owners and tenants. The state DOT then awards construction contracts, oversees construction, and takes delivery of the final project. Federal-aid construction projects are typically subject to a number of federally required contract provisions, such as nondiscrimination, payment of a predetermined minimum wage (Davis-Bacon and Copeland Acts), and accident prevention. The federal government is not directly involved in construction, but does have an oversight role. The state is reimbursed by the federal government for its share of project costs upon the completion of the project or upon completion of project milestones. Although these project phases follow logically one after the other, they are not always carried out sequentially. Indeed, there has been a push for agencies to conduct work concurrently, where possible, to speed delivery. For instance, project sponsors have been encouraged to conduct as much of the environmental compliance work as possible during the planning phase. Moreover, there have been innovations in contracting in which the traditional design-bid-build method has been collapsed into a design-build contract, partly as a way to speed project delivery. Preliminary Design and Environmental Review of Highway Projects During preliminary design and environmental review, MPOs and state DOTs identify the preliminary engineering issues, proposed alignment of roadways, costs, and project details. This phase includes, but is not limited to environmental assessments, topographic surveys, real property surveys, geotechnical investigations, hydrologic analysis, hydraulic analysis, utility engineering, traffic studies, financial plans, revenue estimates, hazardous materials assessments, and general estimates of the types and quantities of materials and other work needed to establish parameters for the final design. Environmental review includes two related processes. First, it involves the preparation of appropriate documentation under NEPA. Second, it involves fulfillment of any other requirements under any local, state, tribal, or federal law other than NEPA, including reviews, studies, and environmental permits and approvals. Therefore, meeting any environmental requirement, such as permitting under the Clean Water Act, is considered part of the environmental review process. NEPA and Highway Projects NEPA requires federal agencies to consider the environmental impact of a project and to give the public a meaningful opportunity to learn about and comment on the proposed project before a final decision is made. To ensure that environmental impacts are considered before final decisions are made, NEPA requires federal agencies to prepare an environmental impact statement (EIS) for any proposed project that is determined to have a significant affect on the environment. After a final EIS is approved, a final Record of Decision is issued, documenting the final project alternative selected and public comments received on the project. If it is not clear whether a project will have significant impacts, the project sponsor must conduct an environmental assessment, a less elaborate study than an EIS. If analysis conducted during the EA demonstrates that no EIS is required, the federal agency supporting the project issues a Finding of No Significant Impact (FONSI). The agency or agencies having primary responsibility for preparing the necessary NEPA documentation are designated the "lead agency." Pursuant to the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA) ( P.L. 109-59 ), Federal Highway Administration (FHWA) and Federal Transit Administration (FTA) were explicitly defined as the lead agencies responsible for the environmental review process for any highway or transit project requiring DOT approval. The direct recipient of federal funds for a project, typically the state DOT or the local transit agency, must serve as a joint lead agency. Also, state or local agency project sponsors, such as a local public works agency or a regional toll road agency, may be invited to serve as a joint lead agency. In practice, the project sponsor (e.g., state DOT or local agency) prepares the bulk of the necessary NEPA documentation, subject to oversight and final approval by FHWA or FTA. The overwhelming majority of highway projects are deemed to have no significant impact on the environment and require no or limited environmental review or documentation under NEPA. These projects are processed as categorical exclusions. Projects processed as categorical exclusions are sometimes incorrectly described as being exempt from NEPA or as having no environmental impact and, hence, free of further environmental compliance requirements (e.g., those related to the second element of the environmental review process). More accurately, categorical exclusions have no significant environmental impact under NEPA. That is, they are excluded from the requirement to prepare an EIS or EA, but may require some level of documentation to demonstrate the lack of significant impact. Only about 4% of all projects funded through FHWA programs require an EIS ( Figure 1 ), meaning that 96% of all projects approved by FHWA have been determined to have no significant impact on the environment. In the majority of states, the total number of projects that require an EIS is quite low. As of April 12, 2011, according to FHWA, nine states have no projects underway for which an EIS is being prepared. Of the remaining 41 states, 31 were preparing between 1 and 5 statements, meaning that only 10 states had more than five highway-related Environmental Impact Statements in preparation. Almost 92% of all projects funded through FHWA programs are processed as categorical exclusions. The remaining 4% of highway projects require an EA/FONSI (i.e., no subsequent EIS). The proportion of projects proceeding without an EIS has remained relatively constant since 1998. While projects that require an EIS represent a small proportion of the number of projects, these are likely to be high-profile, complex undertakings that affect sizeable populations. They are also likely to be relatively expensive projects. For example, in 2007, although projects requiring an EIS accounted for 4% of the total number of projects funded through FHWA programs, they represented 15% of the total funding amounts. Other Environmental Review Requirements for Highway Projects The second element of the environmental review process includes any additional environmental permit, approval, review, or study required for a project under any federal law. This element is potentially more complex, and is often misunderstood when there is debate regarding potential methods to expedite project delivery. Environmental requirements applicable to a project will depend on factors specific to an individual project. For example, unique geographic, demographic, historic, and natural conditions affect each transportation project. Requirements applicable to a project may be implemented under the authority of DOT or an outside agency with jurisdiction over the regulated impact. In some states, a state agency may be delegated partial or complete authority over a federal environmental program that is included in the environmental review process. The sometimes extensive reviews required by these various federal and state agencies have added to the perception that the environmental review process entails extensive delays. While applicable requirements are project-specific and likely dependent on the level of impacts to specific resources, there are certain requirements that commonly apply to surface transportation projects. Also, certain federal laws have been identified by transportation stakeholders as those that are more likely to increase the time to complete the environmental review process. Those laws, and the agencies authorized to implement them, are the Endangered Species Act (16 U.S.C. §1531 et seq.), the Department of the Interior's U.S. Fish and Wildlife Service; the National Historic Preservation Act (16 U.S.C. §460 et seq.), the federal Advisory Council on Historic Preservation and state historic preservation offices; the Clean Water Act (33 U.S.C. 1251 et seq.), the U.S. Army Corps of Engineers or the Environmental Protection Agency (EPA); and "Section 4(f)" of the Department of Transportation Act of 1966 (40 U.S.C. §303), the U.S. Department of Transportation. In addition to a project potentially requiring a permit, approval, or consultation under one of these, or other, laws, federal agencies other than DOT may be required to participate in the environmental review process by performing scientific analysis or providing an assessment of some element of a project's impact. The environmental and resource agencies participating in reviews or considering approvals for highway projects may also be providing similar analyses and approvals for other regulated federal agency and private actions. The agency may then have to consider whether to give the transportation project priority over mining projects, timber sales, cattle grazing, port or river dredging projects, federal land transfers, private construction projects, or other activities requiring its review and approval. To integrate the compliance process and avoid duplication of effort, NEPA regulations specify that, to the fullest extent possible, NEPA documentation must be prepared concurrently with any environmental requirements. Further, the Department of Transportation's NEPA regulations specify that a project's final EIS or FONSI must demonstrate compliance with all applicable environmental laws, Executive Orders, and other related requirements that may apply to protected resources impacted by a project. If full compliance is not possible, the final EIS or FONSI should reflect consultation with the appropriate agencies and provide reasonable assurance that the requirements will be met. In this capacity, NEPA functions as an "umbrella" statute. That is, any study, review, or consultation required by any other local, state, tribal, or federal environmental requirement should be conducted within the framework of the NEPA process (i.e., as part of the process to prepare an EIS, EA, or CE). While NEPA forms the framework for demonstrating compliance with other requirements, NEPA itself does not require compliance with any other requirement. For example, consider a project that requires a permit under the Clean Water Act. The requirement to obtain the permit would simply be identified during the NEPA process, not explicitly required by NEPA. If the legal requirement to comply with NEPA were removed, compliance with each law applicable to a given project would still be required—only the mechanism to identify the applicable laws would be changed. This use of NEPA as an umbrella process means that the time it takes to complete the environmental review process under NEPA is inextricably linked to the time it takes to demonstrate compliance with any other environmental requirement. This link can blur the distinction between what is required under NEPA and what is required under other law. This distinction is particularly relevant when trying to identify causes of project delays and, hence, potential remedies to address those delays. Consider, for example, a bridge rehabilitation project that meets the criteria for a categorical exclusion because it has no significant environmental impacts under NEPA and does not require an EIS or EA. Such a finding does not mean that the project involves no environmental impacts or activities that may be regulated under other local, state, tribal, or federal law. For example, the bridge rehabilitation may involve some level of consultation with a state historic preservation office pursuant to the National Historic Preservation Act. If approval of the categorical exclusion ultimately takes longer than expected by a local or state transportation official, it would be relevant to know whether additional time was needed as a result of the requirements of NEPA or of the National Historic Preservation Act. As noted previously, the NEPA process should not simply document decisions that have already been made. Therefore, the next stage of the process—final design and property acquisition—may not proceed until the agency coordinating federal assistance issues one of three possible determinations: a record of decision approving a completed EIS, a finding of no significant impact, or approval of categorical exclusion. At subsequent stages of the project development process, additional environmental review may be required if changes to the project affect the level or nature of environmental impacts that were previously identified. Transit New Starts Projects The New Starts program provides federal funds to public transit agencies on a largely competitive basis for the construction of new fixed-guideway transit systems and the expansion of existing fixed-guideway systems. Federal funding for major New Starts projects is typically committed in a full funding grant agreement (FFGA), usually a multi-year agreement between the federal government and a transit agency. A FFGA establishes the terms and conditions for federal financial participation, including the maximum amount of federal funding being committed. According to federal law, the process for obtaining a FFGA ( Figure 2 ) begins with a regional, multimodal planning process that includes systems planning and alternatives analysis. Systems planning examines the transportation needs of a region. Alternatives analysis examines the benefits and costs of different options, such as light rail or bus rapid transit, in a specific transportation corridor or regional subarea. The conclusion of the alternatives analysis is the selection of a locally preferred alternative, which the project sponsor submits to FTA for evaluation and approval for entry into preliminary engineering. New Starts projects must fulfill the requirements of NEPA because they involve a proposed major federal action significantly affecting the environment. FTA requires a project to have moved beyond the NEPA scoping phase before entering preliminary engineering. NEPA scoping involves identifying the alternatives that will be examined in the NEPA documents and the significant environmental issues that arise from the proposed project. Preliminary engineering involves the project sponsor refining the project by examining the costs, benefits, and impacts of different design alternatives, and completing an analysis of environmental impacts as required by NEPA. Once preliminary engineering is complete, FTA may approve the project for final design. Final design includes the preparation of final construction plans and cost estimates, and may also include right of way acquisition and utility relocation. After final design is complete FTA may approve the project for a FFGA. FTA must notify Congress 60 days in advance of its intent to sign an FFGA. Once the FFGA is signed, and if federal funds are appropriated, the project may move into the construction phase. FTA retains some oversight of a project as it is constructed. Moreover, FTA must request the funding that is to be provided under the terms of the FFGA for each approved project from Congress each fiscal year. Partly because of concerns about the complexity of the New Starts Program process, SAFETEA created a category known as Small Starts. Small Starts projects are those costing $250 million or less in total and seeking $75 million or less in federal funding. The Small Starts project process is a simplified version of the process for major New Starts projects (49 USC §5309(e)). A Small Starts project must still emerge from systems planning and an alternatives analysis, but FTA expects the alternatives analysis to be much simpler than for a major New Starts project. Moreover, preliminary engineering and final design are combined into a single phase known as project development. FTA's approval for entry into project development requires submission of fewer and simplified reports. Even though preliminary engineering and final design are combined into a single phase, final design may not commence until the NEPA process is complete. After project development, FTA may recommend the project for a Project Construction Grant Agreement. For projects costing less than $50 million in total, known as Very Small Starts, FTA has developed a process that permits approval after a highly simplified alternatives analysis. Until FTA issues a final regulation for the Small Starts program, projects costing $25 million or less are exempted from the Small Starts evaluation and rating process. Sponsors of exempt projects may submit relatively simple applications to FTA for funding. Nevertheless, exempt projects must still satisfy the requirements of NEPA and other environmental laws. Reasons for Project Delivery Delay Highways There appear to be few systematic public data on how long it takes to deliver highway projects from conception to completion, and whether or not it takes longer to complete projects now than in the past. Some of the reasons include the great diversity of projects, the difficulty of assigning meaningful beginning and ending dates to project milestones, and the time and cost involved in keeping and analyzing project records. Despite these problems, both FHWA and the American Association of State Highway and Transportation Officials (AASHTO) have provided general timeframes for the five phases of federally financed major new highway projects. FHWA estimates about 9 to 19 years in total for projects with significant environmental impacts, while AASHTO suggests 11-17 years ( Table 1 ). It is worth keeping in mind that major projects may only constitute about 4% of all federally funded highway projects. Most projects are much smaller rehabilitation or reconstruction projects that require less planning, environmental review, and funding. The General Accounting Office (now the Government Accountability Office, GAO) noted that "according to FHWA, most federally funded highway construction projects advance from planning to construction within 1 year but may take up to 4-6 years, depending on the individual project's characteristics." Perhaps because of the lack of systematic data on project completion, there is no consensus on the reasons for project delivery delay. Moreover, as FHWA has noted, "measuring the extent and cause of delays is often highly subjective." Part of the problem is that even the definition of delay can be controversial. As one study notes, "without clear time frames established ahead of time, it is very difficult to determine whether delay is occurring. What one person might consider a 'delay' another considers a normal part of the process." A few studies have been conducted on the reasons for highway project delay. Most of these focus on delays during the environmental review process, or at least during the period in which environmental review is occurring, and on those projects which have been in the environmental review process for a considerable amount of time. This research appears to show that while environmental review of a project can take a long time, delays are often due to non-environmental factors. In many cases, the cause of delay in the environmental review process is a factor external to the process. In 2002-2003, FHWA conducted two surveys intended to identify causes of delay associated with preparation of an EIS. Both studies asked FHWA field staff for the main reason the project had been delayed. In the first survey, respondents identified the top three reasons for delay as lack of funding (18%), low local or state priority (15%), and local controversy (16%). Issues having to do with the human or natural environment combined for 25% of the identified delays. These included resource agency review (8%), issues related to fish and wildlife or Endangered Species Act compliance (7%), historic preservation requirements (6%), and issues associated with wetlands (4%). Another cause of delay frequently cited by respondents, "complex project," mentioned 13% of the time, may also have involved environmental issues, but no additional detail was collected. The second FHWA survey gathered data from projects completed in FY2002. In addition to looking at projects that took more than five years to complete (25 projects in FY2002), the survey gathered information on projects requiring an EIS that were completed in under three years (7 projects). The two time frames were selected because three years had been identified by FHWA as "timely completion of NEPA" and five years had been identified by the House Subcommittee for Transportation and Infrastructure in 2000 as indicating "delay." For those projects that took less than three years, the primary reason cited for completing the EIS relatively quickly was "early agency coordination." A majority of respondents (six of seven) also indicated that those projects were identified as a priority by the state. The primary reasons survey respondents identified for a project taking more than five years to complete an EIS were: low priority (24%), complex project (16%), change in scope (12%), and historic preservation (12%). Additional reasons cited included poor consultant work, lack of funding, issues with city documentation, lawsuits, and changing the document from an EA to an EIS. An academic study of the factors affecting the length of NEPA reviews conducted in the 1990s for highway projects in Oregon also found that the most common causes of delay were not obviously related to the natural environment. The most common causes of delay, in terms of the percentage of projects experiencing the source of delay, were design changes (83%), citizen/property owner concerns (75%), communications and staffing problems (42%), and funding availability (42%). Some of the citizen concerns were related to the natural environment, but many were related to traffic, safety, and access issues. These concerns sometimes led to design changes, such as the addition of new traffic lights and medians, which then resulted in reopening already completed studies and providing additional time for public comment, causing delays but also potentially improving the final project. Staff turnover, sometimes related to a lack of funding and agency reorganization, was also found to be a cause of delay, partly because it made communication between agencies more difficult. In a study of the costs of environmental compliance, FHWA had this to say about assessing the causes of project delay: The underlying causes of delay are not always apparent or simple in nature. For example, sometimes design review results in an engineering decision to alter proposed project limits or other features. Similarly, often there are decisions to accommodate requests from local governments for specific project elements. Such situations necessitate corresponding changes to the parameters used in right-of-way activities and in environmental reviews. Those changes often generate new acquisition or environmental compliance requirements, or the need for revision of project documentation. If the modifications require a substantial amount of such rework, then adjustments in project schedule and budget occur. Those adjustments nominally appear as delays generated by the disciplines doing the rework. In this manner, a decision by one operating unit has effects that cascade throughout the various S[tate]DOT disciplines, and the original cause often is obscured. Furthermore, often there are independent and unrelated delays in multiple functional areas (e.g., design, right-of-way, and environment). In all delay cases, to decide whether delay really resulted in late project delivery would require a determination of the critical path elements that actually affect project delivery . For the most part, these studies focus on problems during the environmental review stage of a project. In contrast, two more recent studies have sought to identify the causes of highway project delay from inception to completion. The first, prepared under the auspices of the Transportation Research Board's National Cooperative Highway Research Program (NCHRP), conducted interviews with eight state DOTs. The study found that the five main reasons for project delay are, in no particular order: utility coordination and relocation; railroad coordination and involvement; right-of-way acquisition; interagency coordination; and lack of funding. The study did not try to evaluate the relative importance of these factors, nor quantify the effects of these factors on project delivery. The NCHRP study found that utility coordination and relocation can be a source of project delay, sometimes during project design, but more typically during construction. Utilities are often located in the highway right-of-way, necessitating relocation during a project. The major issue is that utilities are expected to move their facilities for little or no compensation. Consequently, such work is not the utilities' highest priority. Underground utilities complicate matters because, particularly for older installations, records may be poor and the amount of relocation work required is not known in advance. In dense urban environments utility coordination may require dealing with multiple entities, which multiplies the risk of delay. For similar reasons, the involvement of railroads was mentioned frequently by state DOT officials as a contributor to delays. Right-of-way acquisition is identified as another source of delay in the NCHRP study because, typically, acquiring land cannot proceed until the Record of Decision has been granted and construction cannot begin until the land has been acquired. The procedures in the Uniform Relocation Assistance and Real Property Acquisition Act of 1970, which federally supported projects must follow, have been criticized as long and complicated compared with some state laws and processes. In some cases delay may result when property owners are unwilling to sell their land, requiring taking by eminent domain. Occasionally, disputes between transportation departments and land owners must be resolved by the courts. Problems with interagency coordination, particularly during the planning and environmental review stages, is identified as another reasons for delay. The study argues that delays occur because of long review times from permitting agencies, different priorities among agencies, studies having to be redone because they did not include the correct information, and lack of frequent communication. The second recent study, prepared for the Orange County Transportation Authority (OCTA), conducted interviews with a wide range of industry leaders, including transportation infrastructure practitioners, state and local officials, industry officials, and other experts. The study specifically focused on the role of the federal government in program and project delivery, and, again, did not attempt to quantify delays. As did the NCHRP study, the OCTA study identified environmental review, right-of-way acquisition, utility relocation, and railroad involvement as sources of delay. But the report also argued that, to some extent, delay results because participants in the public works construction industry expect delay to occur and too readily accept it as part of the process. As the authors noted, "As an industry, public works construction suffers from a culture where delays are considered an acceptable tradeoff for the size, complexity, cost, and life span of products." They argued that some of the main barriers to accelerating project delivery are "a function of institutions and adopted roles rather than law or policy." Some of the other sources of delay identified in the OCTA study include the federal fiscal constraint requirements in the planning process, the federal micromanagement of projects, risk aversion by federal oversight agencies, and the predictability of funding, not just the level of funding. Transportation improvements recommended in planning documents must be supported by funding sources reasonably expected to be available, in addition to funds necessary to operate and maintain the existing system. The OCTA study notes that this fiscal constraint requirement in the planning process can create difficulties and delay in project delivery, particularly when funding is uncertain and when the process for changing planning documents is cumbersome. The study also suggests that, unlike in the past, today's federal funding recipients are generally sophisticated and experienced, and therefore "the close scrutiny of routine actions by agencies could be considered to be no longer justified for the full range of grantees and might be streamlined by adjusting oversight processes to focus on accountability and good project control rather than micromanagement." The study's authors also assert that federal agencies tend be very risk adverse, insisting on slow, diligent review to evaluate every possible issue without considering the consequences or costs of delay. Emergency lessons Some of the current concern with delay in project delivery is a reaction to rapid completion of several high-profile highway projects under emergency conditions. This includes the rebuilding of the collapsed I-35W bridge in Minneapolis, MN, which was contracted to be rebuilt in 437 days but was finished in just over a year, for which Representative John Mica, Chairman of the House Transportation and Infrastructure Committee, has named his plan to speed project delivery "the 437 Plan." Other examples include the rebuilding of the I-580 connector in San Francisco in 26 days after a fiery truck crash in 2007 and the rebuilding of the I-40 bridge at Webber Falls, OK in 65 days after it was struck by a river barge in May 2002. In a report examining the process for rebuilding a collapsed bridge, FHWA concluded that the most frequent causes of project delay may recede in an emergency situation, notably lack of funding or low priority, local controversy, stakeholder or local opposition, and insufficient political support. Moreover, the special circumstances often make it easier to deal with project complexity or environmental concerns. For instance, in some cases the scope of the project can be limited to simply rebuilding, without capacity expansion, realignment, or changes to the roadways approaching the bridge. This tends to limit controversy and makes environmental review easier. The OCTA report agrees that in emergency situations, "when public consensus and pressure are present, barriers to expedited processing essentially disappear because Federal agencies' priorities are in sync with those of their Grant recipients." Small Federal-Aid Highway Projects Federal funding is available for small-scale highway projects through many programs administered by FHWA, including such targeted programs as Transportation Enhancements, Safe Routes to School, and the National Scenic Byways Program. A study of small-scale projects, defined as projects with a federal share of $300,000 or less, in ten states, again prepared under the auspices of the Transportation Research Board's National Cooperative Highway Research Program, found concerns about the time and effort it takes to deliver projects that involve relatively small amounts of federal funding. Based on a survey of state DOT staff and interviews with public-sector officials, the study found that there were several causes of delay in small-scale project delivery. Problems mentioned most often included finding local matching funds, the complexity of the NEPA and right-of-way processes, and the prohibition on using local agency forces for small-scale construction projects. Other problems mentioned included a lack of familiarity with federal regulations because of staff turnover at local agencies, complying with federal regulations when not required, delays in appraisals required for property acquisition, and slow response for approvals and permits from resource agencies. Transit New Starts Projects As with highway projects, there are no good estimates of how long it takes to complete an "average" transit New Starts project. Two studies have examined how long it takes to move through the New Starts program, but these studies do not assess the initial planning process nor the time required for construction. One study, by GAO, was unable to determine how long it takes for major transit projects to move through the New Starts process due to data problems, and therefore reached no conclusion as to whether the process has become lengthier. Complete data were only available for 9 of the 40 projects that have received a FFGA since 1997, and GAO notes that these 9 are not necessarily representative of the entire group. Of the 9 projects, the shortest completion time, from the beginning of alternatives analysis to the approval of a FFGA, was 4 years 7 months, and the longest was 14 years 2 months ( Table 2 ). It is important to note that this may not include the time period, often several years, during which local officials and planning agencies examine possible transit projects before selecting the alternatives to be analyzed in greater detail. A second study of the New Starts program, sponsored by FTA but conducted by outside consultant Deloitte, also examined nine major transit projects, six that sought funding from the New Starts program and three than did not. The study found that project length varied dramatically across the projects, but the non-New Starts projects generally took less time to complete. Like the GAO study, these projects are not necessarily representative of all New Starts projects, and, moreover, the duration of the alternatives analysis was only estimated approximately. Despite these data problems, both studies found concern with the complexity, length, and expense of the federal approval process for major transit projects partially funded through the New Starts program. The New Starts process requires the development of extensive data and the preparation of a large number of detailed reports and other documents, all of which are reviewed in depth by FTA in making multiple project approval determinations. Although GAO has suggested that the New Starts evaluation process might be used as a model for other federal programs to ensure the effective use of federal funding, transportation industry stakeholders complain that the process is time-consuming and costly, with some delays due to FTA deciding whether a project can move into the next phase. One transit agency estimates that federal involvement can add an extra one to two years to a project and 10% to 15% extra in project costs. The FTA-sponsored (Deloitte) study found a number of problems that cause confusion and may add time to a project, and might be amenable to administrative remedies. For example, the study noted that some project stages lack clear and concise definitions of requirements, that some organizational conflicts exist within FTA, and that there is ineffective use of technology for project submissions. Moreover, the New Starts review process is "first-in, first out," which means that a relatively small, simple project may get stuck behind a large and complex project in the FTA review process. The frequent issuance of policy and guidance changes by FTA is also said to lead to delay and additional costs because sponsors have to revise and resubmit project materials. Some other issues that emerged in the studies may be difficult to address without legislation. For example, the review of project submissions by FTA appears to contribute to long delivery times. This may be because of a lack of staff in the New Starts program office. Another issue that is a subject of many complaints from project sponsors is that much of the work done during the alternatives analysis has to be redone for the NEPA review. New Starts alternatives analysis examines the effects of a number of different project options in a corridor or subarea, whereas the NEPA review usually examines fewer alternatives, but with a more detailed focus on the local effects on the human and natural environment. While these studies have somewhat different aims and requirements, they overlap to such an extent that several stakeholder groups have proposed eliminating a separate alternatives analysis in the New Starts program. However, FTA told GAO that project delays are often the result of actions at the local level, and thus not always directly attributable to the federal program. For instance, due to local political pressures, sponsors sometimes change a project's scope when development is already far along. In other instances, a project's local financing mechanism might be withdrawn only to be replaced by something else at a later time. Environmental Streamlining in TEA-21 and SAFETEA There have been several past legislative efforts intended to accelerate the environmental review of surface transportation projects. Those efforts became commonly referred to as "environmental streamlining" in the debate surrounding the passage of the Transportation Equity Act for the 21 st Century (TEA-21; P.L. 105-178 ). Although the term "streamlining" was used in TEA-21, it was not defined in the statute nor in regulation. DOT broadly defined streamlining as the timely delivery of federally-funded transportation projects while protecting and enhancing the environment. Section 1309 of TEA-21 included streamlining provisions that directed DOT to establish a "coordinated environmental review process" that encouraged early identification of federal agencies outside DOT that may have jurisdiction over a project and to cooperatively determine timeframes for compliance with any identified environmental requirements. TEA-21 also authorized DOT to approve state DOT requests to reimburse federal resource agencies for expenses associated with meeting expedited time frames. TEA-21's streamlining provisions largely included procedures that could be implemented voluntarily by states or codified requirements that were already included in DOT's NEPA regulations. TEA-21 also included requirements that certain environmental factors of a project be considered during project planning. In SAFETEA, unlike TEA-21, the term "streamlining" is not used. However, SAFETEA includes provisions similarly intended to expedite compliance with certain environmental requirements, particularly NEPA and Section 4(f) requirements. Like TEA-21, many of the provisions in SAFETEA codify existing regulatory requirements, such as: specifically designating DOT as the "lead agency" for surface transportation projects; specifying the role of the lead and cooperating agencies; and allowing deadlines for decision-making to be set. SAFETEA also includes a host of provisions that changed statutory or regulatory requirements applicable to the transportation planning process and the environmental review process. Section 6001 of SAFETEA ("Transportation Planning") required that the development of long-range transportation plans include such elements as: consultations with relevant resource agencies; discussion of potential environmental mitigation activities; participation plans that identify a process for stakeholder involvement; and visualization of proposed transportation strategies where practicable. In 2007, DOT promulgated regulations implementing SAFETEA's planning requirements. It has also developed guidance on the efficient development of environmental and planning linkages. The most significant change to the environmental review process was the establishment of new project development procedures under Section 6002 ("Efficient Environmental Reviews for Project Decision-making"). The new process repealed TEA-21's streamlining provisions and established a new environmental review process for highways, transit, and multi-modal projects. The new process, mandatory for all projects requiring an EIS, requires project sponsors to initiate the environmental review process by notifying DOT of the type of work, termini, length, general location of the proposed project, and a statement of any anticipated federal approvals; establishes a new entity required to participate in the NEPA process, referred to as a "participating agency," which includes any federal, state, tribal, regional, and local government agencies that may have an interest in the project; requires the lead agency to establish a schedule for coordinating public and agency participation in the environmental review process; establishes a 180-day statute of limitation on judicial claims on final agency actions related to environmental requirements (the previous limit had been six years, under provisions of the Administrative Procedures Act); and authorizes the use of federal transportation funds to help agencies required to expedite the environmental review process (similar to provisions in TEA-21). In 2006, DOT produced guidance intended to assist state DOTs in implementing SAFETEA's new environmental review process. There were several other significant environmental-related provisions of SAFETEA. First, under Section 6004 ("State Assumption of Responsibility for Categorical Exclusions") DOT was allowed to assign and states were allowed to assume DOT's responsibility for determining whether certain designated activities are categorical exclusions. To assume DOT authority, Section 6004 requires states to enter into a memorandum of understanding (MOU) setting forth the responsibilities to be assigned to that state. Subsequently, DOT established a Memorandum of Understanding (MOU) template and guidance to implement Section 6004. To date, California, Utah, and Alaska have entered into MOUs with FHWA. Second, Section 6005 ("Surface Transportation Project Delivery Pilot Program") required the establishment of a pilot program to allow Oklahoma, California, Texas, Ohio, and Alaska to assume certain federal environmental review responsibilities (in addition to CE determinations). Only California agreed to participate in the pilot program. Other states declined, primarily due to state legislature concerns regarding the potential liability associated with assuming federal responsibility under NEPA. Third, Section 6009 ("Parks, Recreation Areas, Wildlife and Waterfowl Refuges, and Historic Sites") amended Section 4(f) requirements to allow for the use of Section 4(f) resources if that use can be proven to have only de minimis impacts to the resource. The law previously prohibited the use of a Section 4(f) resource for a transportation project unless there is "no prudent and feasible" alternative to do otherwise, and the project includes all possible planning to minimize harm to the resource. Effectiveness of Changes Made in SAFETEA In a survey conducted by the National Cooperative Highway Research Program, a majority of state DOT respondents were generally in favor of the SAFETEA's environmental-related requirements. However, they also expressed certain concerns, such as: SAFETEA represented no major change from what state DOTs were doing previously; the act duplicated existing coordination procedures; and DOT already involved outside agencies prior to implementing the new procedures. Further, while there was wide approval of the 180-day statute of limitations and the de minimis provisions added to Section 4(f), many survey respondents expressed concern that some requirements of the new environmental review process seemed to run counter to streamlining initiatives by creating additional requirements that could have a negative impact on schedules and budgets. In a 2011 report to its state legislature, the California Department of Transportation (Caltrans) reported that the median time for NEPA-related environmental approvals under the Section 6005 pilot program was 17.9 months less than previously. Caltrans reported that time savings were achieved by eliminating one layer of government review formerly conducted by FHWA and consolidating NEPA reviews with Caltrans'. Its analysis also showed that the time that it took to deliver Caltrans' projects was substantially shortened. Caltrans noted, however: "this time savings is likely attributable to both Caltrans' new role as NEPA lead agency, as well as Caltrans' recent strong emphasis on rapid project delivery." Caltrans' report also stated that, while NEPA delegation played a significant role in overall project delivery time savings, it was impossible to isolate the effect that the pilot program has had on the delivery of projects. Despite the changes enacted in SAFETEA, certain issues continue to be cited by transportation stakeholders as needing to be addressed to improve the environmental-review process. These include the length of NEPA documents, particularly the impression by some that DOT's legal sufficiency reviews require over documentation in an effort to "litigation proof" NEPA documents; the time it takes for outside agency review and comment; and the potential for duplication of analysis or documentation, particularly when the environmental review and transportation planning processes are not well coordinated or there is confusion over similar state and federal environmental compliance requirements. DOT's NEPA regulations, including those promulgated after SAFETEA, include explicit requirements that address most elements of these issues. It is difficult to determine what, if any, additional requirements may be imposed upon DOT or state DOTs that would lead to more effective implementation of those existing requirements, particularly without adding additional steps to an already complicated process. Instead of creating additional regulatory requirements, interested stakeholders have primarily advocated for legislative options that would give state DOTs more autonomy to implement the environmental review process or authorize funding for activities specifically intended to expedite that process. Options for Congress Many proposals have been advanced to accelerate delivery of highway and transit projects. Some of these entail broad changes in federal surface transportation or environmental laws. Others are far more technical in nature, and are intended to address narrow issues that can cause project delay. Major Legislative Changes Possibly the broadest option under discussion as Congress considers the reauthorization of federal surface transportation programs would abolish many of the programs and thereby eliminate many of the associated federal requirements. States would then be responsible for funding their own transportation projects and determining how to carry them out. This proposal is typically referred to as "devolution" or "turn-back." Although most federal programs would end, proponents of devolution often suggest that certain programs be retained at the federal level, notably those dedicated to the Interstate Highway System. Because many large highway projects involve the Interstates, devolution in this manner might not address delays in the most complex, highly visible projects. A different approach to providing states with more authority might be through delegating a wide range of federal oversight responsibilities to the states. This has been approved on a limited pilot basis with regard to NEPA. One suggestion is for delegation to be approved in exchange for a state instituting a performance-based management program, again on a pilot basis to start. Instead of requiring aspects of project development be carried out in a certain way, the federal government might allow states to proceed according to their own laws and regulations but then hold them accountable for the outcomes based on certain agreed measures. Another broad option would be the creation of an office within the Department of Transportation responsible for accelerating project delivery. Such an approach was proposed in the Surface Transportation Assistance Act (STAA) of 2009, the only reauthorization bill considered in the 111 th Congress. STAA would have required that Offices of Expedited Project Delivery be created in both FHWA and FTA, each with a director appointed by the Secretary of Transportation. The major role of these offices would have been to facilitate the timely completion of projects being funded by FHWA and FTA, with special attention to large and potentially complicated projects. In the case of FHWA these were defined as "significant" projects, those costing $500 million or more. For FTA the emphasis was on "New Starts" projects. Although STAA provided special attention to large projects, the offices nonetheless would have been charged with providing oversight for all FHWA- and FTA-funded projects. The offices were expected to fulfill their mission by taking a "leadership" role in the project delivery process. This was to be done by identifying problems (especially those associated with environmental review issues) and working with project managers to find solutions. The offices would have been required to provide annual reports to Congress on the project delivery process and make recommendations as to how it might be improved. The offices were not given any specific authority to force action by any party or to penalize any party for not following through on its recommendations, raising questions about their ability to actually expedite project delivery. Creating these offices within DOT would also likely mean dedicating staff and funding to fulfill this new mission. STAA, however, did not propose set-aside funding for these offices, but would have funded them through the respective FHWA and FTA administrative budgets. Hence, it is unclear from the bill as drafted how much these new functions were expected to cost and whether the agencies would be required to reallocate funding from existing administrative activities. Another broad approach for speeding up project delivery is to provide more authority and incentives for partnerships between federal agencies and grant recipients. This might involve establishing in law a requirement for a partnering plan, funding an awards program for outstanding collaboration, or creation of a special research and technical training center devoted to transportation project delivery. Unlike Stewardship and Oversight agreements that exist between FHWA and a state DOT, a partnering plan would include, depending on local circumstances, more partners such as other state and local agencies, including resource agencies. Another possibility along these lines is to create partnering grants to help federal agencies and grant recipients implement innovative contracting techniques. Some have even suggested setting up a program to reward states and metropolitan areas for on-time project delivery while maintaining standards for review, public involvement, and other elements of the process. Its proponents argue that this would encourage "strong partnerships and coordination among stakeholders." Apart from the extra funding that would be needed, another issue with such an approach would be how to measure whether or not a project is on time, given the great diversity of projects and local circumstances. Exempting projects from federal requirements if the amount of federal funding is relatively small is an option that might shorten delivery times for smaller projects. AASHTO argues that this could be done on projects in which less than $1 million in federal funds is involved, or if federal funds are less than a certain percentage of total project costs. Projects would then be administered under state regulations. One suggestion is to amend Titles 23 and 49 U.S.C. to allow funding recipients to certify compliance with federal requirements and to proceed without further approval if federal funds are one-third or less of project costs. Another option that might improve project delivery broadly would be to bolster the internal resources of agencies involved in the project delivery process. For instance, greater federal funding assistance could be provided to state DOTs for technology and data such as geographic information systems to track transportation infrastructure, underground utilities, and natural resources. Options for Accelerating Environmental Review One legislative option that might be considered in surface transportation reauthorization is expanding the delegation of DOT's authority under NEPA to states. Such a step might make permanent SAFETEA's Pilot Program (§6005) and expand it to allow delegation of NEPA authority to any state that consents to accept that authority (see, for example, H.R. 2160 , 112 th Congress). After the establishment of programs that would allow states to assume certain federal authority under NEPA (under both §§6004 and 6005 of SAFETEA), two primary factors were identified that may discourage states from assuming that authority. First, pursuant to SAFETEA, as a condition of assuming federal authority, Congress required a state to waive its right to sovereign immunity against actions brought by its citizens in federal court and consent to the jurisdiction of federal courts. That is, the state would become solely liable for complying with and carrying out the federal authority that it consents to assume. State legislatures have not wanted to take on this federal liability. One suggestion made by some stakeholders is that a process be established where states may take some authority for NEPA documentation approval, but liability remain with DOT. It is unclear how legislation could provide states with more autonomy in implementing their NEPA requirements, while minimizing DOT's liability for actions over which it has little control. Second, some stakeholders have expressed concern regarding regulations established by DOT in response to SAFETEA's directives that have to do with rights-of-way (ROW) acquisitions in states that choose to assume federal authority under NEPA. As discussed earlier, one of NEPA's primary requirements is that federal agencies consider the impacts of their actions before proceeding with them. The NEPA process cannot simply document a decision that was already made. Thus, federal funds cannot be used for ROW acquisitions (an action that would indicate a final decision) before the NEPA process is complete. Currently, states may make ROW acquisitions using state funds, but risk losing future federal funding for that purchase if the project ultimately involves an alternative that does not use that property (thereby placing state funds "at risk"). By assuming DOT's authority, a state would assume federal agency-level responsibility to comply with NEPA. DOT has found that would mean, in the state's capacity as a federal agency, the state would be precluded from making ROW acquisitions. Another legislative option relates to a desire for more "prompt action" from agencies outside DOT when those agencies are required to provide permits, approvals, analyses, or consultation. Methods to encourage prompt action, usually in the form of establishing deadlines on outside agencies, were debated during the development of TEA-21 and SAFETEA. Under SAFETEA's new environmental review requirements, DOT has developed a plan to coordinate outside agency participation in the environmental review process. However, DOT has limited ability to establish or enforce deadlines on other agencies, and surface transportation reauthorization is not likely to be the vehicle for such changes. Outside agencies participating in the NEPA process are doing so because they have jurisdiction by law, such as the Clean Air Act or Endangered Species Act. DOT has no authority over the implementation of those laws. Further, the laws applicable to a project, and the corresponding state, tribal, or federal agencies charged with implementing those laws, will vary from project to project. The ability of DOT to establish binding deadlines on a potentially wide ranging group of agencies would be challenging. Considering these limits to DOT's authority, a potential option in reauthorization would be to continue the process established under SAFETEA that allows DOT to approve state DOT requests to provide federal-aid highway or federal transit funds to state, tribal, or federal, agencies that support activities that contribute to expediting and improving the planning and delivery of transportation projects in that state. SAFETEA did not provide any additional funding for this purpose. Consequently, a state proposing to use this authority must take the funds out of its normal allocation of federal transportation funds. SAFETEA required greater consideration of environmental issues in the statewide and metropolitan planning processes. Moreover, some states have integrated transportation planning to a much greater extent with other planning efforts such as land use and natural resource preservation. Despite these changes, however, some believe they have not made much difference in speeding project delivery because of the uncertainty of applying these efforts in the NEPA process. One option in reauthorization for overcoming this problem is to create an Integrated Planning Pilot Project, under the Special Experiment Program authority that currently exists for FHWA. Perhaps beyond this is the idea for pursuing a programmatic approach to oversight, rather than one based on project by project review. Changes to Accelerate Highway Projects In addition to the efforts to streamline environmental review, there have been other past legislative changes and administrative actions dealing with the delays of the highway project delivery process. These include the encouragement by DOT of environmental-planning linkages (EPL) and the creation of its "Every Day Counts" (EDC) initiative, as well as the encouragement of innovative methods in contracting. The EDC Initiative aims to identify areas of concern in project delivery and to disseminate innovations and best practices that already exist to states and others to overcome them. EPL is one of the ten ways to shorten project delivery times as part of the EDC initiative. The others are: expanding use of programmatic agreements; legal sufficiency enhancements; use of in-lieu fee and mitigation banking; clarifying the scope of preliminary design; flexibilities in right-of-way; flexibilities in utility accommodation and relocation; enhance technical assistance on ongoing EISs; design-build; and construction manager/general contractor. Innovative contracting included FHWA's Special Experiment Project 14 (SEP-14) and Special Experiment Project 15 (SEP-15) and the changes in TEA-21 (Section 1307) that made design-build contracting a permissible method of contracting in the federal-aid highway program. Some new options for accelerating specific phases of highway projects include the process for acquiring right-of-way, the relocation of affected residents and businesses, and how to deal with utilities. Traditionally, construction bids are let after the purchase of right-of way. However, there have been proposals for FHWA to allow the bidding process and construction to begin while ROW is still being acquired. Typically in proposals of this type, the approval to proceed concurrently would not be a blanket approval, but would be contingent on the results of a risk analysis. Complying with the Uniform Relocation Assistance and Real Property Acquisition Act of 1970, as amended, when relocating residents and businesses is often argued to be cumbersome and time-consuming, in part, because the current law is interpreted to constitute a minimum requirement for states and localities. Consequently, there have been suggestions to allow states to use their own procedures, provided that FHWA has certified that a state's procedures properly protects property owners and tenants. In the case of delays resulting from utility relocation, one option would be to encourage better partnerships between DOTs and utilities. This might involve revising federal guidance and regulation to make it feasible for DOTs to do utility work themselves, by making it easier for DOTs to pay utilities for work, and allowing greater access for utility rights-of-way on transportation rights-of-way. Another option is to continue research on how to improve coordination between project developers and utility companies. Options for Accelerating Transit New Starts Projects In prior legislation Congress has made changes to the New Starts program with a view to speeding up the project delivery process. In SAFETEA, for example, Congress enacted the Small Starts program, in part, to simplify the application process for less expensive projects. SAFETEA also created a pilot project, the Public-Private Partnership Pilot Program, or "Penta-P," to see whether program simplification would increase private participation and risk-taking in project development, construction, and operation. To accelerate program approvals, FTA has offered regular training workshops to potential project sponsors and developed project delivery tools such as project requirements checklists. Going forward Congress may want to consider other ways to simplify and shorten the New Starts process, particularly for major New Starts projects. Options for programmatic changes to reduce the complexity of the process typically involve reducing the number of steps in the New Starts process and moving up the federal government's decision or signal of intent to fund a project to earlier in the process. One option would be to replace approval for entry into preliminary engineering with approval for entry into the New Starts program. According to this proposal, approval into the program would signal the federal government's intent to ultimately fund a project providing certain conditions are met. Another possibility is to eliminate the requirement for FTA to approve advancement into final design. To help manage projects through this abbreviated process there have been proposals for Project Development Agreements (PDAs). APTA argues: "the PDA should include schedules and roles for both FTA and the grantee and should define the criteria and conditions a project must meet to streamline and expedite overall project delivery and could be the basis for an Early System Work Agreement once the National Environmental Policy Act (NEPA) process is completed." Another option is for Congress to provide FTA with the ability to "fast-track" projects that are low-risk, because the project sponsor is experienced and other reasons, or that involve a relatively low share of federal funds. Critics worry that such changes may reduce the rigor of the evaluation process, ultimately leading to federal support of less beneficial projects. This may run counter to the current push for greater performance measurement in transportation programs. Simplifying the process by creating a low hurdle for entry into the New Starts pipeline also creates the possibility that FTA may receive a large number of project proposals that it would have to manage through the evaluation process to ultimate denial. Another possibility is that FTA will approve or intend to approve for funding many more projects than can be supported by the available funding. This may mean relatively quick funding approval for projects that then languish while waiting in line for more funding to be made available by Congress. In essence, the Small Starts program fast-tracks projects using relatively small amounts of federal funds. The downsides of fast-tracking are that problems might not be detected early in project development, that there may be charges of favoritism if some projects are treated to less scrutiny and quicker approval than others, and that some New Starts sponsors may have little experience in project development and construction. FTA already has the authority to implement management or rulemaking changes that might speed-up and improve the New Starts approval process. As noted earlier, many of these were identified in the study commissioned by FTA, and include defining project stages, overcoming organization conflicts within FTA, and improving the prioritization of project reviews. GAO stated back in 2008 that FTA is working to implement some of these recommendations. Congress might play an active role in overseeing the implementation of these improvements. Along these lines, it is possible that with more staff dedicated to reviewing New Starts proposals, FTA might be able to reduce the time it takes to evaluate projects. An option Congress might consider, therefore, is providing more funds for New Starts administration, although this might prove difficult in the current fiscal environment. Finally, the frequent issuance of policy and guidance changes by FTA is also believed to lead to project delay and additional costs because sponsors have to revise and resubmit project materials. To avoid this, some suggest that FTA apply these changes to future project submissions, although this may reduce FTA's ability to improve its oversight on existing projects. Congress might direct FTA on this issue. If Congress considers major changes to the New Starts approval process as part of surface transportation reauthorization legislation, it may wish to revisit the provisions in STAA that would have required FTA to approve a project for entry into project development if it has been chosen as the locally preferred alternative under the metropolitan transportation planning process. Once a project is approved for project development, the multi-step approval process is reduced to one step, the approval of a FFGA. STAA would also have done away with alternatives analysis required under the New Starts program, which is often seen as a duplication of the alternatives analysis required under the National Environment Policy Act (NEPA). It would have allowed the Secretary of Transportation the option to fast track some projects, and would have based the rigor of FTA's evaluation partly on the amount of federal assistance being sought by the applicant. The break point between a major New Start and a Small Start would have been raised from $75 million to $100 million in federal assistance. Projects requesting $25 million or less would have become exempt from the requirements of the program so that they could be advanced using a special warrant, presumably a written pledge of federal support if certain conditions are met.

Major highway and transit facilities can take somewhere on the order of 10 to 15 years to plan and build. The environmental review process required by the National Environmental Policy Act (NEPA) and other federal environmental laws and regulations is often cited as the main culprit for long delivery times. Available data and research, however, show that environmental review is typically not the greatest source of delay in surface transportation projects. Developing a community consensus on what to do, securing the funding, and dealing with affected residents and businesses, including utilities and railroads, also contribute to the long timelines required to complete certain projects. Project delay can occur during any of the five main phases in delivering major highway and transit projects: planning; preliminary design and environmental review; final design; right-of-way acquisition and utility relocation; and construction. If it wishes to address project delay in the pending reauthorization of surface transportation projects, Congress has several options that might broadly affect all phases of project delivery in both highway and transit projects. Other possible options are targeted to specific issues that affect just one or two phases of a highway or transit project. Broad options that Congress might consider for accelerating project delivery are devolving federal surface transportation funding and the associated federal requirements back to the states; creating an office within the Department of Transportation responsible for expediting project delivery; new initiatives for encouraging and rewarding collaboration between federal, state, and local agencies, such as a requirement in law for partnering plans, funding an awards program for outstanding collaboration, or creation of a special research and technical training center devoted to transportation project delivery. More narrowly tailored options for specific phases or modes include certifying states to use their own procedures to protect dislocated property owners and tenants; reducing the number of steps in the public transit New Starts program and the elimination of the alternatives analysis that is often seen as a duplication of the requirements in NEPA; providing the Federal Transit Administration with the ability to "fast-track" New Starts projects that are low-risk; creation of an Integrated Planning Pilot Project, under the Special Experiment Program authority that currently exists for the Federal Highway Administration; making permanent the Surface Transportation Project Delivery Pilot Program and expanding it to allow delegation of NEPA authority for highway projects to any state.

Introduction President George Washington set the precedent for making special, temporary diplomatic appointments in 1789 when he named Gouverneur Morris as a private agent to establish normal diplomatic relations with British officials. From that point on, the number of these temporary special representatives expanded and contracted, depending on each Administration's governing style and the issues at the time. As the United States became more deeply involved in world affairs, and as Presidents became more directly involved in international relations, the number of special appointments grew, particularly in the 20 th and 21 st centuries. In the 115 th Congress, the authority of the President and the Secretary of State to make or change temporary, special appointments of special envoys, representatives, coordinators, advisors, and related positions has emerged as an ongoing issue of interest. Congressional concern and scrutiny regarding these special appointments has occurred during previous Administrations, including those of Presidents William J. Clinton, George W. Bush, and Barack Obama. Critics of these special positions sometimes view them as a way to circumvent the Senate's constitutional prerogative to provide its advice and consent required for long-term positions at the Department of State and U.S. Agency for International Development (USAID), perhaps because the nominee or the position is controversial. Furthermore, such critics contend that these positions may (1) create tension or cause disputes over funding and resources with the regional and functional bureaus that would otherwise be tasked with addressing the issue at hand, (2) confuse foreign government officials regarding the importance of the issues on which the positions focus compared with other Administration policy priorities, and (3) make it harder for foreign officials to identify the correct point person representing the U.S. government on select topics. In contrast, proponents often view special appointments as a temporary, flexible tool that administrations can leverage quickly to draw attention and direct resources to a particular issue. Some proponents assert that if special envoy positions are folded into larger parts of the department, they may be overlooked and, as a result, the issues under the relevant envoy's purview may not receive the necessary attention. On August 28, 2017, Secretary Tillerson transmitted a letter to the Senate Committee on Foreign Relations that unveiled the department's plans to address special envoys. According to Department of State comments to the press, of the 66 positions outlined, 30 will be retained, 21 will be integrated into regional and functional bureaus, 9 will be eliminated, and 5 will be folded into existing positions. In addition, one position will be transferred to USAID. In his letter, Secretary Tillerson made note of concerns that special envoys can "circumvent the regional and functional bureaus that make up the core of the State Department." He asserted that his planned changes would empower regional and functional bureaus, create a more efficient State Department, and improve the department's ability to achieve critical foreign policy goals that are currently the responsibility of special envoys. The Administration proposed one of the following policy options for each special envoy position (see tables below to review specific proposals for each position): retain and expand the position; retain the position, with no changes; retain the position and staff, but realign them under a more appropriate bureau or office; retain the position and staff, dual-hat the position with an existing position, and keep its staff and functions aligned under its existing bureau or office; retain the position and staff, dual-hat the position with an existing position, and realign the position, staff, and functions under a more appropriate bureau or office; transfer the functions and staff of the position to USAID; remove the title of the position, but keep its staff and functions aligned under its existing bureau or office; remove the title of the position and realign staff and functions under a more appropriate bureau or office; or remove or retire the position. Congressional Actions While it is not unusual for Congress to express concern regarding the department's use of these temporary positions in the foreign policy arena, the 115 th Congress is particularly interested because of the Trump Administration's announced goals to reorganize the executive branch, including the Department of State and the U.S. Agency for International Development. On June 13 and 14, 2017, the Senate Committee on Foreign Relations and the House Committee on Foreign Affairs held budget hearings with Secretary of State Tillerson that indicated congressional interest in special envoy use. On July 17, 2017, the Senate Committee on Foreign Relations held a hearing with Deputy Secretary of State John Sullivan on the State Department FY2018 Reauthorization and Reorganization Plan. Extensive discussion focused on special envoys, representatives, coordinators, negotiators, and advisors (hereinafter referred to as special envoys or special appointments). Congressional interest in this issue has surfaced at additional hearings in the 115 th Congress. In July 2017, the Senate Foreign Relations Committee passed S. 1631 , the Department of State Authorities Act, Fiscal Year 2018. If enacted into law, this bill would limit the use of temporary foreign affairs appointments and require most appointees to be confirmed with the advice and consent of the Senate. Title III, Section 301, of S. 1631 would require that the Secretary of State provide a report, not later than 30 days after enactment of the bill, comprising recommendations regarding whether to maintain each existing "Special Envoy, Special Representative, Special Coordinator, Special Negotiator, Envoy, Representative, Coordinator, or Special Advisor" that is not expressly authorized by a provision of law enacted by Congress; no later than 90 days after the issuance of the aforementioned report, the Secretary of State present any "Special Envoy, Special Representative, Special Coordinator, Special Negotiator, Envoy, Representative, Coordinator, or Special Advisor" that the department intends to retain but is not expressly authorized by a provision of law enacted by Congress to the Senate Committee on Foreign Relations for the advice and consent of the Senate; the Secretary can establish or maintain "Special Envoy, Special Representative, Special Coordinator, Special Negotiator, Envoy, Representative, Coordinator, or Special Advisor" positions provided that the appointment is established for a specified term and presented to the Senate Committee on Foreign Relations for the advice and consent of the Senate within 90 days of the appointment; the Secretary of State may maintain or establish temporary "Special Envoy, Special Representative, Special Coordinator, Special Negotiator, or Special Advisor" positions for a limited period of no longer than 180 days without the advice and consent of the Senate as long as the Secretary notifies the Senate Committee on Foreign Relations at least 15 days prior to the appointment and certifies that the position is not expected to demand the exercise of significant authority pursuant to U.S. law (the Secretary may renew any position established under these authorities provided that the Secretary complies with these notification requirements); beginning not later than 120 days following enactment, no funds may be obligated or expended for any "Special Envoy, Special Representative, Special Coordinator, Special Negotiator, Envoy, Representative, Coordinator, or Special Advisor" positions exercising significant authority pursuant to U.S. law that is not being served by an individual who has been presented to the Senate Committee on Foreign Relations for advice and consent of the Senate; in addition, funds may not be obligated or expended for any staff or resources related to such positions until the appointed individual has been presented; beginning not later than 120 days following enactment, no funds may be obligated or expended for temporary positions (those lasting for a duration of no longer than 180 days) or any related staff and resources unless the Secretary of State has complied with the notification process; no "Special Envoy, Special Representative, Special Coordinator, Special Negotiator, Envoy, Representative, Coordinator, or Special Advisor" authorized by a provision of law enacted by Congress shall be appointed absent the advice and consent of the Senate (with the exception of the Special Coordinator for Tibetan Issues); the congressional authorization for the Special Representative and Policy Coordinator for Burma shall be repealed. Separate provisions of S. 1631 provide congressional authorization for the Ambassador-at-Large for Global Women's Issues position and, separately, give the Ambassador-at-Large for International Religious Freedom the authority to supervise any special envoy, representative, or office, including the Special Envoy to Monitor and Combat Anti-Semitism, with responsibility for protecting international religious freedom, protecting religious minorities, or advising the Secretary of State on matters relating to religion. In September 2017, the Senate Committee on Appropriations passed S. 1780 , the "Department of State, Foreign Operations, and Related Programs Appropriations Act, 2018." If enacted, none of the funds appropriated in the bill or in any prior law could be used to downsize, downgrade, consolidate, close, move, or relocate to another United States Government agency several offices and positions, including the Office of the Special Presidential Envoy for Hostage Affairs; the Office of the Special Coordinator for Global Criminal Justice Issues; the Coordinator for Cyber Issues; the Special Advisor for Religious Minorities in the Near East and South Central Asia; the Coordinator for Sanctions Policy; the Special Envoy for Holocaust Issues; the Office of Global Women's Issues; the Special Envoy for the Human Rights of LGBTI Persons; and the Special Advisor for International Disability Rights. The committee report accompanying the bill noted that, " the August 28, 2017, notification on special envoys and representatives raises further questions on the integrity of the [reorganization of the Department of State] process, as the Committee notes that any proposal for significant personnel changes should be a component of the [broader] reorganization or redesign." In addition, the 114 th Congress passed the Department of State Authorities Act, Fiscal Year 2017 ( P.L. 114-323 ), which required the Secretary of State to submit a report to the Senate Committee on Foreign Relations and the House Committee on Foreign Affairs comprising a "tabulation of the current names, ranks, positions, and responsibilities of all special envoy, representative, advisor, and coordinator positions at the Department, with a separate accounting of all such positions at the level of Assistant Secretary (or equivalent) or above." In addition, for each position so identified, the department was required to provide information including the date on which each position was created, the mechanism by which each position was created, the current department official to which each position reports, and the total number of staff assigned to support each position. The Department of State provided this report to the committees in April 2017. Key Positions Temporary positions are often created in response to congressional or public demands for increased Department of State attention to a specific global issue, event, or crisis. These positions may be created to circumvent the advice and consent role of the Senate, among other reasons, although Congress has established some of these positions in statute. The following tables identify key positions, including special envoy, representative, coordinator, advisor, ambassador-at-large, and similar positions that the State Department identified in an April 2017 report transmitted to the Senate Committee on Foreign Relations and the House Committee on Foreign Affairs; additional positions that CRS identified; descriptions for each position; and the Trump Administration's proposed plan for each position as described in Secretary Tillerson's August 28, 2017, letter. Special Envoys The Foreign Affairs Manual (FAM) defines a special envoy as "one designated for a particular purpose, such as the conduct of special negotiations and attendance at coronations, inaugurations, and other state ceremonies of special importance." The designation is temporary. While U.S. law does not include a blanket requirement that the Senate provide advice and consent for the appointment of special envoys, it does require advice and consent for select special envoys. The department's two "special envoy and coordinator" positions, the Special Envoy and Coordinator of the Global Engagement Center and the Special Envoy and Coordinator for International Energy Affairs, are at least in part authorized by statute. In addition, the Department of State has established two existing special presidential envoys, the Special Presidential Envoy for the Global Coalition to Counter Islamic State of Iraq and Syria (ISIS) and the Special Presidential Envoy for Hostage Affairs. The responsibilities of the Special Presidential Envoy for Hostage Affairs are provided through Executive Order 13698 and Presidential Policy Directive 30. According to the Department of State, the role of the Special Presidential Envoy for the Global Coalition to Counter ISIS is to help coordinate all aspects of U.S. policy related to destroying ISIS. This position was established pursuant to Department of State general authorities. Both special presidential envoys are housed within the Office of the Secretary and report to the Secretary of State. See Table 1 for the status of special envoys, special envoy and coordinators, special presidential envoys, and U.S. special envoys. Special Representatives The roles, responsibilities, and protocol rankings of several special representative positions in the Department of State are addressed in U.S. law. For example, 22 U.S.C. §2567 authorizes the President to appoint, with the advice and consent of the Senate, "special representatives of the President for arms control, nonproliferation, and disarmament matters." This law further stipulates that "each Presidential Special Representative shall hold the rank of ambassador." The Foreign Affairs Manual provides information regarding the roles and responsibilities of select special representatives not mandated by statute. See Table 2 for the status of special representatives and U.S. special representatives. Coordinators Neither U.S. law nor the Foreign Affairs Manual offers a basic definition or generic overview of the roles, responsibilities, and protocol for the ranking of coordinators, lead coordinators, senior coordinators, special coordinators, or U.S. coordinators (hereinafter, coordinators) in the Department of State. However, the duties of the congressionally authorized coordinator positions are provided in statute. When not detailed in the FAM, descriptions of the coordinator positions that are not congressionally authorized are sometimes available on the Department of State's website. See Table 3 for the status of coordinators. Advisors U.S. law does not define the general roles, responsibilities, and protocol ranking of senior advisors and special advisors in the Department of State. The Foreign Affairs Manual makes note of the general responsibilities of special advisors assigned to the department's regional bureaus, dividing them into the categories of labor advisors, economic advisors, political-military advisors, regional planning advisors, and United Nations advisors. The FAM adds that "some bureaus combine a number of these advisors into one office unit under a director" and includes information about the responsibilities of public affairs advisors assigned to both regional and functional bureaus. However, these broader guidelines do not appear to apply generally to those advisors placed outside of regional bureaus. Senior advisors and special advisors in functional bureaus tend to have significant influence over a narrow functional area, while senior advisors and special advisors in regional bureaus support a broader scope of bureau activities with less leadership responsibility. This distinction may explain why the senior advisors and special advisors identified by the department and listed below are located outside regional bureaus. Position descriptions for some department advisors are available on the department's website. See Table 4 for the status of senior advisors and special advisors. Ambassadors-at-Large Ambassadors-at-large are "appointed by the President and serve anywhere in the world to help with emergent problems, to conduct special or intensive negotiations, or serve in other capacities, as requested by the Secretary or the President." As required by 22 U.S.C. §3942(a)(1), the appointment of Ambassadors-at-large is subject to the advice and consent of the Senate. Ambassadors-at-large generally rank immediately below assistant secretaries of state in terms of protocol. They are perceived within the department as managers of crucial yet narrow subject matters, while assistant secretaries have much broader responsibilities. While the Coordinator for Counterterrorism, the Coordinator of U.S. Government Activities to Combat Global HIV/AIDS, the Special Representative for Global Health Diplomacy, and the Special Coordinator for Global Criminal Justice Issues do not have the position title of "ambassador-at-large," the department currently provides these positions that rank. See Table 5 for the status of ambassadors-at-large. Miscellaneous Positions In addition to the position groups noted above, several uniquely titled positions exist within the Department of State identified by both the American Foreign Service Association (AFSA) and the department as related to special envoys, representatives, coordinators, and related positions. Many of these positions are authorized by statute, and their authorities can be found therein. Nevertheless, no statutory authorization exists for the lone "lead coordinator" position, the "Lead Coordinator for Iran Nuclear Implementation" post. The position is noted in the Foreign Affairs Manual only as being housed within the Office of the Secretary. A description of the position is available in remarks made by then-Secretary Kerry in September 2015. Similarly, no statutory authorization exists for the lone "senior official" position, the Asia Pacific Economic Cooperation (APEC) Senior Official. The position title reflects the institutional infrastructure of APEC, wherein each member state designates a "senior official" who, according to APEC, participates in guiding the organization's working level activities and projects under the direction of APEC Ministers. The duties of the Senior Official for APEC are defined in the FAM. Descriptions for other positions listed below can be found on the department's website. See Table 6 for the status of miscellaneous positions. Compensation Special envoys and related position officeholders are appointed to government service through various avenues, as reflected by the diverse means of pay through which officeholders are compensated. According to the Department of State, these include the Senior Executive Service (SES) pay rates, the Executive Schedule (EX) and the General Schedule (GS) pay rates, and, separately, rates of pay for those appointed as Experts (ED), Consultants (EF), and in senior-level positions (SL). These means of pay, which are authorized by statute, are applied not only to personnel within the Department of State, but also to those elsewhere in the federal government. Special envoys who serve as ambassadors-at-large, assistant secretaries and under secretaries are required by statute to be compensated through the Executive Schedule. According to information transmitted by the Department of State, officeholders compensated through these means are both career FSOs and noncareer officials. Other officeholders are compensated through the Senior Foreign Service (SFS) and Foreign Service (FS) pay rates, whereas others are compensated through statutory guidelines proscribing salaries to chiefs of mission. These means of compensation are authorized pursuant to the Foreign Service Act of 1980 ( P.L. 96-465 , as amended; hereinafter, the Foreign Service Act). The Foreign Service Act authorizes the Secretary of State to make "limited appointments" to the Senior Foreign Service of individuals who are not career FSOs under certain conditions. Therefore, special envoys and related officeholders compensated under SFS and FS pay rates are both career FSOs and noncareer members of the Senior Foreign Service. Issues for Congress Many in the foreign affairs community and in Congress have differing views of the advantages and disadvantages of special appointments. In the 1990s, for example, many believed that the Clinton Administration had overused special appointments (for those not established by statute). Early in George W. Bush's terms of office, his Administration announced, in contrast to the previous Administration, that it would avoid the use of special appointments. However, by the end of the Bush Administration, the number of special appointments had matched those under the Clinton Administration. Another factor in appointing special envoys is the sense of urgency regarding a given issue, as determined by Members of Congress and interest groups that may be pressing their representatives and the Administration to elevate their concerns—either through Congress or via the Administration. According to one study, "in nearly every case we examined over several Administrations, the impetus to appoint a [special envoy/special representative] was a combination of congressional pressure and the Administration's readiness to give the matter higher-level attention." In the Senate Committee on Foreign Relations on July 17, 2017, Chairman Corker stated, "Special Envoys do more harm than good.... I think that they hurt the culture of our professional Foreign Service officers candidly because I think they see them in many cases as a work around.... I hope that we'll do away with all of them that are unnecessary. And I think most of them are unnecessary." Following issuance of the Trump Administration's plans regarding special envoys on August 28, 2017, Senator Corker reiterated his concern regarding the accumulation of special envoys at the department. He added that the authorization bill the committee passed in July "recognizes that urgent developments may require the creation of a special envoy" and that he looked forward to examining the proposed changes in detail. At the same hearing, Ranking Member Benjamin Cardin said that "we have too many special envoys. On the other hand, there are areas that I want to have special attention, where I don't think you get it unless there's a point person within the State Department to deal with it.... " Following the publication of Secretary Tillerson's letter outlining the department's plans with regard to special envoys, Senator Cardin commented, "I agree with Secretary Tillerson that there is room for examining the use of our Special Envoys ... while I support creating a more efficient and effective Department, we must be sure that the Administration is not eliminating Envoys who are critical to our ability to advance our interests and our values." There are numerous arguments for and against the use of special envoys—both in general and with regard to specific policy issues. Which positions are necessary or unnecessary may differ from one Member of Congress to another or from one Administration to another. Potential Advantages Proponents of special envoys espouse several perceived benefits of such positions, including the notions that such positions are short-term and flexible and can activate U.S. response more easily than having to go through regular channels; are a quick tool that the Department of State can use when a crisis erupts; indicate high-level Administration interest in a particular issue; help an ambassador or an assistant secretary who does not have the time or resources to deal with a specific issue within a country; can coordinate a wider range of aspects that go beyond the country or region under the purview of an ambassador or assistant secretary; can represent directly the views of the President or Secretary of State and, thus, give the U.S. representative greater status (than an assistant secretary, for example) and access to higher level foreign government officials; are generally less expensive than a full-time permanent government employee, whose position may be difficult to eliminate at the end of an Administration; could engage, in certain cases, with enemies or others that regular diplomats would or could not; and address issues that Congress or interest groups are calling attention toward. Potential Disadvantages Critics argue that special envoys, especially if overused, can create concerns. Some concerns are that special appointments could undermine the ambassador in the country, the assistant secretary of state, or cause confusion among foreign government officials and even within the department itself as to who is the point person on certain issues; may create tension between themselves and the ambassador or the assistant secretary by assuming a large share of scarce resources dedicated to a particular issue or taking on a special role and leaving the routine work to the career employees; have a lack of accountability to Congress and the American public, as they frequently work directly for the President or Secretary of State; have, in the past, hired large numbers of staff, while not being able to take advantage of qualified Foreign Service Officers because of timing and a perception among Foreign Service Officers that serving under special envoys does little to advance their careers; could undermine the consistency of the Administration's policy and/or could distort the importance of the issue, as compared with other ongoing foreign policy issues; in some cases are appointed from outside the foreign policy arena and are unable to operate effectively due to a lack knowledge of key policy players in Washington and the means through which the department's bureaucracy operates; tend to remain in place at the department long after the issues for which they were created to address are resolved; and if eliminated after they are created, could signal unintentionally to the rest of the world that the United States is downplaying or ignoring the issue area for which the special representative was responsible. Congressional Outlook Congress has addressed issues arising from the use of special appointments by requiring the Department of State to report to Congress on the existing use of these positions, holding hearings, and including language in legislation (currently in the Senate) that would require many appointments to be made with the advice and consent of the Senate. Other options might include limiting the scope of individuals eligible to serve as special envoys through several related means, including proscribing limitations on the volume of appropriated funds that can be expended for the compensation of special envoys and related officials; exemptions could be carved out for the remuneration of special pay differentials and death gratuities as needed; and requiring individuals who serve in these positions to be career members of the Senior Foreign Service or the Foreign Service appointed pursuant to 22 U.S.C. §3492(a)(1), which requires career members of the Senior Foreign Service and Foreign Service Officers to be appointed with the advice and consent of the Senate; exemptions could be carved out for members of the Senior Executive Service, detailees from other federal agencies, or others as needed. Congressional perspectives on these issues over the 115 th Congress may evolve as the Secretary of State and the Trump Administration as a whole continue to pursue and implement specific aspects of State Department and executive branch reorganization.

The 115th Congress has expressed interest in monitoring the use of special envoys, representatives, and coordinator positions by the Department of State, as well as any changes to their status. Special, temporary diplomatic appointments originated during the presidency of George Washington, and the number of special representatives has expanded and contracted since then. Tabulating the precise number of these positions is difficult, however, because some special positions have fallen into disuse over time and were never officially eliminated. Administration Action on Special Positions It is not unusual for Congress to express concern or assert legislative prerogatives regarding the department's use of temporary positions in the foreign policy arena. These positions may come under particular scrutiny in the 115th Congress in light of the Trump Administration's ongoing effort to reorganize the executive branch, including the Department of State and the U.S. Agency for International Development. On August 28, 2017, Secretary of State Rex Tillerson transmitted a letter detailing the Trump Administration's proposed plans to expand, consolidate, or eliminate several temporary special envoy positions, while keeping others in place without any changes. For those positions that are authorized in statute, congressional action may be required for the Administration to move forward with its proposed changes. Congressional Action on Special Positions The 115th Congress has also taken action to address the issue of special envoys. For example, on July 17, 2017, the Senate Committee on Foreign Relations held a hearing with Deputy Secretary of State John Sullivan in which the use of such positions was discussed extensively. Later in July, the committee passed an authorization bill (S. 1631) that, if enacted, would include new limitations pertaining to the use of special envoys, such as provisions subjecting the appointment of individuals to such positions to the advice and consent of the Senate. Furthermore, the Senate Committee on Appropriations passed a State, Foreign Operations, and Related Programs appropriations bill (S. 1780) that would prohibit the use of funds to downsize, downgrade, consolidate, close, move, or relocate (to another federal agency) select special envoys or their offices. Some Members of Congress perceive congressional input regarding the use of special envoys as both important in its own right and a crucial component of the broader need for Congress to assert its prerogatives as the Trump Administration continues to reorganize the executive branch and the Department of State. Scope of This Report This report provides background on the use of special envoys, representatives, and coordinators (primarily within the foreign affairs arena; for the most part, interagency positions are not included). It identifies various temporary positions, their purpose, and existing authorities. The report presents commonly articulated arguments for and against the use of these positions and issues for Congress going forward. The scope of this report is limited to the special envoy and related positions identified by the Department of State in a 2017 report to Congress and additional selected positions identified by CRS. This report may be updated to reflect congressional action.

Introduction This is an overview of the most prominent features of federal habeas corpus law. Federal habeas corpus as we know it is by and large a procedure under which a court may review the legality of an individual's incarceration. It is most often invoked after conviction and the exhaustion of the ordinary means of appeal. It is at once the last refuge of scoundrels and the last hope of the innocent. It is an intricate weave of statute and case law whose reach has flowed and ebbed over time. Prior to enactment of the Antiterrorism and Effective Death Penalty Act (AEDPA), the most recent substantial recasting of federal habeas law and the Supreme Court cases that immediately preceded it, it was said that federal habeas was "the most controversial and friction producing issue in the relation between federal and state courts.... Commentators [were] critical, ... federal judges [were] unhappy, ... state courts resented [it], . . [and] prisoners thrive[d] on it as a form of occupational therapy.... " The AEDPA was passed and yet the debate goes on. Judges, academics and political figures regularly urge that the boundaries for federal habeas be readjusted; some would make it more readily available; others would limit access to it. Debate has been particularly intense in capital punishment cases. There, unlike most other cases, the decisions of the state courts stand unexecuted while they await completion of federal habeas corpus proceedings; there, unlike most other cases, an erroneously executed sentence is beyond any semblance of correction or compensation. The AEDPA offers states expeditious habeas procedures in capital cases under certain circumstances; no state has yet been able to take full advantage of the offer, and as a consequence, Congress adjusted the method of determining qualification in the USA PATRIOT Improvement and Reauthorization Act. An unsuccessful endeavor to curtail access of Guantanamo Bay detainees to habeas relief provided the Supreme Court with an opportunity to further explain the scope of Congressional authority over habeas jurisdiction under the suspension clause. History Origins At early common law, much of the business of the courts began with the issuance of one of several writs, many of which have survived to this day. The writs were a series of written order forms, issued by the court in the name of the king, commanding the individual to whom they were addressed to return the writ to the court for the purpose stated in the writ. The purpose was generally reflected in the name of the writ itself. Thus for example, a subpoena ad testificandum was a command to return the writ to the court at a specified time and place, "sub poena," that is, "under penalty" for failure to comply, and "ad testificandum" that is, "for the purpose of testifying." Just as the writs of subpoena have been shortened in common parlance to "subpoena," references to the several writs of habeas corpus were shortened. The habeas corpus writs were all issued by the courts in the name of the king and addressed to one of the king's officials or a lower court. The writs commanded the officers of the Crown to appear before the court with the "corpus" ("body") of an individual named in the writ, whom "habeas" ("you have" or "you are holding"), for the purpose stated in the writ. Thus for instance, the writ of habeas corpora juratorum commanded the sheriff to appear before the court having with him or holding the bodies of potential jurors. By the colonial period, "habeas corpus" had come to be understood as those writs available to a prisoner, held without trial or bail or pursuant to the order of a court without jurisdiction, ordering his jailer to appear with the prisoner before a court of general jurisdiction and to justify the confinement. Early American Experiences Colonial America was well acquainted with habeas corpus and with occasional suspensions of the writ. The drafters of the United States Constitution, after enumerating the powers of Congress, inserted the limitation that "the privilege of the Writ of Habeas Corpus shall not be suspended, unless when in Cases of Rebellion or Invasion the public Safety may require it." The Act that created the federal court system empowered federal judges to issues writs of habeas corpus "and other writs not specially provided for by statute, which may be necessary for the exercise of their respective jurisdictions.... [a]nd ... to grant writs of habeas corpus for the purpose of an inquiry into the cause of commitment." The power was limited, however, in that "writs of habeas corpus shall in no case extend to prisoners in gaol, unless where they are in custody, under or by colour of the authority of the United States, or are committed for trial before some court of the same, or are necessary to be brought into court to testify." The Supreme Court further clarified federal habeas corpus law when in Ex parte Bollman , 8 U.S.(4 Cranch) 75 (1807), it held that the power of the federal courts to issue the writ was limited to the authority vested in them by statute. The courts had no common law or inherent authority to issue writs of habeas corpus. While the common law might provide an understanding of the dimensions of the writ, the power to issue it depended upon and was limited by the authority which Congress by statute vested in the courts, id . at 93. Consistent with the common law, the writ was available to those confined by federal officials without trial or admission to bail, but was not available to contest the validity of confinement pursuant to conviction by a federal court of competent jurisdiction, even one whose judgment was in error. Congress expanded the authority it had given the federal courts in response to the anticipated state arrest of federal officers attempting to enforce an unpopular tariff in 1833 and again in 1842 in response to British protest over the American trial of one of its nationals. The writ was made available to state prisoners held because of "any act done, or omitted to be done, in pursuance of a law of the United States," and to state prisoners who were foreign nationals and claimed protection of the Act of State doctrine. The federal writ otherwise remained unavailable for prisoners held under state authority rather than the authority of the United States. Birth of the Modern Writ In 1867, Congress substantially increased the jurisdiction of federal courts to issue the writ by authorizing its issuance "in all cases," state or federal, "where any person may be restrained of his or her liberty in violation of the constitution, or of any treaty or law of the United States." Originally, habeas corpus permitted collateral attack upon a prisoner's conviction only if the sentencing court lacked subject matter jurisdiction. Shortly after 1867, however, the Supreme Court began to recognize a growing number of circumstances where courts were said to have acted beyond their jurisdiction because some constitutional violation had extinguished or "voided" their jurisdiction. This development was of limited benefit to most prisoners, since most were confined under state convictions and relatively few of the rights guaranteed by the Constitution were thought to apply against the states. Even when a constitutional claim was available, state prisoners could not be granted federal habeas relief until all possibility of state judicial relief—trial, appellate, and postconviction—had been exhausted. Ebb and Flow Eventually two developments stimulated new growth. First, the jurisdictional tests, cumbersome and somewhat artificial, were discarded in favor of a more generous standard. Later, the explosion in the breadth of due process and in the extent of its application to the states multiplied the instances when a state prisoner might find relief in federal habeas corpus. Evolution began with two cases which reached the Court early in the last century and in which petitioners claimed that mob rule rather than due process of law led to their convictions and death sentences. The Court in Frank v. Mangum , 237 U.S. 309 (1915), denied the writ because Frank's claim had already been heard and rejected as part of the state appellate process. The Court did suggest, however, that a state court might lose jurisdiction by virtue of a substantial procedural defect, such as mob domination of the trial process, and that federal habeas relief would be available to anyone convicted as a consequence of the defect. It also indicated that the question of whether relief should be granted was not to be resolved solely by examination of the trial court record, as had historically been the case, but upon federal court consideration of the entire judicial process which pre-dated the petition. If Frank had been intended as a warning, it appears to have been in vain, for soon thereafter the Court confronted yet another conviction allegedly secured by mob intervention. In spite of the fact that the state appellate courts had already heard and denied the petitioners' claims, the Court ordered the lower federal court in which relief had been initially sought to make its own determination of the validity of petitioners' claims of procedural defect. Soon thereafter it became clear that federal habeas was not limited to instances of mob intervention or other external contaminants of the judicial process; it reached deficiencies from within the process which rendered the process so unfair as to result in a loss of life or liberty without due process of law, whether they took the form of a prosecutor's knowing use of perjured testimony and suppression of evidence that would impeach it, or of a denial of the assistance of counsel in criminal prosecutions, or of confessions or guilty pleas secured by government coercion. Early in the 1940s, the Court stopped requiring that an alleged constitutional violation void the jurisdiction of the trial court before federal habeas relief could be considered. Federal judges soon complained that federal prisoner abuses of habeas had become "legion." Congress responded by incorporating into the 1948 revision of the judicial code the first major revision of the federal habeas statute since 1867. State courts exerted little pressure for revision of the federal habeas statute in 1948. Although habeas relief had been available to state prisoners by statute since 1867 and subsequent decisions seemed to invite access, the hospitality that federal habeas extended to state convicts with due process and other federal constitutional claims had not yet become apparent. This all changed over the next two decades. As noted earlier, some of the change was attributable to expansive Supreme Court interpretations of the procedural guarantees of the Bill of Rights and of the extent to which those guarantees were binding upon the states through the due process clause of the Fourteenth Amendment. Federal habeas was the vehicle used to carry much of the due process expansion to the states. After Brown v. Allen , 344 U.S. 443 (1953), there was little doubt that the federal habeas corpus statute afforded relief to state prisoners whose convictions were tainted by constitutional violations, both those violations that would void state court jurisdiction and those that would not. The majority position in Brown on the impact of the Court's denials of certiorari contributed to the expansion of federal habeas as well. When the Court refused to review a state case by denying certiorari, it thereby left the decision of the state's high court intact. If this should be read as the Court's endorsement of the state's disposal of constitutional issues as part of the normal appellate process, it would seem to chill any subsequent lower federal court reconsideration of those issues under habeas. Brown precludes such a result. The Court's denials of certiorari meant no more than that the Court had declined to hear the case; no conclusions on the Court's view of the issues raised could be drawn from its declinations. Moreover, in subsequent habeas proceedings, the lower federal courts were not bound by state resolution of federal constitutional issues, even if the state courts had given applicants for the writ a full and fair hearing on the very same issues raised on habeas. But the requirement to exhaust state remedies remained. Brown held that a state prisoner, seeking habeas relief, could not satisfy the requirement merely by showing that a remedy, once open to him, had been lost by his own inaction. The Court eased the exhaustion restriction considerably in Fay v. Noia , 372 U.S. 391 (1963), in which it held that federal courts were permitted, but not required, to deny habeas for an intentional failure to exhaust state remedies. At the same time, it articulated circumstances under which the evidentiary hearing, found permissible in Brown , would be mandatory, Townsend v. Sain , 372 U.S. 293 (1963). Relaxation of the default bar coupled with expansion of the circumstances under which constitutional issues might be reconsidered forecast the possibility of repetitious habeas applications and of lower court efforts to discourage repetition. The Court and Congress anticipated and combined to control such eventualities. Within weeks of Noia and Townsend , the Court announced the rule applicable for federal prisoners in Sanders v. United States , 373 U.S. 1 (1963). "Controlling weight may be given to denial of a prior application for federal habeas corpus ... relief only if (1) the same ground presented in the subsequent application was determined adversely to the applicant on the prior application, (2) the prior determination was on the merits, ... (3) the ends of justice would not be served by reaching the merits of the subsequent application" and (4) any new ground presented in the subsequent application had been deliberately abandoned or withheld earlier under the same test used in state cases for default. 373 U.S. at 15, 17-18. Congress closed the circle in 1966 by amending the federal habeas statute to apply a rough equivalent of the Sanders rule to state prisoner petitions for federal habeas, 28 U.S.C. 2244, 2254. The few years which followed Sanders probably stand as the high water mark for the reach of federal habeas corpus. But by the early seventies, the Supreme Court had begun to announce a series of decisions grounded in the values of respect for the work of state courts and finality in the process of trial and review. Thus, for example, state prisoners who fail to afford state courts an opportunity to correct constitutional defects are barred from raising them for the first time in federal habeas in the absence of a justification. Nor may they scatter their habeas claims in a series of successive petitions. Those who plead guilty and thereby waive, as a matter of state law, any constitutional claims, may not use federal habeas to revive them. And with narrow exception, state prisoners may not employ federal habeas as a means to assert, or retroactively claim the benefits of, a previously unrecognized interpretation of constitutional law (i.e., a "new rule"). Contemporary Limits on the Exercise of Habeas Jurisdiction The Antiterrorism and Effective Death Penalty Act of 1996, P.L. 104-132 , 110 Stat. 1214 (1996) (AEDPA), codified, supplemented, and expanded upon the Court's limitations on the availability of the writ. AEDPA was the culmination and amalgamation of disparate legislative efforts, including habeas proposals, some them stretching back well over a decade. Its adjustments help define the contemporary boundaries of the current writ. Deference to State Courts Before passage of the AEDPA, state court interpretations or applications of federal law were not binding in subsequent federal habeas proceedings. The debate that led to passage was marked by complaints of delay and wasted judicial resources countered by the contention that federal judges should decide federal law. Out of deference to state courts and to eliminate unnecessary delay, the AEDPA bars federal habeas relief on a claim already passed upon by a state court "unless the adjudication of the claim—(1) resulted in a decision that was contrary to, or involved an unreasonable application of clearly established Federal law, as determined by the Supreme Court of the United States; or (2) resulted in a decision that was based on an unreasonable determination of the facts in light of the evidence presented in the state court proceeding," 28 U.S.C. 2254(d). For purposes of section 2254, an unreasonable application of clearly established federal law, as determined by the Supreme Court "occurs when a state court 'identifies the correct governing legal principle from [the] Court's decisions but unreasonably applies that principle to the facts of'" the case before it. Moreover, the Court has said on several occasions, the question before the federal courts when they are confronted with a challenged state court application of a Supreme Court recognized principle is not whether the federal courts consider the application incorrect but whether the application is objectively unreasonable. On the other hand, for purposes of section 2254(d)(1), a decision is "contrary to ... clearly established federal law, as determined by the Supreme Court," "if it applies a rule that contradicts the governing law set forth in the [Supreme Court's] cases, or if it confronts a set of facts that is materially indistinguishable from a decision of [the] Court but reaches a different result." Obviously, a state court determination of a question which relevant Supreme Court precedent leaves unresolved can be neither contrary to, nor an unreasonable application, of Court precedent. The Court has had fewer occasions to construe the unreasonable-determination-of-facts language in section 2254(d)(2). Several cases have involved the prosecution's purportedly discriminatory peremptory jury strikes in which context the Court declared that, "a federal habeas court can only grant [such a] petition if it was unreasonable to credit the prosecutor's race-neutral explanations for the Batson challenge. State-court factual findings, moreover, are presumed correct; the petitioner has the burden of rebutting the presumption by 'clear and convincing evidence.' §2254(e)(1)." Exhaustion . The deference extended to state courts reaches not only their decisions but the opportunity to render decisions arising within the cases before them. State prisoners were once required to exhaust the opportunities for state remedial action before federal habeas relief could be granted, 28 U.S.C. 2254(b),(c) (1994 ed.). This "exhaustion doctrine is principally designed to protect the state courts' role in the enforcement of federal law and prevent disruption of state judicial proceedings. Under our federal system, the federal and state courts [are] equally bound to guard and protect rights secured by the Constitution," Ex parte Royall , 117 U.S. 241, 251 (1886). Because "it would be unseemly in our dual system of government for a federal district court to upset a state court conviction without an opportunity to the state courts to correct a constitutional violation," federal courts apply the doctrine of comity, which "teaches that one court should defer action on causes properly within its jurisdiction until the courts of another sovereign with concurrent powers, and already cognizant of the litigation, have had an opportunity to pass upon the matter," Darr v. Burford , 339 U.S. 200, 204 (1950). "A rigorously enforced total exhaustion rule encourage[s] state prisoners to seek full relief first from the state courts, thus giving those courts the first opportunity to review all claims of constitutional error. As the number of prisoners who exhaust all of their federal claims increases, state courts may become increasingly familiar with and hospitable toward federal constitutional claims. Equally important, federal claims that have been fully exhausted in state courts will more often be accompanied by a complete factual record to aid the federal courts in their review," Rose v. Lundy , 455 U.S. 509, 518-19 (1982). The AEDPA preserves the exhaustion requirement, and reinforces it with an explicit demand that a state's waiver of the requirement must be explicit. On the other hand, Congress appears to have been persuaded that while as a general rule constitutional questions may be resolved more quickly if state prisoners initially bring their claims to state courts, in some cases where a state prisoner has mistakenly first sought relief in federal court, operation of the exhaustion doctrine may contribute to further delay. Hence, the provisions of 28 U.S.C. 2254(b)(2) authorize dismissal on the merits of mixed habeas petitions filed by state prisoners. Successive Petitions The AEDPA bars repetitious habeas petitions by state and federal prisoners, 28 U.S.C. 2244(b). Under earlier law, state prisoners could not petition for habeas relief on a claim they had included or could have included in earlier federal habeas petitions unless they could show "cause and prejudice" or a miscarriage of justice. Cause could be found in the ineffective assistance of counsel, Kimmelman v. Morrison , 477 U.S. 365 (1986); the subsequent development of some constitutional theory which would have been so novel at the time it should have been asserted as to be considered unavailable, Reed v. Ross , 468 U.S. 1 (1984); or the discovery of new evidence not previously readily discoverable, Amadeo v. Zant , 486 U.S. 214 (1988). A prisoner unable to show cause and prejudice might nevertheless be entitled to federal habeas relief upon a showing of a "fundamental miscarriage of justice," that is, that "the constitutional error probably resulted in the conviction of one who was actually innocent." "To establish the requisite probability, the petition must show that it is more likely than not that no reasonable juror would have convicted him in the light of the new evidence." The Court's pre-AEDPA tolerance for second or successive habeas petitions from state prisoners was limited; the tolerance of the AEDPA is, if anything, more limited. "If the prisoner asserts a claim that he has already presented in a previous federal habeas petition, the claim must be dismissed in all cases." A claim not mentioned in an earlier petition must be dismissed unless it falls within one of two narrow exceptions: (A) it relies on a newly announced constitutional interpretation made retroactively applicable; or (B) it is predicated upon on newly discovered evidence, not previously available through the exercise of due diligence, which together with other relevant evidence establishes by clear and convincing evidence that but for the belatedly claimed constitutional error "no reasonable factfinder would have found the applicant guilty," 28 U.S.C. 2244(b)(2). Moreover, the exceptions are only available if a three judge panel of the federal appellate court authorizes the district court to consider the second or successive petition because the panel concludes that the petitioner has made a prima facie case that his claim falls within one of the exceptions, 28 U.S.C. 2244(b)(3). And the section purports to place the panel's decision beyond the en banc jurisdiction of the circuit and the certiorari jurisdiction of the Supreme Court, 28 U.S.C. 2244(b)(3)(E). The Supreme Court, in Felker v. Turpin , held that because it retained its jurisdiction to entertain original habeas petitions neither the gatekeeper provisions of section 2244(b)(3) nor the limitations on second or successive petitions found in sections 2244(b)(1) and (2) deprive the Court of appellate jurisdiction in violation of Article III, §2. At the same time, it held that the restrictions came well within Congress' constitutional authority and did not "amount to a 'suspension' of the writ contrary to Article I, §9." In Castro v. United States , 540 U.S. 375, 379-81 (2003), the Court held that section 2244(b)(3)(E) constraint upon its certiorari jurisdiction is limited to instances where the lower appellate court has acted on a request to file a successive petition, and does not apply to instances where the lower appellate court has reviewed a trial court's successive petition determination. A claim, which becomes ripe after an earlier petition, such as a claim that the petitioner's mental health precludes his execution, is not considered a second petition. Statute of Limitations Until the mid-20 th century, a federal habeas corpus petition could be filed and the writ granted at any time as long as the petitioner remained under government confinement, but court rules applicable to both state and federal prisoners were then adopted to permit the dismissal of stale petitions if the government's ability to respond to the petition has been prejudiced by the passage of time. The Rules did not preclude federal habeas review merely because the government's ability to retry the petitioner had been prejudiced by the passage of time; nor did they apply where the petitioner could not reasonably have acquired the information necessary to apply before prejudice to the government occurred, Rules 9(a), supra . The AEDPA establishes a one-year deadline within which state and federal prisoners must file their federal habeas petitions, 28 U.S.C. 2244(d), 2255. The period of limitations begins with the latest of: the date of final completion of direct state review procedures; the date of removal of a government impediment preventing the prisoner from filing for habeas relief; the date of Supreme Court recognition of the underlying federal right and of the right's retroactive application; or the date of uncovering previously undiscoverable evidence upon which the habeas claim is predicated. The period is tolled during the pendency of state collateral review, that is, "during the interval between (1) the time a lower state court reaches an adverse decision, and (2) the day the prisoner timely files an appeal." When the state appeal is not filed in a timely manner, when it "is untimely under state law, that is the end of the matter for purposes of 2244(d)(2)." A qualifying petition must be "properly filed" with the appropriate state court, but a petition for state collateral review is no less properly filed simply because state procedural requirements other than timeliness preclude the state courts from ruling on the merits of the petition. Amendments, submitted after the expiration of a year, to a petition filed within the one year period limitation, that assert claims unrelated in time and type to those found in the original petition do not relate back and are time barred. A state may waive the statute of limitations defense, but its intent to do so must be clear and not simply the product of a mathematical miscalculation. The statute of limitations provisions initially presented a novel problem for district courts faced with mixed petitions of exhausted and unexhausted claims. Before the AEDPA, district courts could not adjudicate mixed petitions but were required to first give state courts the opportunity to resolve the unexhausted claims. Petitioners could then return to habeas for adjudication of any remaining exhausted claims. "As a result of the interplay between AEDPA's 1-year statute of limitations and Lundy ' s dismissal requirement, petitioners who come to federal court with 'mixed' petitions run the risk of forever losing their opportunity for any federal review of their unexhausted claims. If a petitioner files a timely but mixed petition in federal district court, and the district court dismisses it under Lundy after the limitations period has expired, this will likely mean the termination of any federal review." Nevertheless, the district court is under no obligation to warn pro se petitions of the perils of mixed petitions. Although cautioning against abuse if too frequently employed, the Court endorsed the "stay and abeyance" solution suggested by several of the lower courts, under which in appropriate cases, the portion of a state prisoner's mixed petition related to exhausted habeas claims are stayed and held in abeyance until he can return to state court and exhaust his unexhausted claims. Appeals At one time, an appeal from a federal district court's habeas decision could only proceed upon the issuance of a probable cause certification issued by either the district court judge or a federal appellate judge that the appeal involved an issue meriting appellate consideration, and could only be granted after the prisoner had made a "substantial showing of the denial of [a] federal right. With slight changes in terminology, the AEDPA leaves the matter largely unchanged. Appeals are only possible upon the issuance of certification of appealability (COA), upon a substantial showing of a constitutional right. A petitioner satisfies the requirement when he can show that "reasonable jurists would find the district court's assessment of the constitutional claims debatable or wrong." This does not require the petitioner show a likelihood of success on the merits; it is enough that reasonable jurists would find that the claim warrants closer examination. Should the district have dismissed the habeas petition on procedural grounds, a COA may be issued only upon the assessment that reasonable jurists would consider both the merits of the claim and the procedural grounds for dismissal debatable. Because the COA requirement is jurisdictional, an appellate court may not treat an application of the COA as an invitation to immediately pass upon the merits without first granting the certificate. Although the Court had declared that it lacked statutory jurisdiction to review the denial of a certificate of probable cause under a writ of certiorari, the denial of a COA may be challenged under the writ. Default In Wainwright v. Sykes , 433 U.S. 72 (1977), and the cases which followed its lead, the Court declared that state prisoners who fail to raise claims in state proceedings are barred from doing so in federal habeas proceedings unless they can establish both "cause and prejudice." The Court later explained that the same standard should be used when state prisoners abused the writ with successive petitions asserting claims not previously raised, and when they sought to establish a claim by developing facts which they had opted not to establish during previous proceedings. Of the two elements, prejudice requires an actual, substantial disadvantage to the prisoner. What constitutes cause is not easily stated. Cause does not include tactical decisions, ignorance, inadvertence or mistake of counsel, or the assumption that the state courts would be unsympathetic to the claim. Cause may include the ineffective assistance of counsel; some forms of prosecutorial misconduct; the subsequent development of some constitutional theory which would have been so novel at the time it should have been asserted as to be considered unavailable; or the discovery of new evidence not previously readily discoverable. Federal courts may entertain a habeas petition, notwithstanding default and the failure to establish cause, in any case where failure to grant relief, based on an error of constitutional dimensions, would result in a miscarriage of justice due to the apparent conviction of the innocent, Murray v. Carrier, supra. In order the meet this "actually innocent" standard, the prisoner must show that "it is more likely than not that no reasonable juror would convict him." When the petitioner challenges his capital sentence rather than his conviction, he must show "by clear and convincing evidence that, but for the constitutional error, no reasonable juror would have found the petitioner eligible for the death penalty." This miscarriage of justice exception, whether addressed to the petitioner's guilt or sentence, is a matter that can be taken up only as a last resort after all nondefaulted claims for relief and the grounds for cause excusing default on other claims have been examined. Actual Innocence In Herrera v. Collins , 506 U.S. 390 (1993), the Court splintered over the question of whether newly discovered evidence of actual innocence, without some procedural error of constitutional magnitude, permitted habeas relief. Chief Justice Rehnquist, author of the opinion for the Court, finessed the issue by assuming without deciding that at some quantum of evidence of a defendant's innocence the Constitution would rebel against his or her execution. Short of that point and cognizant of the availability of executive clemency, newly discovered evidence of the factual innocence of a convicted petitioner, unrelated to any independent constitutional error, does not warrant habeas relief. House v. Bell , 547 U.S. 518 (2006), came to much the same end. House supplied evidence of his innocence of sufficient weight to overcome the procedural default that would otherwise bar consideration of his habeas petition. "[W]hatever burden a hypothetical freestanding innocence claim would require," however, the record in House (new evidence and old) was not sufficient. In re Davis affords the Court the opportunity to consider anew the issue it put aside in Herrera and House —may habeas relief be granted on the basis of a freestanding claim of innocence, and if so, what level of persuasion is required before such relief may be granted? The Supreme Court transferred Davis' habeas petition to the U.S. District Court for the Southern District of Georgia to receive evidence and make findings concerning Davis' innocence. Justice Scalia, joined by Justice Thomas, characterized the transfer as a "fool's errand," since in their view the lower court may not grant habeas relief regardless of its findings. Justice Stevens, in a concurrence joined by Justices Ginsburg and Breyer, disagreed. Harmless Error The mere presence of constitutional error by itself does not present sufficient grounds for issuance of the writ unless the error is also harmful, i.e., "unless the error had a substantial and injurious effect or influence in determining the jury's verdict." The writ will issue, however, where the court has grave doubt as to whether the error was harmless. New Rules and Retroactivity A line of cases beginning with Teague v. Lane , 489 U.S. 288 (1989) drastically limits use of federal habeas to raise novel legal issues by restricting for habeas purposes the retroactive application of the Supreme Court's decisions. Prior to Teague when the Court announced a new rule concerning constitutional requirements binding in state criminal procedure cases, it employed one of two approaches. In some cases, it simultaneously announced whether the new rule was to have retroactive or prospective applications. In others, it postponed that decision until a subsequent case. In either instance, the Court employed a test first articulated in Linkletter v. Walker , 381 U.S. 618 (1965), to determine whether a new rule should be applied retroactively. Under the test, the Court considered "(a) the purpose to be served by the new standards, (b) the extent of the reliance by law enforcement authorities on the old standards, and (c) the effect on the administration of justice of a retroactive application of the new standards." In Teague , the Court adopted a different approach, borrowing from a position espoused earlier by Justice Harlan. Under this view, habeas is perceived as a deterrent used to encourage state and lower federal courts to adhere to constitutional standards. Therefore, a novel constitutional interpretation, or "new rule" should not be applied retroactively during federal habeas review of state convictions since state courts could only be expected to defer to those rules in existence when their consideration became final. Furthermore, since it would be unfair to grant a habeas petitioner the benefit of a new rule but deny its benefits retroactively to others similarly situated, a plurality of the Court held that "habeas corpus cannot be used as a vehicle to create new constitutional rules of criminal procedure unless those rules would be applied retroactively to all defendants on collateral review" under one of the two exceptions where retroactive application is permitted, 489 U.S. at 316. Thus, under Teague and its companion, Penry v. Lynaugh , 492 U.S. 302 (1989), a new rule cannot be sought through federal habeas and a new rule may only be applied retroactively for the benefit of habeas petitioners when (1) the new interpretation "places certain kinds of primary, private individual conduct beyond the power of the criminal law-making authority to proscribe," 489 U.S. at 307, or places "a certain category of punishment for a class of defendants because of their status or offense" beyond the power of the criminal law-making authority to proscribe, 492 U.S. at 329, or (2) the new interpretation "significantly improve[s] the pre-existing fact finding procedures ... [which] implicate the fundamental fairness of the trial ... [and] without which the likelihood of an accurate conviction is seriously diminished," 489 U.S. at 312-13. In order to constitute a new interpretation or "new rule" for purposes of the exceptions, the interpretation must "break new ground or impose a new obligation on the States or Federal Government," or "[t]o put it differently, a case announces a new rule if the result was not dictated by precedent existing at the time the defendant's conviction became final," 489 U.S. at 301 (emphasis of the Court). A decision may announce a "new rule" for purposes of Teague , even if the Court states its decision is "dictated by precedent," as long as a split in the lower courts or some other source of authority provides a ground upon which a different outcome might reasonably have been anticipated, for the Teague rule "serves to validate reasonable, good-faith interpretations of existing precedents made by state courts even though they are shown to be contrary to later decisions." The Court has more recently indicated that the rules covered in the first exception, the exception for rules that place certain conduct beyond proscriptive reach, are more accurately characterized as substantive rather than procedural rules and thus not subject to the Teague rule from the beginning. The second exception, available to new "watershed rules of criminal procedure implicating the fundamental fairness and accuracy of the criminal proceeding" like Gideon v. Wainwright , 372 U.S. 335 (1963), does not extend to cases less indispensible to fundamental fairness than Gideon . The Court observed in Beard v. Banks that it has yet to rule on a case that satisfied this second Teague exception. Opting In The most controversial of the proposals that preceded enactment of the Antiterrorism and Effective Death Penalty Act (AEDPA) involved habeas in state capital cases. Capital habeas cases presented special problems. Existing procedures afforded not only the incentive, but the opportunity, for delay. A state defendant convicted of a capital offense and sentenced to death could take advantage of three successive procedures to challenge constitutional defects in his or her conviction or sentence. His or her claims could be raised on appeal, in state habeas proceedings, and in federal habeas proceedings. As a consequence, there were extensive delays between sentence and execution of sentence. In June 1988, Chief Justice Rehnquist named a committee chaired by retired Justice Powell to study "the necessity and desirability of legislation directed toward avoiding delay and the lack of finality in capital cases in which the prisoner had or had been offered counsel." The Committee identified three problems associated with federal habeas corpus in state capital punishment cases: unnecessary delay and repetition, the need to make counsel more generally available, and last minute litigation. The Committee recommended amendments to the federal habeas statute and Chief Justice Rehnquist transmitted its report to Congress in September 1989. Congress weighed the recommendations, but initially enacted no major revision, other than the provision in the 1988 Anti-Drug Abuse Act that required the appointment of counsel in conjunction with federal habeas in capital punishment cases. The AEDPA, however, offered procedural advantages to the states to ensure the continued availability of qualified defense counsel in death penalty cases, 28 U.S.C. 2261-2266. Prior to the AEDPA, federal law called for the appointment of counsel to assist indigent state prisoners charged with or convicted of a capital offense at every stage of the proceedings other than during collateral review in state court. The AEDPA offered a streamlined habeas procedure in cases involving state death row inmates to those states that fill this gap, 28 U.S.C. 2261, 2265. When it became apparent that the states could not or would not opt in, Congress changed the procedure under which states are deemed to have qualified, 28 U.S.C. 2265. Under amendments in the USA PATRIOT Improvement and Reauthorization Act of 2005, the Attorney General rather than the courts determines whether a state has taken the steps necessary to opt in. States that elect to opt in must still provide a "mechanism for the appointment, compensation, and payment of reasonable litigation expenses of competent counsel in state postconviction proceedings," 28 U.S.C. 2265(c). References to competence standards for appointed counsel were removed. Although it might be thought that the authority to promulgate such standards comes within the Attorney General's newly granted regulatory authority, 28 U.S.C. 2265(b), the Justice Department does not believe the Attorney General has any such authority. The Attorney General's certification that a state has taken the necessary steps to opt in is subject to de novo review in the United States Court of Appeals for the District of Columbia, an appeal which in turn is subject to certiorari review in the Supreme Court, 28 U.S.C. 2265(c). The Attorney General promulgated implementing regulations on December 11, 2008, which were opened for additional comments ending in April 2009. For states that opt in, the AEDPA establishes a one-time automatic stay of execution for state death row inmates carrying through until completion of the federal habeas process, 28 U.S.C. 2262. Previously, the federal habeas statute authorized federal courts to stay the execution of a final state court judgment during the pendency of a state prisoner's federal habeas proceedings and related appeals, 28 U.S.C. 2251 (1994 ed.). Federal appellate courts could consider motions for a stay, pending review of the district court's decision or at the same time they considered the merits of the appeal. This regime encouraged unnecessary litigation over whether a stay was or was not in order and often resulted in state death row inmates waiting until the last hour before simultaneously filing a motion for a stay and an appeal from the district court's denial of the writ. The AEDPA creates a 180-day statute of limitations for filing federal habeas petitions after the close of state proceedings with the possibility of one 30-day extension upon a good cause showing for states that opt in, 28 U.S.C. 2263. When a state opts in, federal habeas review of a claim filed by a state death row inmate is limited to issues raised and decided on the merits in state court unless the state unlawfully prevented the claim from being raised in state court, or the claim is based on a newly recognized, retroactively applicable constitutional interpretation or on newly unearthed, previously undiscoverable evidence, 28 U.S.C. 2264. In cases where the federal habeas application has been filed by a prisoner under sentence of death under the federal law or the laws of a state which has opted in, the government has a right, enforceable through mandamus, to a determination by the district court within 450 days of the filing of an application and by the federal court of appeals within 120 days of the filing of the parties' final briefs, 28 U.S.C. 2266. Habeas for Federal Convicts: The Section 2255 Substitute Federal prisoners who claim that they are being held by virtue of a conviction or sentence rendered contrary to the Constitution or laws of the United States must ordinarily repair to section 2255 of title 28 of the United States Code for collateral review. Congress added section 2255 when it revised title 28 in 1948 to expedite review. The section "replaced traditional habeas corpus for federal prisoners.... The purpose and effect of the statute was not to restrict access to the writ but to make postconviction proceedings more efficient." The section "was intended to mirror §2254 in operative effect," although there are occasionally differences between the two. When the Antiterrorism and Effective Death Penalty Act (AEDPA) amended the provisions governing access to habeas by state prisoners, but in some instances it made comparable changes in section 2255. Thus, both the state inmate's habeas petition and federal convict's section 2255 motion must be filed within a year after their direct appeals become final. "An appeal may be taken to the court of appeals from the order entered on the motion as from a final judgment on application for a writ of habeas corpus." As for procedural default, "[w]here the petitioner—whether a state or federal prisoner—failed property to raise his claim on direct review, the writ is available only if the petitioner establishes cause for the waiver and shows actual prejudice resulting from the alleged violation." The Supreme Court has yet to address the question of whether the Teague rule, which requires a new constitutional interpretation be claimed on direct appeal rather in habeas, applies to section 2255. The Court has noted, however, that the lower federal courts have applied the Teague rule to section 2255. The statutory provisions governing both petition and motion restrict relief for second or successive invocations in much the same manner, but they do so in different terminology. Congressional Authority to Bar or Restrict Access to the Writ For many years, one of the most interesting and perplexing features of federal habeas involved the question of Congress' authority to restrict access to the writ. The Constitution nowhere expressly grants a right of access to the writ, although it might be seen as attribute of the suspension clause or the due process clause or both. Yet the suspension clause says no more than that "the privilege of the Writ of Habeas Corpus shall not be suspended, unless when in Cases of Rebellion or Invasion the public Safety may require it," U.S. Const. Art.I, §9, cl.2. And the due process clause speaks with an equal want of particularity when it declares that, "no person shall ... deprived of life, liberty, or property, without due process of law," U.S. Const. Amend. V. Balanced against this, is the power of Congress to "ordain and establish" the lower federal courts, U.S. Const. Art. III, §1; to regulate and make exceptions to the appellate jurisdiction of the Supreme Court, U.S. Const. Art. III, §2, cl.2; to enact all laws necessary and power to carry into effect the constitutional powers of the courts as well as its own, U.S.Const. Art. I, §8, cl.18; and the power to suspend the privilege to the writ in times of rebellion or invasion, U.S. Const. Art. I, §9, cl.2. In the past, when it seemed that Congress had extinguished the habeas jurisdiction of the lower courts, the Supreme Court observed that it retained jurisdiction to issue the writ on a petition filed originally with the Supreme Court, following a denial for want of jurisdiction or other action in a lower court. When legislation finally attempted to seal off this avenue to the Great Writ as well, the Court confirmed that separation of powers concerns reflected in the suspension clause preclude absolute denial of access to the writ (or to an adequate substitute) except under the circumstances noted in the suspension clause. The Original Writ The Constitution vests the judicial power of the United States in the Supreme Court and in the inferior courts created by Congress, and describes two classes of Supreme Court jurisdiction, original and appellate. It explicitly identifies the kinds of cases which fall within the Court's original jurisdiction; the Court's appellate jurisdiction is portrayed more generally and with the notation that it is subject to Congressional exception and regulation. The Judiciary Act of 1789 declared that "all the before mentioned courts of the United States [the Supreme Court, circuit courts, and district courts] shall power to issue writs of ... habeas corpus.... And that either of the justices of the supreme court, as well as judges of the district courts shall power to grant writs of habeas corpus for the purpose of an inquiry into the cause of commitment.... " After the Civil War, Congress conferred additional habeas authority upon the federal courts as a check against state authorities in the newly reconstructed South by making the writ available to anyone held in violation of the Constitution and other laws of the United States. It vested appellate jurisdiction over lower court exercise of this new authority in the Supreme Court, but made an exception for prisoners held by military authorities. Notwithstanding the exception for prisoners held under military authority, the first case to come before the Court involved William McCardle, a Mississippi newspaper editor, arrested by military authorities for trial by a military commission under the reconstruction laws on charges of inciting "insurrection, disorder and violence." His petition for a writ of habeas corpus was denied by the federal circuit court and he appealed to the Supreme Court. The government moved to dismiss the appeal on the ground that appeal had been expressly excluded in cases involving Confederate sympathizers held in military custody. The Court denied the motion—because the military custody exception applied only to the expansion of habeas afforded by the 1867 Act while McCardle called upon the pre-existing habeas authority of the Judiciary Act of 1789—and set the case for argument, Ex parte McCardle , 73 U.S.(6 Wall.) 318 (1868). But before the case could be decided on its merits, Congress repealed the law vesting appellate jurisdiction in the Court. Its jurisdiction to decide the appeal having been withdrawn, the Court dismissed the appeal for want of jurisdiction, Ex parte McCardle , 74 U.S.(7 Wall.) 506 (1868). In doing so, however, the Court made it clear that the loss of its jurisdiction to hear appeals in habeas cases did not mean the loss of its ability to review lower court habeas decisions altogether. The review available prior to the 1867 Act remained available just as the Court had described in its earlier McCardle case: But, though the exercise of appellate jurisdiction over judgments of inferior tribunals was not unknown to the practice of this court before the act of 1867, it was attended by some inconvenience and embarrassment. It was necessary to use the writ of certiorari in addition to the writ of habeas corpus, and there was no regulated and established practice for the guidance of parties invoking the jurisdiction, 73 U.S.(6 Wall.) at 324. The Court reexamined and confirmed this view the following year when it concluded that it had jurisdiction under writs of habeas corpus and certiorari to review the case of another Mississippi newspaper man held by military authorities. The 1868 Act repealed appellate jurisdiction vested in the Court by the 1867 Act. The 1868 Act did not repeal any of the provisions of the Judiciary Act of 1789; the Court's earlier authority to review habeas cases from the lower federal courts through writs of habeas corpus, aided by writs of certiorari, remained available, Ex parte Yerger , 75 U.S.(8 Wall.) 85 (1869). The question as to the scope of Congress' control over Court's appellate jurisdiction in habeas cases surfaced again when a prisoner challenged the AEDPA's habeas limitations in Felker v. Turpin , 518 U.S. 651 (1996). In particular, Felker argued that the provisions of 28 U.S.C. 2244(b) (3)(E) which declared the appellate court determination of whether to authorize a second or successive habeas petition was neither appealable nor "subject to a petition for rehearing or for a writ of certiorari." As before, the Court took no offense to the limitation of habeas appellate jurisdiction. Since the AEDPA "does not repeal [the Court's] authority to entertain a petition for habeas corpus, there can be no plausible argument that the Act has deprived this Court of appellate jurisdiction in violation of Article III, §2," 518 U. S. at 661-62. Review remained possible under the "original" writ of habeas corpus. After McCardle and Yerger , Congress restored the Court's jurisdiction to review habeas cases under less cumbersome appellate procedures in 1885, 23 Stat. 437. Once Congress reopened more normal means of Supreme Court review in habeas cases, recourse to the original writ of habeas corpus in the Supreme Court described in McCardle and Yerger had been infrequent and rarely successful. Seen only as a burdensome way station of the unartful and ill advised, its best known chronicler urged its effective abandonment. Yet it offered the Court in Felker precisely what it supplied in McCardle and Yerger , a means of preserving Supreme Court review, under circumstances where Congress rather clearly intended to deny that possibility, without forcing the Court to address the question of whether Congress' efforts exceed its constitutional authority. The Supreme Court, in an opinion by Chief Justice Rehnquist, declared that "although the Act does impose new conditions on [the Court's] authority to grant relief, it does not deprive [the] Court of jurisdiction to entertain original habeas petitions," Felker v. Turpin , 518 U.S. at 658. Just as McCardle and Yerger "declined to find a repeal of §14 of the Judiciary Act of 1789 as applied to [the] Court by implication ... [ Felker ] decline[s] to find a similar repeal of §2241 of Title 28.... " 518 U.S. at 661. Of course Felker sought not only review, but reversal. The Court refused to grant relief under its original writ authority because Felker's claims satisfied neither the demands of the Act nor those of the Court's Rule 20. It stopped short of holding, however, that it was required to follow the Act's standards in its original writ determinations: "Whether or not we are bound by these restrictions [of the AEDPA], they certainly inform our consideration of original habeas petitions," 518 U.S. at 663. Its reticence may have been calculated to avoid any suggestion that suspension or exception clauses have become dead letters. Although it concluded that Felker had not satisfied the requirement that the original writ issue only upon "exceptional circumstances," the Court did not say why nor did it indicate when such exceptional circumstances might exist. On the other hand, the Court's denial makes it clear that McCardle and Yerger notwithstanding, legislative barriers blocking access to the more heavily traveled paths to review do not by themselves constitute the necessary exception circumstances. It is interesting that the Court sought refuge in the arcane confines of "original" habeas rather than acknowledging that the gatekeeper provision came within Congress' power under the exceptions and regulations clause whatever limitations that power might otherwise be subject to. Given the expedited nature of the proceedings, it might have meant no more than the Court lacked the time to formulate an opinion outlining the dimensions of the clause in terms that a majority on the Court could endorse. A simpler explanation may be that, in deference to the political branches, the Court sought every means to avoid suggesting that they might have overstepped their constitutional bounds. Historically, the Court has been reluctant to holding that the privilege of the writ had been denied other than through a lawful exercise of the suspension clause. Suspension of the Privilege of the Writ The suspension clause, housed among the explicit limitations on the Constitutional powers of Congress, declares that "[t]he Privilege of the Writ of Habeas Corpus shall not be suspended, unless when in Cases of Rebellion or Invasion the public Safety may require it," U.S.Const. Art. I, §9, cl.2. The English history of the writ helps explains its purpose. When the King and the royal courts began to recognize restrictions on the writ, the English Parliament had responded with the Habeas Corpus Act of 1679. But in times of crisis, the Parliament allowed that the privilege of the writ should be temporarily suspended upon its approval. Perhaps the most notable of these suspensions occurred during the American Revolution when Parliament annually enacted suspension provisions to permit temporary imprisonment of the rebelling colonists without bail or trial for the duration of the year. Not to be outdone, several colonial legislatures afforded their executive officials similar authority to deal with those loyal to the crown. Early in the Republic, President Jefferson sought and was denied a suspension. During the Civil War, perhaps remembering Congress' rejection of Jefferson's suspension requests, President Lincoln did not bother to request authority to suspend at first. He simply instructed his military commanders, in ever broadening terms, to suspend access to the writ as they felt appropriate. After Chief Justice Taney, acting upon a petition presented in chambers, held the President had exceeded his authority, Ex parte Merryman , 17 Fed.Cas. 144 (No. 9,487) (C.C.D.Md. 1861), Congress ratified Lincoln's efforts with sweeping suspension legislation. In Ex parte Milligan , 71 U.S. (4 Wall.) 2, 130-31 (1866), the Court concluded that the suspension clause operated to afford a prisoner's jailers a defense as to why they should not release the prisoner once the court had issued the writ instructing them to bring the prisoner before the court and justify the imprisonment, "The suspension of the privilege of the writ of habeas corpus does not suspend the writ itself. The writ issues as a matter of course; and on the return made to it, the court decides whether the party applying is denied the right of proceeding further with it." Ex parte Milligan and experience during the period leading up to the drafting of the suspension clause offer scant support for the suggestion that the suspension clauses must be read as a general limitation upon Congress' authority to enact habeas legislation. Nevertheless, there were grounds for the contention that suspension of the privilege of the writ meant more than that, in times and places of trouble, particular individuals might be temporarily denied access to the writ and jailed without bail or trial by a court of competent jurisdiction. In more contemporary times, the Court and scholars pondered the extent to which the suspension clause marks an outer limit of the authority of Congress and the courts to adjust the procedures associated with the writ. If, as these authorities indicated, the suspension clause enjoyed organic qualities that permit it to expand and contract under various environmental circumstances, several evolutionary stages of the modern writ deserve repeating. First, as part of the Reconstruction after the Civil War, Congress expanded federal habeas to make it available to state prisoners held in violation of federal law. Second, by the early forties the Court had completed its slow abandonment of the common law prohibition against use of habeas to attack a conviction or sentence collaterally. Thereafter, the Court used an expanded habeas to help carry the commands of the Bill of Rights to the state criminal procedure. Beginning in the seventies, the Court announced a series of doctrines calculated to eliminate unnecessary delay, repetition and frivolity. The AEDPA extended this last trend. Felker dispelled any contention that the AEDPA's provisions violated the suspension clause. The Georgia Attorney General and the Solicitor General each denied that the suspension clause had been violated. The Court agreed. It did not rely on the proposition that the suspension clause does not extend to convicted prisoners or any other prisoners ineligible for the writ under common law, however, but "assume[d], for purposes of decision here, that the Suspension Clause of the Constitution refers to the writ as it exists today, rather than as it existed in 1789," 518 U.S. at 663-64. Even under this relaxed standard, it found any claim based on Felker's case wanting. The AEDPA's limitation on repetitious or stale claims was seen as a variation of res judicata, which in the area of habeas had been an "evolving body of equitable principles informed and controlled by historical usage, statutory developments, and judicial decisions," 518 U.S. at 664, quoting McCleskey v. Zant , 499 U.S. 467, 489 (1991). "The added restrictions which the Act places on second habeas petitions are well within the compass of this evolutionary process and ... do not amount to a 'suspension' of the writ contrary to Article I, §9," 518 U.S. at 664. Shortly after Felker , however, the Court narrowly construed Congressional efforts to restrict review of various immigration decisions and recognized that the courts retained jurisdiction to review habeas petitions, with the observation that otherwise serious suspension clause issues would arise. The Court was compelled to face the issue of Congress' constitutional authority to absolutely bar access to the writ, which the Court avoided in Felker , in Boumediene v. Bush , 128 S.Ct. 2229 (2008). Boumediene was among the foreign nationals detained at the U.S. Naval Station at Guantanamo Bay, Cuba. Until Hamdi v. Rumsfeld , 542 U.S. 507 (2004) held otherwise, the government questioned whether habeas remained available to citizens seized in a combat zone. Thereafter, the Defense Department established tribunals to determine whether detainees were in fact enemy combatants. However, until Rasul v. Bush , 542 U.S. 466 (2004) held otherwise, the government questioned whether detainees held outside the United States, whether in Guantanamo or elsewhere, rested beyond the habeas reach of U.S. courts. While the detainees' subsequent habeas petitions were pending, Congress passed the Detainee Treatment Act, providing combatant status review tribunal procedures and stating that "no court, justice, or judge shall have jurisdiction to hear or consider" a habeas petition filed on behalf of a foreign national detained in Guantanamo, 119 Stat. 2742 (2006). After the Court held that the Detainee Treatment Act provision did not apply to cases pending prior to its enactment, Hamdan v. Rumsfeld , 548 U.S. 557 (2006), Congress passed the Military Commissions Act, which made the provision applicable to pending cases, 120 Stat. 2636 (2007). At this point, the constitutional issue could not be avoided. The government argued in Boumediene "that noncitizens designated as enemy combatants and detained in territory located outside our Nation's borders have no constitutional rights and no privilege to habeas corpus." The detainees disputed both claims. They argued that the legislation violated the suspension clause which declares that "[t]he privilege of the Writ of Habeas Corpus shall not be suspended, unless when in Cases of Rebellion or Invasion the public Safety may require it." The Court began with the observation that, "[t]he Framers viewed freedom from unlawful restraint as a fundamental precept of liberty, and they understood the writ of habeas corpus as a vital instrument to secure that freedom." The Framers also remembered the history of the English writ, with its periodic suspensions of the writ. "In our own system the Suspension Clause is designed to protect against these cyclical abuses. The Clause protects the right of the detained by a means consistent with the essential design of the Constitution. It ensures that, except during periods of formal suspension, the Judiciary will have a time-tested device, the writ, to maintain the delicate balance of government that is itself the surest safeguard of liberty." These separation of powers concerns and the history of the territorial scope of the writ led the Court to conclude that "Art. I, § 9, cl. 2, of the Constitution has full effect at Guantanamo Bay." And so, the question became, did the suspension clause bar curtailment of habeas jurisdiction in the manner of the Military Commissions Act provision? Since the Military Commissions Act did not constitute a formal suspension of the writ, the issue was "whether the statute stripping jurisdiction to issue the writ avoids the Suspension Clause mandate because Congress has provided adequate substitute procedures for habeas corpus" in the Detainee Treatment Act's combatant status review tribunal procedures. The Court found little precedent to guide its "adequate substitute" assessment. Felker involved a suspension clause challenge, but the provisions there did little more than replicate and codify pre-existing habeas jurisprudence. Besides, Felker arose following a state criminal conviction, hardly a close parallel to the federal detention without trial of Boumediene. Two other "habeas substitute" cases— Swain v. Pressley , 430 U.S. 372 (1977) and United States v. Hayman , 342 U.S. 205 (1952)—do little to explain the characteristics of an adequate substitute, because they involved statutes designed to expand rather than curtail habeas relief. So the Court identified, in context of Boumediene , the essential features of habeas corpus and any adequate substitute. First, it noted that "the privilege of habeas corpus entitles the prisoner to a meaningful opportunity to demonstrate that he is being held pursuant to the erroneous application of interpretation of relevant law." Second, "the necessary scope of habeas review in part depends upon the rigor of any earlier proceedings." Thus, "when a person is detained by executive order, rather than, say, after being tried and convicted in a court, the need for collateral review is more pressing." Third, "[f]or the writ of habeas corpus, or its substitute to function as an effective and proper remedy in this context, the court that conducts the habeas proceeding must have the means to correct errors that occur during [prior] proceedings." Fourth, it must have "some authority to assess the sufficiency of the Government's evidence against the detainee. It also must have the authority to admit and consider relevant exculpatory evidence that was not introduced during the earlier proceeding." The Court found the Detainee Treatment Act procedures wanting when assessed against the standards of an adequate substitute for normal habeas procedures. Thus, the provision of the Military Combatants Act, purporting the curtail habeas jurisdiction with respect to Guantanamo detainees, was found to constitute an unconstitutional suspension of the writ. Selected Bibliography Books and Articles Adelman, The Great Writ Diminished , 35 New England Journal of Criminal Law and Civil Commitment 1 (2009) American Bar Association, Criminal Justice Section, Project on Death Penalty Habeas Corpus, Toward a More Just and Effective System of Review in State Death Penalty Cases (1990) Amsterdam, Criminal Prosecutions Affecting Federally Guaranteed Civil Rights: Federal Removal and Habeas Corpus Jurisdiction to Abort State Court Trial , 113 University of Pennsylvania Law Review 793 (1965) Bator, Finality in Criminal Law and Federal Habeas Corpus for State Prisoners , 76 Harvard Law Review 441 (1963) —. The State Courts and Federal Constitutional Litigation , 22 William & Mary Law Review 605 (1981) Berry, Seeking Clarity in the Federal Habeas For: Determining What Constitutes " Clearly Established " Law Under the Antiterrorism and Effective Death Penalty Act , 54 Catholic University Law Review 747 (2005) Blume, AEDPA: The " Hype " and the " Bite " 91 Cornell Law Review 259 (2006) Brennan, Federal Habeas Corpus and State Prisoners: An Exercise in Federalism , 7 Utah Law Review 423 (1961) Chemerinsky, Thinking About Habeas Corpus , 37 Case Western Reserve Law Review 748 (1987) Cover & Aleinikoff, Dialectical Federalism: Habeas Corpus and the Court , 86 Yale Law Journal 1035 (1977) Desmond, Federal Habeas Corpus Review of State Court Convictions , 50 Georgetown Law Journal 755 (1962) Duker, A Constitutional History of Habeas Corpus (1980) —. The English Origins of the Writ of Habeas Corpus: A Peculiar Path to Fame , 53 New York University Law Review 983 (1978) Falkoff, Back to Basics: Habeas Corpus Procedures and Long-Term Executive Detention , 86 Denver University Law Review 961 (2009) Faust, Rubenstein & Yackle, The Great Writ in Action: Empirical Light on the Federal Habeas Corpus Debate , 18 New York University Review of Law Social Change 637 (1990/1991) Freedman, Habeas Corpus: Rethinking the Great Writ of Liberty (2001) Friedman, A Tale of Two Habeas , 73 Minnesota Law Review 247 (1988) Friendly, Is Innocence Irrelevant? Collateral Attack on Criminal Judgments , 38 University of Chicago Law Review 142 (1970) Garrett, Claiming Innocence , 92 Minnesota Law Review 1629 (2008) Garvey, Death-Innocence and the Law of Habeas Corpus , 56 Albany Law Review 225 (1992) Hammel, Diabolical Federalism: a Functional Critique and Proposed Reconstruction of Death Penalty Federal Habeas , 39 American Criminal Law Review 1 (2002) Hart, The Supreme Court 1958 Term — Forward: The Time of the Justices , 73 Harvard Law Review 84 (1959) Hartnett, The Constitutional Puzzle of Habeas Corpus , 46 Boston College Law Review 251 (2005) Hoffman & King, Rethinking the Federal Role in State Criminal Justice , 84 New York University Law review 791 (2009) Hoffman & Stuntz, Habeas After the Revolution , 1993 Supreme Court Review 65 Hoffstadt, The Deconstruction and Reconstruction of Habeas , 78 Southern California Law Review 1125 (2005) King & Sherry, Habeas Corpus and State Sentencing Reform: A Story of Unintended Consequences , 58 Duke Law Journal 1 (2008) Kovarsky, AEDPA's Wrecks: Comity, Finality , and Federalism , 82 Tulane Law Review 443 (2007) Landes, A New Approach to Overcoming the Insurmountable "Watershed Rule" Exception to Teague's Collateral Review Killer , 74 Missouri Law review 1 (2009) Lasch, The Future of Teague Retroactivity, or "Red r esssability, After Danforth v. Minnesota: Why Lower Courts Should Give Retroactive Effect to New Constitutional Rules of Criminal Procedure in Postconvcition Proceedings , 46 American Criminal law review 1 (2009) Lee, The Theories of Federal Habeas Corpus , 72 Washington University Law Quarterly 151 (1994) —. Section 2254(d) of the Federal Habeas Corpus Statute: Is It Beyond Reason? 56 Hastings Law Journal 283 (2004) Marceau, Deference and Doubt: The Interaction of AEDPA §2254(D)(2) and (E)(1) , 82 Tulane Law review 385 (2007) Neuborne, The Myth of Parity , 90 Harvard Law Review 1105 (1977) Oaks, Legal History in the High Court — Habeas Corpus , 64 Michigan Law Review 451 (1966) —. The " Original " Writ of Habeas Corpus in the Supreme Court , 1962 Supreme Court Review 153 Paschal, The Constitution and Habeas Corpus , 1970 Duke Law Journal 605 Segal, Habeas Corpus, Equitable Tolling, and AEDPA's Statute of Limitations: Why the Schlup v. Delo Gateway Standard for Claims of Actual Innocence Fails to Allev i ate the Plight of Wrongfully Convicted Americans , 31 University of Hawaii Law Review 225 (2008) Sloane, AEDPA ' s " Adjudication on the Merits " Requirement: Collateral Review, Federalism, and Comity 78 St. John's Law Review 615 (2004) Steiker, Incorporating the Suspension Clause: Is There a Constitutional Right to Federal Habeas Corpus for State Prisoners , 92 Michigan Law Review 862 (1994) Stevenson, The Politics of Fear and Death; Successive Problems in Capital Federal Habeas Corpus Cases , 77 New York University Law Review 699 (2002) Traum, Last Best Chance for the Great Writ: Equitable Tolling and Federal Habeas Corpus , 68 Maryland Law Review 545 (2009) Uhrig, A Cast for a Constitutional Right to Counsel in Habeas Corpus , 60 Hastings Law Journal 541 (2009) United States House of Representatives, Habeas Corpus: Hearings Before Subcomm. No. 3 of the House Comm. on the Judiciary , 84 th Cong., 1 st Sess. (1955) —. Habeas Corpus Legislation: Hearings Before the Subcomm. on Courts, Intellectual Property, and the Administration of Justice , 101 st Cong., 2d Sess. (1990) —. Habeas Corpus Issues: Hearings Before the Subcomm. on Civil and Constitutional Rights of the House Comm. on the Judiciary , 102d Cong., 1 st Sess. (1991) —. Habeas Corpus: Hearings Before the Subcom m. on Civil and Constitutional Rights of the House Comm. on the Judiciary , 103d Cong., 1 st & 2d Sess. (1994) United States Senate, Habeas Corpus Reform Act of 1982: Hearings Before the Comm. on the Judiciary , 97 th Cong., 2d Sess. (1982) —. Comprehensive Crime Control Act of 1983: Hearings Before the Subcomm. on Criminal Law of the Comm. on the Judiciary , 98 th Cong., 1 st Sess. (1983) —. Habeas Corpus Reform: Hearing Before the Comm. on the Judiciary , 99 th Cong., 1 st Sess. (1985). Vladeck, Boumediene's Quiet Theory: Access to Courts and the Separation of Powers , 84 Notre Dame Law review 2107 (2009) Walker, The Constitution and Legal Development of Habeas Corpus as the Writ of Liberty (1960) Wechsler, Habeas Corpus and the Supreme Court: Reconsidering the Reach of the Great Writ , 59 University of Colorado Law Review 167 (1988) Weisberg, A Great Writ While It Lasted , 81 Journal of Criminal Law & Criminology 9 (1990) Wolf, Habeas Relief from Bad Science: Does Federal Habeas Corpus Provide Relief for Prisoners Possibly Convicted on Misunderstood Fire Science? 10 Minnesota Journal of Law, Science, and Technology 213 (2009) Wright, Habeas Corpus: Its History and Its Future , 81 Michigan Law Review 802 (1983) Yackle, Postconviction Remedies (1981) Notes and Comments Actually Less Guilty: The Extension of the Actual Innocence Exception to the Sentencing Phase of Non-Capital Cases , 93 Kentucky Law Journal 531 (2004) The Clash of Ring v. Arizona and Teague v. Lane: An Illustration of the Inapplicability of Modern Habeas Retroactivity Jurisprudence in the Capital Sentencing Context , 85 Boston University Law Review 1017 (2005) " Deference Does Not Imply Abandonment or Abdication of Judicial Review " : the Evolution of Habeas Jurisprudence Under AEDPA and the Rehnquist Court , 72 University of Missouri-Kansas City Law Review 739 (2004) A Different View of Habeas: Interpreting AEDPA ' s " Adjudicated on the Merits " Clause When Habeas Corpus Is Understood as an Appellate Function of the Federal Courts , 72 Fordham Law Review 2593 (2004) Habeas Review for State Prisoners , 38 Georgetown Law Journal Annual Review of Criminal Procedure 892 (2009) Review and Vacatur of Certificates of Appealability Issued Under the Denial of Habeas Corpus Petitions , 72 University of Chicago Law Review 989 (2005) 28 U.S.C. § 2255 Relief for Federal Prisoners , 38 Georgetown Law Journal Annual Review of Criminal Procedure 942 (2009)

Federal habeas corpus is a procedure under which a federal court may review the legality of an individual's incarceration. It is most often the stage of the criminal appellate process that follows direct appeal and any available state collateral review. The law in the area is an intricate weave of statute and case law. Current federal law operates under the premise that with rare exceptions prisoners challenging the legality of the procedures by which they were tried or sentenced get "one bite of the apple." Relief for state prisoners is only available if the state courts have ignored or rejected their valid claims, and there are strict time limits within which they may petition the federal courts for relief. Moreover, a prisoner relying upon a novel interpretation of law must succeed on direct appeal; federal habeas review may not be used to establish or claim the benefits of a "new rule." Expedited federal habeas procedures are available in the case of state death row inmates if the state has provided an approved level of appointed counsel. The Supreme Court has yet to hold that a state death row inmate who asserts he is "actually innocent" may be granted habeas relief in the absence of an otherwise constitutionally defective conviction. The Court has made it clear in the case of the Guantanamo detainees that the privilege of the writ may not be legislatively extinguished unless there is an adequate substitute, Boumediene v. Bush , 128 S.Ct. 2229 (2008). This report is available in an abridged version as CRS Report RS22432, Federal Habeas Corpus: An Abridged Sketch , by [author name scrubbed].

Drought in the United States—Overview Drought has affected portions of North America throughout history. Severe, long-lasting droughts may have been a factor in the disintegration of Pueblo society in the Southwest during the 13 th century and in the demise of central and lower Mississippi Valley societies in the 14 th through 16 th centuries. In the 20 th century, droughts in the 1930s (Dust Bowl era) and 1950s were particularly severe and widespread. In 1934, 65% of the contiguous United States was affected by severe to extreme drought, resulting in widespread economic disruption and displacement of populations from the U.S. heartland—many relocating to California's Central Valley—and revealing shortcomings in agricultural and land-use practices. Today, the National Drought Mitigation Center (NDMC) monitors and reports on drought conditions across the nation. Drought conditions are broadly grouped into five categories: D0 (abnormally dry), D1 (moderate), D2 (severe), D3 (extreme), and D4 (exceptional). Some part of the country is almost always experiencing drought at some level. Since 2000, some portion of the land area of the United States has experienced drought of at least moderate intensity (D1) each year ( Figure 1 ). The land area affected by drought can vary widely by year and also within a particular year. For example, in May 2017, only 3.8% of the total U.S. land area was affected by drought of at least moderate intensity (D1). In contrast, in September 2012, 55% of the nation faced drought of at least moderate intensity, and 35% of the country was under severe drought (D2) conditions at that time. Based on weekly estimates of drought conditions since 2000, on average about 26% of the land area across the United States experiences at least moderate intensity in any given year (see the horizontal blue bar in the Moderate [D1] column of Figure 1 ). There is particular concern about locations experiencing the most intense drought conditions: extreme and exceptional drought. Nearly every year, extreme drought (D3) affects some portion of the country. Since 2000, extreme drought or drier conditions have affected approximately 6.5% of the nation on average ( Figure 1 ). Since 2000, exceptional drought (D4) conditions have affected approximately 1.4% of the nation on average. Of particular note were the conditions between June 2011 and October 2011: exceptional drought (D4) occurred over the largest land area—greater than 9%—during those months over the period starting January 2000 until present, with the affected areas concentrated in Texas. The following year, during August 2012, extreme and exceptional drought extended over 20% of the country and was concentrated in the central United States. What Is Drought? Drought has a number of definitions; the simplest may be a deficiency of precipitation over an extended period of time, usually a season or more. Conceptually, it may be easier to understand drought through its impacts. For example, when evaluating the impact to agriculture, drought could be defined as a protracted period of deficient precipitation resulting in extensive damage to crops, resulting in loss of yield. Drought is usually considered relative to some long-term average condition or balance between precipitation, evaporation, and transpiration by plants (evaporation and transpiration are typically combined into one term: evapotranspiration). An imbalance could result from a decrease in precipitation, an increase in evapotranspiration (from drier conditions, higher temperatures, higher winds), or both. It is important to distinguish between drought, which has a beginning and an end, and aridity, which is restricted to low-rainfall regions and is a relatively permanent feature of an area's climate (e.g., deserts are regions of relatively permanent aridity). Higher demand for water for human activities and vegetation in areas of limited water supply increases the severity of drought. For example, drought during the growing season likely would be considered more severe—in terms of its impacts—than similar conditions when cropland lies dormant. For policy purposes, drought often becomes an issue when it results in a water supply deficiency. During these deficiencies, less than the average amount of water is available for irrigation, municipal and industrial (M&I) supply, energy production, preservation of endangered species, and other needs. These impacts can occur through multiple mechanisms, such as decreased precipitation and soil moisture affecting dryland farming; low reservoir levels reducing allocations for multiple purposes (including irrigation, navigation, energy production, recreation, fish and wildlife needs, and other water supplies); low stream flows limiting withdrawals for multiple purposes, including M&I supplies, among others; and decreased exchange of water in lakes resulting in water quality problems limiting recreation (e.g., blue-green algae restrictions in multiple lakes in Oklahoma and Texas during 2011 and 2012 drought conditions). Drought also can relate and contribute to other phenomena, such as wildfires and heat waves. Drought Classification To assess and classify the intensity and type of drought, certain measures, or drought indicators, are typically used. Drought intensity, in turn, can be a trigger for local, state, and federal responses to drought. The classification of drought intensity, such as that shown in Figure 3 , may depend on a single indicator or several indicators, often combined with expert opinion from the academic, public, and private sectors. For example, the U.S. Drought Monitor ( Figure 2 ) uses five key indicators, together with expert opinion, with indicators to account for conditions in the West where snowpack is relatively important and with other indicators used mainly during the growing season. The U.S. Drought Monitor intensity scheme—D0 to D4—is used to depict broad-scale conditions but not necessarily drought circumstances at the local scale. For example, the regions depicted as red in Figure 2 faced extreme drought conditions for the week of October 17, 2017, but they may have contained local areas and individual communities that experienced less (or more) severe drought. Figure 3 illustrates how drought can stretch across nearly the entire nation, or only affect a comparatively small region. On July 17, 2012, abnormally dry or drought conditions covered roughly 72% of the United States, with 35% of the nation experiencing severe drought or worse. In contrast, on May 2, 2017, about 17% of the country faced abnormally dry or drought conditions, and only 4% was classified as experiencing severe drought or worse. Drought Is Relative Drought and "normal" conditions can vary considerably from region to region. For example, the U.S. Drought Monitor shows that Augusta, GA, faced severe drought in July 2012 (right side of Figure 3 ). Similarly, the city of Colorado Springs, CO, also was in severe drought during the same time period. However, Colorado Springs receives on average a total of 7.63 inches of precipitation over the six-month period of January through June. In contrast, Augusta receives on average of 22.2 inches of precipitation over the same period. During the first six months of 2012, Augusta received 13.28 inches of precipitation, only 60% of its average amount. However, that same amount—13.28 inches—would constitute almost 174% of the amount Colorado Springs typically receives over the same period. Both cities faced severe drought in July 2012, but what is "normal" for Augusta is different from what is "normal" for Colorado Springs. To deal with these differences, meteorologists use the term meteorological drought —usually defined as the degree of dryness relative to some average amount of dryness and relative to the duration of the dry period. Meteorological drought is region-specific because atmospheric conditions creating precipitation deficiencies vary from region to region, as described above for Augusta and Colorado Springs. Drought Is Multifaceted In addition to the color-coded D0-D4 designations, U.S. Drought Monitor maps often include an "S" and "L" designation to provide additional information about the nature of drought ( Figure 2 ). The "S" designation is intended to indicate existence of short-term effects: a combination of different drought indices that approximates responses to precipitation over days up to a few months. These effects would include impact to agriculture, topsoil moisture, unregulated streamflows, and aspects of wildfire danger. The "L" designation indicates the existence of long-term effects; it approximates responses to precipitation over several months up to a few years. These effects would include reservoir levels, groundwater, and lake levels. As Figure 2 shows, some regions of the United States include both an "S" and "L" designation, indicating that in early October 2017 those regions are experiencing both short- and long-term impacts. What Causes Drought in the United States? The immediate cause of drought is the predominant sinking motion of air (subsidence) that results in compressional warming or high pressure, which inhibits cloud formation and results in lower relative humidity and less precipitation. Regions under the influence of semipermanent high pressure during all or a major portion of the year are usually deserts, such as the Sahara and Kalahari deserts of Africa and the Gobi Desert of Asia. Prolonged droughts occur when these atmospheric conditions persist abnormally for months or years over a certain region. Predicting drought is difficult because the ability to forecast surface temperature and precipitation depends on a number of key variables, such as air-sea interactions, topography, soil moisture, land surface processes, and other weather system dynamics. Scientists seek to understand how all these variables interact and to further the ability to predict sustained and severe droughts beyond a season or two, which is the limit of drought forecasting abilities today. In the tropics, a major portion of the atmospheric variability over months or years seems to be associated with variations in sea surface temperatures (SSTs). Since the mid- to late 1990s, scientists have increasingly linked drought in the United States to SSTs in the tropical Pacific Ocean. Cooler-than-average SSTs in the eastern tropical Pacific region—"La Niña-like" conditions—have been shown to be correlated with persistently strong drought conditions over parts of the country, particularly the West. A number of studies have made the connection between cooler SSTs in the eastern Pacific Ocean and the 1998-2004 western drought, three widespread and persistent droughts of the late 19 th century, and past North American megadroughts that recurred between approximately 900 and 1300 A.D. The precolonial megadroughts apparently lasted longer and were more extreme than any U.S. droughts since 1850, when instrumental records began. Some modeling studies suggest that within a few decades the western United States may again face higher base levels of dryness, or aridity, akin to the 900-1300 A.D. period. The Southwest as a whole, in fact, has experienced a drought of fluctuating severity for the past 16 years, possibly foreshadowing conditions that could become more common in the coming decades. Although the relationship between cooler-than-normal eastern tropical Pacific SSTs (La Niña-like conditions) and drought in the United States is becoming more firmly established, meteorological drought is probably never the result of a single cause. What is emerging from the scientific study of drought is an improved understanding of global linkages—called teleconnections by scientists—among interacting weather systems, such as the El Niño-Southern Oscillation, or ENSO. (See box for a description of ENSO.) For example, some scientists link La Niña conditions between 1998 and 2002 to the occurrence of near-simultaneous drought in the southern United States, Southern Europe, and Southwest Asia. Prehistorical and Historical Droughts in the United States Some scientists refer to severe drought as "the greatest recurring natural disaster to strike North America." That claim stems from a reconstruction of drought conditions that extends back over 1,000 years, based on observations, historical and instrumental records where available, and tree-ring records or other proxies in the absence of direct measurements. What these reconstructions illustrate is that the conterminous United States has experienced periods of severe and long-lasting drought in the western states and also in the more humid East and Mississippi Valley. Drought reconstructions from tree rings document that severe multi-decadal drought occurred in the American Southwest during the 13 th century, which anthropologists and archeologists suspect profoundly affected Pueblo society. Tree-ring drought reconstructions also document severe drought during the 14 th , 15 th , and 16 th centuries in the central and lower Mississippi Valley, possibly contributing to the disintegration of societies in that region. More recently, a combination of tree-ring reconstructions and other proxy data, historical accounts, and some early instrumental records identify three periods of severe drought in the 19 th century: 1856-1865 (the "Civil War drought"), 1870-1877, and 1890-1896. The 1856-1865 drought was centered on the Great Plains and Southwest and was the most severe drought to strike the region over the last two centuries, according to one study. The 1890-1896 drought coincided with a period in U.S. history of federal encouragement of large-scale efforts to irrigate the relatively arid western states under authority of the Carey Act. At that time, Congress debated a larger federal role in western states' irrigation. This debate led to the Reclamation Act of 1902, which was enacted largely to "reclaim the arid West." In the 20 th century, the 1930s "Dust Bowl" drought and the 1950s Southwest drought are commonly cited as the two most severe large-scale, multiyear droughts in the United States. In addition, the 1987-1989 drought was widespread and severe, mainly affecting the Great Plains and California but also instigating extensive western forest fires, including the Yellowstone fire of 1988. According to several studies, however, the 19 th and 20 th century severe droughts occurred during a regime of relatively less arid conditions, especially when compared with the average aridity in the American West during the 900 to 1300 A.D. "megadroughts." One study indicates that the drought record from 900 to 1300 A.D. shows similar variability—drought periods followed by wetter periods—compared with today, but the average climate conditions were much drier and led to more severe droughts. Droughts Affect Flows in Major Western Rivers Paleoclimate reconstructions using precipitation proxies like tree rings have enabled researchers to estimate and plot the history of flows for important western rivers such as the Colorado River in the Rockies, the Sacramento and San Joaquin Rivers draining the Sierra Nevada Mountains in California, and the Klamath River draining southern Oregon and northern California. Colorado River: Approaching Historic Low Flows? The Colorado River basin has experienced generally lower-than-normal flows for the past 16 years (based on roughly 100 years of observed flow records), affecting lake levels in Lake Mead and Lake Powell. Comparing previous low-flow periods compiled from other sources may indicate what could be in store for the Colorado River and its major storage components. For example, a 2007 study showed that for the years 1130-1154, estimated Colorado River flows were less than 84% of normal (with normal defined as the mean annual flow between 1906 and 2004, about 15 million acre-feet, or MAF, measured at Lee's Ferry, AZ). Prior to the 2000-2016 dry period, the lowest 25-year mean of observed flows occurred between 1953 and 1977, but Colorado River flows were 87% of normal, still higher than the 1130-1154 period. In addition, the 25-year period of exceptionally low flow in the mid-1100s occurred within a generally dry 62-year period, 1118-1179, that was characterized by a series of multiyear low-flow pulses and the absence of years with flow much above 15 MAF. Whether the current dry spell in the Colorado basin is creating low-flow levels on the Colorado River that are similar to the low-flow levels experienced in the mid-1100s—and how likely it is that the dry period could extend for years or even decades more—remains an outstanding question. Flow data seem to suggest that Colorado River flows since 2000 are approaching those historic low levels. According to Bureau of Reclamation data, during 13 of the 16 years between 2000 and 2015, the Colorado River flows at Lee's Ferry were below the 1906-2015 average, and the average amount of flow calculated for the 16-year period was about 12.4 MAF, or 83% of the 1906-2015 average. This indicates that Colorado River flows since 2000 equal or are slightly lower than flows during the 1130-1154 period. That outcome would suggest that dry conditions since 2000 may have rivaled the extreme dry periods during medieval times. California Rivers: Low Flows in the 16th and 20th Centuries For the Sacramento and San Joaquin Rivers, both of which are critical to California's water supply and the agricultural production in the Central Valley, paleoclimate reconstructions have shown that low flows in the 1920s and 1930s rank among the most extreme in the context of the last millennium. However, 1580 was the driest single year. In 1580, flows on the Sacramento River were only 45% of the Sacramento River flow in 1924, and flows on the San Joaquin River were only 54% of the San Joaquin River flows for 1924, the second-driest single year of the entire reconstructed period. Thus, it appears that despite the severity of drought in the 1920s and 1930s, and more recent California droughts in 1975 to 1977 and in the late 1980s to early 1990s, flows on both rivers were lower during the 1500s due to drought. An outstanding question is whether the 2012-2016 California drought affected flows on the Sacramento and San Joaquin Rivers to a similar extent as did the 1920s-1930s drought or even the exceptionally dry year in 1580 (see Appendix for a discussion of the California drought). Drought and Climate Change The relationship between climate change and future trends in droughts is complex, and the scientific understanding of this relationship is evolving. In 2007, the Intergovernmental Panel on Climate Change (IPCC) released its Fourth Assessment Report, which stated that, globally, very dry areas have more than doubled since the 1970s due to a combination of ENSO events and global surface warming. The 2007 IPCC report added that very wet areas declined by about 5% globally. The report asserted that documented trends in severe droughts and heavy rains showed that hydrological conditions were becoming more intense in some regions. In 2012, the IPCC issued a new report stating that "there are still large uncertainties regarding observed global-scale trends in droughts." The newer report noted that although its earlier assessment had stated that very dry areas have more than doubled since the 1970s, that observation was based largely on only one study, which relied on a measurement primarily related to temperature, not moisture. A different study, which looked at soil moisture simulations, found that global trends in drought duration, intensity, and severity predominantly were decreasing , not increasing, but with strong regional variation. The 2012 IPCC report assigned medium confidence that there has been an overall slight tendency toward less dryness in North America (i.e., a wetting trend with increasing soil moisture and runoff). It noted that the most severe droughts in the 20 th century occurred in the 1930s and 1950s, where the 1930s drought was the most intense and the 1950s drought was the most persistent. In comparison to the severe megadroughts that occurred in North America hundreds and thousands of years ago, as documented using paleoclimate evidence (discussed earlier in this report), these recent droughts were not unprecedented, according to the 2012 IPCC report. The 2012 IPCC report concluded that despite new studies that have furthered the understanding of mechanisms leading to drought, there is still limited evidence or ability to attribute observed changes. The IPCC assessed that there was medium confidence that anthropogenic influence has contributed to changes in drought patterns in the second half of the 20 th century, but gave low confidence to the attribution of changes in drought patterns at the regional level. The report noted that some regions of the world have experienced trends toward more intense and longer droughts, such as southern Europe and West Africa. In other regions, such as central North America and northwestern Australia, droughts have become less frequent, less intense, or shorter. In 2014, the IPCC released its most recent climate assessment, which stated that for North America, decreases in snowpack already are influencing seasonal stream flows. However, the report had medium-to-high confidence that recent droughts (and floods, and changes in mean streamflow conditions) cannot yet be attributed to climate change. Further, the report stated that it is not yet possible to attribute changes in drought frequency in North America to anthropogenic climate change. The report noted that changes in these events, however, may be indicative of future conditions. Did Human-Induced Climate Change Cause the 2012-2016 California Drought? Two studies published in late 2014 and one published in 2016 provide examples of the ongoing scientific discussion about whether and how emissions of heat-trapping greenhouse gases by human activities influenced the California drought. All three studies found that although the lack of precipitation experienced during this period was within the expected range of variability based on historical norms, the higher temperatures experienced (which exacerbated the effects of drought) may be due to climate change. These studies are discussed in more detail below. One study claimed that the drought was the most severe in California's history over the past 1,200 years. The study stated that diminished snowpack, streamflows, and reservoir levels resulted in a convergence of reduced surface water supply with increased demand, a combination that appears unique in California's history. The study stated that 2014 was the worst single drought year in at least the last 1,200 years in California but that it was not the driest year (in terms of precipitation). What made 2014 stand out was the combination of lack of precipitation and record high temperatures, resulting in extreme dryness according to a soil-moisture metric known as the Palmer Drought Severity Index (PDSI). Attributing a human influence is more tenuous, according to the study, as attribution of a human influence in the form of greenhouse gases on California rainfall and Pacific storm tracks is ambiguous. The study, however, stated that "projections for a continued trend toward higher mean and extreme temperatures are robust." Further, the study linked the future warming to human activities, claiming that "future 'hot' droughts driven by increasing temperatures due to anthropogenic emissions of greenhouse gases ... are assured." Another study also published in 2014 found that the 2012-2014 dry conditions were not without precedent in California's history. The study found no clear trend toward wetter or drier conditions over the past 120 years in California. It noted that the impacts of lack of precipitation were exacerbated by warm temperatures and that November 2013 through April 2014 was the warmest winter half-year on record. This second study focused on the influence of sea surface temperatures (SSTs) on atmospheric behavior (SST forcing), and examined the role of natural atmospheric variability together with SST forcing as factors influencing the California drought. In its examination of the causes of the drought, the study observed that, generally, dry California winters arise from internal atmospheric variability, but that the 2012-2014 winters also contained a component of SST forcing. The study noted that many climate model projections show a future increase in California precipitation over the midwinter and that "the recent severe all-winter rainfall deficit is thus not a harbinger of future precipitation change." However, this second study also stated that, in the future, California may experience a net surface moisture deficit due to the projected increase in evapotranspiration, driven by warmer temperatures—the effect of which would offset and exceed the projected increase in precipitation. Both studies appear to support that same prediction. A 2016 study also agreed that high temperatures associated with the California drought reflect increasing greenhouse gases, but noted that the low precipitation during the drought was within bounds of past natural variability. The study examined past climate data, and indicated a persistent relationship between SST shifts, past climate warming, and decades or longer periods of California aridity. A pair of 2016 modeling studies examined how future greenhouse gas warming may affect atmospheric rivers, which are critical sources of precipitation for California. The modeling results indicate that by the end of the century, under a greenhouse warming scenario, the frequency of ARs may change only slightly, but the duration and the intensity of precipitation may increase, and the track of the ARs may shift southward. Drought Forecasts for the United States Predicting the intensity and duration of severe drought over a specific region is not currently possible more than a few seasons in advance because of the many factors that influence drought. Nevertheless, some modeling studies suggest that a transition to a more arid average climate in the American West, perhaps similar to conditions in precolonial North America, may be under way. Likely consequences of higher temperatures in the West include higher evapotranspiration, reduced precipitation, and decreased spring runoff. These impacts would result from an acceleration of the hydrologic cycle, due to increased warming of the atmosphere, which in turn increases the amount of water held in the atmosphere. A possible consequence is more frequent, and perhaps more severe, droughts and floods, although these changes are likely to occur unevenly across the United States. Yet the understanding of hydrologic extremes, such as drought, is confounded by other effects such as land cover changes, the operation of dams, irrigation works, extraction of groundwater, and other engineered changes. Forecasting drought conditions at the regional scale, for example for river basins or smaller features, is difficult because current climate models are less robust and have higher uncertainty at smaller scales. Even though forecasting drought at the regional scale is difficult, understanding potential changes in long-term trends is important for water managers at all levels—federal, state, local, and tribal. Water project operations and state water allocations typically are based on past long-term hydrological trends; significant deviations from such trends may result in difficult challenges for water managers and water users alike. Conversely, it is also difficult to predict when droughts will end, and in some cases significant regional droughts can end relatively abruptly with the occurrence of major precipitation events. In California, atmospheric rivers (ARs, or drought busters ) are considered critical to ending droughts in the state (see Appendix for a discussion of atmospheric rivers). Drought is a natural hazard with potentially significant economic, social, and ecological consequences. History suggests that severe and extended droughts are inevitable and part of natural climate cycles. Drought has for centuries shaped the societies of North America and will continue to do so into the future. Nonetheless, available technology and scientific understanding remain limited to forecasting any particular drought a few months in advance for a region. The prospect of extended droughts and more arid baseline conditions in parts of the United States and within regions such as the Southwest—possibly exacerbated by human-induced increases in atmospheric temperatures—represents a challenge to existing public policy responses for preparing and responding to drought. Appendix. Drought Case Studies: California, Texas, the Midwest California Drought: Busted? The five-year California drought that began in 2012 has been at the center of congressional concern and action for several Congresses. Surface water conditions in California have recovered dramatically in 2017 from the effects of the 2012-2016 drought, but some consequences, such as the decline in groundwater levels from increased pumping, likely will linger for years. In response to the drought, the 114 th Congress enacted legislation ( P.L. 114-322 ) that altered the authorities regarding how federal water infrastructure in the state is managed and how new water storage may be developed. In the 115 th Congress, there is both interest in and concern about the federal role and funding for new water infrastructure to cope with the next drought and with hydrologic conditions that can quickly transition from drought to flood conditions. Why 2017 Is Different A series of winter storms—known as atmospheric rivers , or ARs—tracked across California during the 2016-2017 winter and dropped snow and rain nearly statewide. ARs are also referred to as "drought busters " for their ability to deliver huge amounts of precipitation over a short period of time. Studies indicate that ARs are the source of 30%-50% of all precipitation along the U.S. West Coast. The 2016-2017 winter storms were primarily responsible for statewide precipitation levels in January 2017 of 10.3 inches and in February 2017 of 8 inches, corresponding to 225% and 166%, respectively, above the average for those months since 1895. January and February are typically two of the wettest months for California. ARs can erase one natural hazard, drought, but can cause another hazard—floods. They are the source of a large majority of floods along the U.S. West Coast , according to studies. When ARs deliver above-average winter precipitation, reservoir managers must balance maintaining reservoir storage space to capture floodwaters with keeping reservoirs full (with little flood storage capacity) to meet water supply demands during the summer. This balancing act nearly failed in March 2017 at Lake Oroville, California's second-largest reservoir, as a series of storms caused the lake level to rise to 100% capacity. Operators were forced to release water over a spillway, and dangerous conditions caused evacuations from downstream communities. Snowpack levels over the 2017 winter and spring were well above the amounts during the 2012-2016 drought. By April 1, 2017, one estimate indicated, snowpack was greater than in the previous four years combined. High snowpack levels led to high amounts of runoff in the spring ( Figure A-1 ), which filled California's reservoirs for the spring and summer, providing water for irrigation during the summer growing season. Reservoir levels have stayed at high levels into the fall of 2017, as indicated in Figure A-2 . Is the Drought Over? The U.S. Drought Monitor ( Figure A-3 ) and other indicators (e.g., reservoir levels, Figure A-2 ) suggest that the drought has largely abated for most of California, and Governor Brown announced an end to the statewide Drought State of Emergency in April 2017. Figure A-3 compares drought conditions a year apart, showing 100% of the state in drought or abnormally dry conditions on October 11, 2016, and 21% of the state in exceptional drought. In contrast, nearly 78% of California was drought-free on October 10, 2017, and none of the state was experiencing more than moderate drought. However, the cumulative effects of the multiyear drought—particularly on groundwater supplies—are significant. Unlike surface water, which can recover from drought relatively quickly in a wet year, the amount of groundwater stored in many depleted aquifers likely will take much longer to recover and may never regain pre-drought levels. During the recent drought, California irrigators increasingly relied on groundwater to substitute for surface water. Consequently, groundwater levels in the state's Central Valley dropped, particularly in the San Joaquin Valley (SJV). For example, aquifer levels in parts of the SJV experienced water-level drops of more than 50 feet between 2011 and 2016 ( Figure A-4 ). In some locations, decreased groundwater levels caused the ground surface to drop in elevation ( land subsidence ). Subsidence was as much as 22 inches in some areas of the southern SJV between 2015 and 2016. In some locations the land surface may rebound a small amount (known as elastic deformation ) with groundwater recharge; for many locations, the land surface does not recover ( inelastic deformation ). Parts of the southern SJV experienced nearly 27 feet of permanent land subsidence in the last century due to groundwater pumping . Permanent subsidence means that the thickness of the aquifer shrinks, which decreases the aquifer's capacity to store groundwater. Another potential consequence is damage to surface structures, such as canals, levees, roads, and foundations of structures. Groundwater pumping during the recent drought, for example, resulted in land subsidence and damage to the Delta-Mendota Canal, buckling the concrete sides in some places. In one portion of the canal, a bridge dropped so low it nearly touched the surface of the water. Drought in Texas: 2011 Texas experienced varying levels of drought from 2011 to late spring 2015, when record amounts of rain fell in parts of the state, essentially ending the multiyear drought. However, the drought in Texas was most extensive and most severe in 2011. For example, mid-February 2011 conditions in Texas were dramatically different compared with mid-February 2010, when only about 7% of the total land area in Texas was abnormally dry and no part of the state was experiencing even moderate drought. Drought conditions worsened in Texas through the beginning of October 2011, when 88% of the state experienced exceptional drought conditions and only 3% of the state was not classified as being in extreme or exceptional drought ( Figure A-5 ). Drought conditions generally improved throughout the rest of 2011, but large portions of the state were still affected by extreme or exceptional drought until late winter and early spring 2012, when the eastern portion of the state recovered to normal or abnormally dry conditions (the least severe category) because of above-normal rainfall from December 2011 through February 2012. Drought conditions persisted in parts of Texas through early 2015, although the most severe, extreme, and exceptional conditions occurred in 2011. According to Texas state climatologist John Nielsen-Gammon, 2011 may have been the worst one-year drought on record for Texas. Compounding the effects of abnormally low precipitation, the June-August average temperature in Texas was approximately 2.5 degrees Fahrenheit higher than during any Texas summer since record keeping began in 1895 and 5 degrees Fahrenheit higher than the long-term average. Drought in the Midcontinent: 2012-2013 In mid-August 2012, approximately 70% of the land area of the United States (including Alaska and Hawaii) was affected by abnormally dry and drought conditions. The land area affected by abnormally dry or drought conditions stayed at or above 65% through February 2013. The intensity of the drought varied, with the regions of extreme and exceptional drought clustered across the Midwest, Great Plains, Southwest, and Southeast, particularly Georgia in 2012 ( Figure A-6 ). Figure A-6 shows that Texas and portions of Florida and Georgia experienced exceptional drought conditions (the worst category of drought) in early 2012, while the upper Midwest, including most of the Mississippi Valley, experienced normal conditions. A year later, in early 2013, the drought had eased somewhat in portions of Georgia and Florida, but it had intensified throughout the center of the country from Texas to the Canadian border. Nearly 12% of the contiguous United States was in exceptional drought conditions from late June 2011 through October 2011, compared to approximately 6% of the country the following year. However, exceptional drought conditions persisted over nearly 6% of the contiguous United States from mid-August 2012 through mid-February 2013. Although less severe for portions of the country, such as Texas and Florida, the 2012-2013 drought affected broader swaths of the agricultural heartland compared to 2011 ( Figure A-6 ). The 2012-2013 experience illustrates that the extent, timing, and particular features of areas affected by drought—dryland versus irrigated farm regions, regions that are still recovering from previous droughts, or regions with multiyear surface storage or ample groundwater resources—are important in addition to the relative severity of drought conditions. Origin of the 2012-2013 Drought Figure A-6 shows a snapshot of drought conditions for mid-February in the United States for 2010-2015. In 2010, most of the United States was experiencing near-normal conditions. The extent and severity of the 2012-2013 drought raised questions regarding its origin and whether the drought was within the range of natural variability in the U.S. Midwest and Plains or whether it was linked to longer-term changes in the Earth's climate system, such as human-induced global warming. Although the images presented in Figure A-6 may seem to indicate a steady progression of drought in the middle portion of the country from near-normal conditions in 2010 to widespread and intense drought in 2012-2013, a March 2013 analysis concluded that the 2012 intense drought in the midcontinent region was a discrete extreme event. The report stated that "the event did not appear to be just a progression or a continuation of the prior year's record drought event that developed in situ over the central U.S." Instead, the report asserted that the drought developed suddenly, with near-normal precipitation during winter and spring 2012 over the Great Plains. According to the report, the drought resulted from an extreme lack of precipitation during the summer months: 2012 was the driest summer in the observed historical record for the region, experiencing even less rainfall than the years 1934 and 1936, when the central Great Plains were about 0.5 degrees Celsius warmer than 2012. Essentially, the rains abruptly stopped in May over the central Great Plains and did not return for the summer. The report further stated that the 2012 summer drought was a "climate surprise," because summertime Great Plains rainfall has been trending upward since the early 20 th century and the last major drought occurred in 1988. Further, the report concluded that neither sea surface temperatures, which have been rising generally due to global warming, nor changes in greenhouse gases in the atmosphere were responsible for producing the anomalously dry conditions over the central Great Plains in 2012. (See section on " Drought and Climate Change " in the main text of this report.) Although seasonal forecasts did not predict the summer 2012 drought in the Great Plains, a 2014 retrospective report stated that some modeling results indicated a broad shift toward warmer and drier western Great Plains and Southwest conditions during the 10 years to 15 years prior to the 2012 drought. The report noted that the shift likely is due to natural decadal variability, but the existence of such variability would have increased the probability of a severe summer Great Plains drought, such as the 2012 event. The report concluded that the 2012 Great Plains drought resulted mostly from natural variations in weather.

Drought is a natural hazard with potentially significant economic, social, and ecological consequences. History suggests that severe and extended droughts are inevitable and part of natural climate cycles. Drought has for centuries shaped the societies of North America and will continue to do so into the future. The likelihood of extended periods of severe drought and its effects on 21st-century society in the United States raise several issues for Congress. These issues include how to respond to recurrent drought incidents, how to prepare for future drought, and how to coordinate federal agency actions, among other policy choices. Understanding what drought is and its causes, how it has affected North America in the past, and how drought may affect the United States in the future all bear on actions Congress may take to prepare for and mitigate the effects of drought. The 2012-2016 drought in California and parts of other western states, and 16 years of dry conditions in the Southwest, have fueled congressional interest in drought and its near-term effects on water supplies and agriculture, as well as in long-term issues, such as drought forecasting and possible links between drought and human-induced climate change. Surface water conditions in California have recovered dramatically in 2017 from the effects of the drought, but some consequences, such as the decline in groundwater levels from increased pumping, likely will linger for years and may even be permanent. In response to the California drought, the 114th Congress enacted legislation (P.L. 114-322) that altered the authorities regarding how federal water infrastructure in the state is managed and how new water storage may be developed. In the 115th Congress, there is both interest in and concern about the federal role and funding for new water infrastructure to cope with the next drought and with hydrologic conditions that can quickly transition from drought to flood conditions. Some scientists refer to severe drought as a recurring natural disaster in North America. Reconstructions of drought conditions that extend back over 1,000 years—based on observations, historical and instrumental records, and tree rings—illustrate that portions of the conterminous United States have experienced periods of severe and long-lasting drought termed megadroughts. For example, drought reconstructions from tree rings document that severe multi-decadal drought occurred in the American Southwest during the 13th century. These megadroughts have affected flows in major western rivers. For example, during the years 1130-1154, estimated Colorado River flows were less than 84% of normal. Recent data suggest that Colorado River flows since 2000 are approaching those previous lows—flows have been below average for 13 of the 16 years between 2000 and 2015. Part of the country is almost always experiencing drought at some level. The land area affected by drought can vary widely by year and also within a particular year. In May 2017, only 3.8% of the total U.S. land area was affected by drought of at least moderate intensity. In contrast, in September 2012, 55% of the nation faced drought of moderate or greater intensity, and 35% of the country was under severe drought. Predicting the intensity and duration of severe drought over a specific region is not currently possible more than a few months in advance because of the many factors that influence drought. Even though forecasting drought at the regional scale is difficult, understanding potential changes in long-term trends is important for water managers at all levels—federal, state, local, and tribal. Water project operations and state water allocations typically are based on past long-term hydrological trends; significant deviations from such trends may result in difficult challenges for water managers and water users alike.

Introduction The U.S.-South Korea Free Trade Agreement (KORUS FTA) entered into force on March 15, 2012. It includes provisions to reduce and eliminate bilateral tariff and non-tariff barriers and enhance the rules and disciplines governing the bilateral trade and investment relationship, including issues such as: trade in manufactured goods, agricultural products, and services; foreign investment; government procurement; intellectual property rights; and worker rights and the environment, among other issues. While most of the agreement's provisions went into effect immediately, some are being phased in over the next several years. The United States and South Korea entered into the KORUS FTA as a means to further solidify an already strong bilateral economic relationship. The United States specifically sought increased access to South Korean markets for agricultural products, manufactured goods, services, and foreign investment. The United States likely also sought to maintain its competitiveness in South Korea in the face of Seoul's FTA negotiations with other major trading partners, including the European Union. For South Korean leaders, the KORUS FTA was a mechanism to promote reform in its own economy and also to gain greater access to the U.S. market for autos and other manufactured goods. In general and in the short- to medium-term, the KORUS FTA's largest commercial effects are expected to be microeconomic in nature. In other words, from the perspective of specific industries, the agreement may have a noticeable impact even if its economy-wide effects are modest. However, the increase in the U.S. trade deficit with South Korea since the agreement's entry into force has caused some observers to question the benefits of the agreement, although other factors—including a decrease in South Korea's rate of economic growth—may have been the main drivers of evolving trade patterns. As discussed in the " Implementation Issues " section below, some U.S. companies have argued that certain aspects of the KORUS agreement are not being implemented appropriately. For instance, U.S. exporters have claimed the agreement's effectiveness has been diminished by South Korean customs authorities requiring allegedly excessive documentation to certify rules of origin of imports of U.S. products. U.S. manufacturers also have raised concerns that a proposed South Korean tax credit/tax penalty program for car purchases may discriminate against imports of U.S.-made cars. South Korean and U.S. officials are reportedly working to resolve these issues. Perceptions about the KORUS FTA and its provisions may influence other U.S. trade negotiations, as well as congressional debate over their potential implementation. The most prominent of these is the Trans-Pacific Partnership (TPP), a 12-nation FTA negotiation that now includes Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam, and in which South Korea has signaled an interest in participating. Views on the relative benefits of KORUS may also affect the ongoing Transatlantic Trade and Investment Partnership (T-TIP) negotiations between the United States and the European Union. Many observers have argued that in addition to its economic implications, the KORUS FTA has diplomatic and security implications. For example, they have suggested that it will deepen the U.S.-South Korean alliance by strengthening the bilateral economic relationship. The United States and South Korea have been allies since the United States intervened on the Korean Peninsula in 1950 and fought to repel a North Korean takeover of South Korea. This report examines the provisions of the KORUS FTA and issues related to its implementation in the context of the overall U.S.-South Korean economic relationship, U.S. objectives, and South Korean objectives. It also examines recent trade patterns. The KORUS FTA in a Nutshell Some highlights of the results of the agreement are provided below. Background information and a more detailed examination of the agreement's provisions are provided in the main sections of this report. Agriculture Under the KORUS FTA's agricultural provisions, South Korea immediately granted duty-free status to almost two-thirds of current U.S. agricultural exports. Tariffs and import quotas on most other agricultural goods will be phased out within 10 years, with a few commodities and food products subject to provisions that phase out such protection by year 23. However, because of their sensitivity, duty-free access for several U.S. products will slowly expand in perpetuity but remain subject to South Korean import quotas. Much effort went into negotiating provisions covering four agricultural commodities of export interest to the United States. Under the KORUS FTA, South Korea agreed to eliminate its 40% tariff on beef muscle meats imported from the United States over a 15-year period. However, negotiators did not reach a breakthrough by the end of the talks on the separate but parallel issue of how to resolve differences on the terms of access for all U.S. beef in a way that would address Korea's human health concerns arising from the 2003 discovery of mad cow disease in the U.S. cattle herd. It was only following the conclusion one year later of a difficult series of negotiations on a separate bilateral understanding on the terms of U.S. beef access to the South Korean market—accompanied by widespread public protests in Korea—that shipments resumed in July 2008. Negotiations on access for U.S. rice and oranges into the South Korean market also were contentious. Rice was a "make-or-break" issue for Seoul, and excluded at South Korea's insistence out of U.S. recognition that if pushed, the talks would likely have collapsed. Special treatment for U.S. oranges was agreed to at the last moment, when negotiators compromised on a multi-part solution expected to increase U.S. navel orange exports over time. In the December 2010 changes to the initial agreement, Korea secured a two-year extension in the tariff phase-out for one commercially important line of U.S. frozen pork product in return for changes the United States sought in its commitments under the auto and other provisions. In June 2011, South Korea's trade minister clarified that the use of certain generic names by U.S. cheese exporters selling to that market will not be restricted by provisions in the EU-Korea (KOREU) FTA. Automobiles Trade in autos and auto parts proved to be among the most contentious areas tackled by U.S. and South Korean negotiators. In recent years, South Korean auto manufacturers have increased their market share through imports and expanded car production in the United States and other major automotive markets like the European Union. U.S. industry argued that South Korea should eliminate policies and practices that seemingly discriminate against U.S. auto imports. In December 2010, the United States and South Korea reached a joint understanding on automotive trade. Due to these modifications, all three U.S. automakers ultimately supported the KORUS FTA. A detailed discussion of the auto-specific provisions is provided later in this report. A few of the most important provisions are discussed below. The United States will eliminate its tariff of 2.5% on passenger cars, including electric and hybrid vehicles, as of 2016. South Korea cut its passenger car tariff to 4% upon implementation of the KORUS FTA and will remove the remaining tariff in 2016. For trucks, South Korea dropped its 10% duty upon implementation, while the U.S. tariff of 25% will remain in place for seven years and then be phased out entirely by 2021. The KORUS FTA also includes a "snapback provision" that allows the United States to reinstate its 2.5% passenger car tariff, once the duties are completely eliminated, if U.S. automakers claim and the dispute settlement panel finds that South Korea is in violation of the agreement. The snapback could also be imposed due to violations regarding imports of trucks. South Korean commitments regarding a specified group of new and already proposed regulations on automobile fuel economy and greenhouse gas emissions do not seem to be enforceable under the dispute settlement provisions of the KORUS FTA; presumably the snapback will not apply to these commitments. A special motor vehicle safeguard allows the United States to take action if there are "any harmful surges in South Korean auto imports due to the agreement." A safeguard can be initiated by the United Auto Workers union, the domestic auto industry, or the U.S. government. The remedy for finding injury is a snapback to the original tariff levels in place prior to the implementation of the FTA. This remedy can be used more than once and is available for a period of up to 10 years after the concerned tariffs are eliminated. As a remedy under the auto-specific safeguard, the United States will be able to re-impose the 2.5% passenger vehicle tariff. South Korean assembly production in the United States rose to almost 770,000 cars and light trucks in 2013. At more than 750,000 units, nearly an equal number of passenger vehicles and light trucks were imported from South Korea in 2013, up 28% from two years earlier. If U.S.-based producers—including foreign-owned automakers such as BMW or Toyota—meet U.S. federal safety standards, each manufacturer can export as many as 25,000 cars directly to South Korea from the United States without complying with South Korean safety standards. Additionally, they must satisfy KORUS FTA domestic content provisions. U.S. automakers also have some flexibility to be considered in compliance with new South Korean fuel economy and greenhouse gas emissions standards. The Koreans made some concessions on issues that were seen as non-tariff barriers to auto trade involving safety and environmental (e.g., fuel economy and emissions) standards. Trade data show that exports of U.S. autos to South Korea have risen in recent years measured by dollar value and number of units. Sales of "Detroit 3" cars in Korea grew 20% to more than 11,600 cars in 2013, a difference of almost 2,000 cars from 2012, with Ford vehicles representing the majority. However, it is too early to make any conclusive observations about the benefits or disadvantages of the KORUS FTA for the auto industry. A two-year snapshot can be misleading, especially since tariffs are still being phased out. Some U.S.-based automakers continue to raise concerns about non-tariff barriers that impede their exports to South Korea. Other Key Provisions The KORUS FTA covers a broad range of other areas. According to the Office of the United States Trade Representative (USTR), 95% of U.S.-South Korean trade in consumer and industrial products will become duty-free by 2016 and virtually all remaining tariffs will be lifted by 2021. The two countries agreed to liberalize trade in services by opening up their markets beyond what they have committed to do in the World Trade Organization (WTO). About 60% of U.S.-South Korea trade in textiles and apparel became duty-free immediately, and the KORUS FTA will provide a special safeguard mechanism to reduce the impact of textile and apparel import surges. Trade remedies were a critical issue for South Korea and a sensitive issue for the United States. The FTA allows for the United States to exempt imports from South Korea from a "global" escape clause (§201) measure if they are not a major cause of serious injury or a threat of serious injury to the U.S. domestic industry. The FTA also provided for a binational consultative committee for information sharing on trade remedy matters. In addition, South Korea and the United States agreed to establish an independent body, a Medicines and Medical Devices Committee, to review recommendations and determinations regarding South Korean pricing and government reimbursement for pharmaceuticals and medical devices and to improve transparency in the process for making those determinations. Furthermore, one year after the KORUS FTA entered into force, a binational committee was to be formed to study the possibility of eventually expanding the agreement's coverage to products from "Outward Processing Zones," including the Kaesong Industrial Complex and/or other future zones located in North Korea. The committee met in November 2013 to discuss the issue and will continue to meet annually. Background on Legislation and Objectives Legislative Action The KORUS FTA negotiations were conducted under the trade promotion authority (TPA), also called fast-track trade authority, that Congress granted the President under the Bipartisan Trade Promotion Act of 2002 ( P.L. 107-210 ). Under TPA the President had the discretion on when to submit the implementing legislation to Congress. Despite signing the KORUS FTA in 2007, President Bush did not submit the implementing legislation to Congress because of differences, primarily with the Democratic leadership, over treatment of autos and beef, among other issues. On December 3, 2010, U.S. and South Korean leaders announced that they had reached agreement on addressing the outstanding issues related to the KORUS FTA. As a result, U.S. and South Korean negotiators agreed to modifications to some of the commitments made in the 2007 agreement. These modifications, which were signed on February 10, 2011, are in the form of an "exchange of letters" and two "agreed minutes." They pertained mostly to the auto provisions and included changes in phase-out periods for tariffs on autos and pork, a new safeguard provision on autos, and concessions by South Korea to allow a larger number of U.S. cars into South Korea under U.S. safety standards than was the case under the original KORUS FTA provisions. On October 3, 2011, President Obama submitted draft implementing legislation ( H.R. 3080 / S. 1642 ) to both houses of Congress. On October 6, the House Ways and Means Committee reported out H.R. 3080 ( H.Rept. 112-239 ). The Senate Finance Committee reported out S. 1642 (without written report). On October 12, the House passed H.R. 3080 (278-151) and sent it to the Senate which passed it (83-15). The President signed the legislation on October 21, 2011 ( P.L. 112-41 ). From 2006-2012, the negotiation and ratification of the KORUS FTA was a major issue in South Korean politics. On November 22, 2011, South Korea's National Assembly ratified the agreement by a vote of 151-7, with 12 abstentions. (The Assembly has 299 members.) The same day, the Assembly passed over a dozen implementing bills. The debate over the agreement's ratification was contentious and divisive, despite the fact that President Lee's party, the conservative Grand National Party (GNP) , controlled the National Assembly. Korea's largest opposition party, the left-of-center Democratic Party (DP) , strongly opposed the agreement. The final vote was held only after the GNP surprised the opposition by convening a special session for a snap vote. During parliamentary and presidential elections in 2012, several prominent DP candidates called for renegotiating parts or even all of the KORUS FTA. However, the issue appears to have faded since that time, in large part because the GNP's successor party retained control of both the presidency and the National Assembly in the 2012 elections. U.S. and South Korean Objectives in an FTA Economic Goals U.S. and South Korean policymakers shared certain goals in launching and completing the negotiations on the KORUS FTA. Both governments saw in the FTA a logical extension of an already important economic relationship that would provide a means by which the two trading partners could address and resolve fundamental issues and, thereby, raise the relationship to a higher level. U.S. and South Korean leaders approached the KORUS FTA from different perspectives that were reflected in the conduct and outcome of the negotiations, despite some broad shared objectives. A primary objective of the United States was to gain greater access to South Korean markets in agricultural products, autos, pharmaceuticals and medical equipment, some other high-technology manufactured goods, and services, particularly financial and professional services—areas in which U.S. producers are internationally competitive. In addition, the United States sought to establish updated trade and investment disciplines in the dynamic and trade-oriented East-Asian region. Launching the FTA negotiations was largely at the initiative of South Korea. Its main objective in securing an FTA with the United States was much broader than gaining reciprocal access to the U.S. market. South Korean exporters already had a significant presence in areas in which they have proved to be competitive. Instead, entering an FTA with the United States meshed with a number of former South Korean President Roh Moo-hyun's long-term domestic economic and strategic goals. Roh made an FTA the top economic priority for the remainder of his tenure, which ended in February 2008. Soon after his election in 2002, Roh committed himself to raising South Korea's per capita gross domestic product (GDP) to $20,000 by the end of the decade and to transforming South Korea into a major "economic hub" in Northeast Asia by expanding the economic reforms begun by his predecessor following the 1997 Asian financial crisis. Ongoing competitive pressure from Japanese firms, increased competition from Chinese enterprises, and the rapid ageing of the South Korean workforce has heightened the sense of urgency about boosting national competitiveness. Former President Lee Myung-bak, who succeeded Roh in December 2007, made the economy the centerpiece of his campaign and supported the KORUS FTA as part of a larger program to promote South Korean economic growth. During the negotiations, South Korean officials and other South Korean proponents of the KORUS FTA tended not to focus on the increased access to the U.S. market. Rather, they emphasized the medium and long-term gains that would stem from increased allocative efficiency of the South Korean economy, particularly in the services industries. This would presumably be brought about by an influx of U.S. investment and technology into South Korea and by the spur of increased competition with U.S. firms. Some, however, raised concerns that an FTA would worsen South Korea's income gap, and during the talks, there were continuous and often large scale anti-FTA protests, generally led by South Korean farmers and trade unionists. Foreign Policy Goals The United States and South Korea negotiated the KORUS FTA in part as a means to strengthen and restore the health of a critical foreign policy and national security alliance. While the talks were ongoing in 2006 and 2007, the KORUS FTA sometimes was discussed as a possible counterweight to the bilateral friction that was occurring over issues such as how to manage relations with North Korea and the repositioning of U.S. troops in South Korea. These tensions decreased markedly in 2007, following the Bush Administration's decision to place greater emphasis on engagement and negotiations with North Korea. The December 2007 election of Lee, who stressed the importance of rebuilding U.S.-South Korean ties improved relations further. Thus, with the alliance on firmer ground, by 2009 the KORUS FTA no longer appeared to be an exceptional area of bilateral cooperation. Although the FTA's utility as an acute salve for the alliance was reduced, some argue it will help to boost the alliance over the medium and longer term, by deepening bilateral economic and political ties. Entering into an FTA, some argue, was a way to help reorient the alliance to adapt to the changes on the Korean Peninsula and in East Asia. However, in concrete terms, it is difficult to see how the KORUS FTA has made or will make a significant difference in the strategic relationship, as it is not clear that it has altered either country's fundamental interests on the Peninsula or in Northeast Asia. In contrast, while the passage of the KORUS FTA was unlikely to have a major substantive impact on the strategic relationship, a collapse of the KORUS FTA would probably have had a profound symbolic effect, particularly upon the way South Koreans view the alliance. If the KORUS FTA had been rejected or subjected to a prolonged delay by the United States, it would have been a psychological blow to many South Korean policymakers, many of whom would likely have seen it as a betrayal. This would be particularly true since, in their eyes, they made politically costly concessions on autos, beef, labor, and the environment to help ensure the agreement would be more favorably received in the U.S. Congress. The KORUS FTA's failure in the United States, according to some Korean politicians and policymakers, would have lent credence to arguments in South Korea that the U.S. commitment to Korea and Northeast Asia was declining. If these perceptions had taken hold, it would increase the political costs of South Korean leaders' taking unpopular decisions on behalf of the alliance, such as increasing South Korea's share of the costs of maintaining U.S. troops on the Peninsula. U.S.-South Korean Economic Relations South Korea is a major economic partner of the United States. In 2013, two-way goods trade between the two countries totaled $101.3 billion, making South Korea the United States' sixth-largest trading partner ( Table 1 ). Major U.S. exports to South Korea include semiconductors, machinery (particularly semiconductor production machinery), aircraft, and agricultural products. Major U.S. imports from South Korea include autos and electrical machinery including cellular phones. Two-way services trade with South Korea totaled $31.7 billion in 2013. The U.S. consistently runs a goods trade deficit with South Korea ($23 billion in 2013) and a services trade surplus ($10.1 billion in 2013). In 2013, U.S. FDI into South Korea totaled $2.5 billion while South Korean FDI into the United States totaled $6.6 billion. South Korea is more dependent economically on the United States than the United States is on South Korea. In 2013, the United States was South Korea's second-largest goods trading partner. In 2003, China for the first time displaced the United States from its perennial place as South Korea's number one trading partner. Since that time, Japan and the United States have fluctuated as South Korea's second-largest trading partner. Historically, economic interaction between the United States and South Korea has been accompanied by numerous disagreements over specific trade issues. In general, U.S. exporters and trade negotiators identify the lack of transparency of South Korea's trading and regulatory systems as the most significant barriers to trade with South Korea in almost every major product sector. Many U.S. government officials also raise concerns that Seoul continues to use government regulations and standard-setting powers to discriminate against foreign firms in politically-sensitive industries, such as automobiles and telecommunications. Another issue of concern is that rigidities in the South Korean labor market, such as mandatory severance pay, raise the cost of investing and doing business. Finally, the United States and other countries have pressed South Korea to open further its agricultural market, which is considered one of the most closed among members of the Organization for Economic Cooperation and Development (OECD). The intensity of these disputes has diminished considerably in the past two decades, in part due to reforms enacted following the near collapse of the South Korea economy in 1997, and South Korea has become more open to foreign investors, such that many U.S. firms now have a significant presence in South Korea. In addition, many of these issues arose during the KORUS FTA negotiations and were addressed in the final agreement. The committees and working groups created as part of the FTA, such as the Automotive Working Group, provide further venues for the two nations to monitor trade issues including those related to the implementation of the agreement. Estimates of Economic Impact of a KORUS FTA Prior to the KORUS FTA's entry into force, economists released several studies estimating the potential effects of the agreement. As required by U.S. Trade Promotion Authority (TPA), which expired in 2007, the USITC conducted a study in 2007 of the KORUS FTA at the request of the President. The USITC study concluded that U.S. GDP would be higher by $10.1 billion to $11.9 billion (approximately 0.1%) when the KORUS FTA is fully implemented, a negligible amount given the size of the U.S. economy. The USITC based this estimate primarily on the removal of tariffs and tariff rate quotas, that is, barriers that can be relatively easily quantified. The study concluded that U.S. exports of goods would likely be higher by $9.7 billion to $10.9 billion, primarily in agricultural products, machinery, electronics, transportation equipment, including passenger vehicles and parts. U.S. imports would increase $6.4 billion to $6.9 billion, primarily in textiles, apparel, leather products, footwear, machinery, electronics, and passenger vehicles and parts. The estimates did not take into account the impact of the reduction of barriers to trade in services and foreign investment flows and changes in regulations as a result of the KORUS FTA. The study noted that U.S. exports in services would increase as a result of South Korean commitments under the KORUS FTA, and that changes in the regulatory environment in both countries would also help to increase bilateral trade and investment flows. The ITC study estimated that changes in aggregate U.S. employment would be negligible given the much larger size of the U.S. economy compared to the South Korean economy. However, while some sectors, such as livestock producers, were estimated to experience increases in employment, others such as textile, wearing apparel, and electronic equipment manufacturers were expected to experience declines in employment. Other studies draw similar conclusions, although the magnitudes differ because they employ different models from the USITC study. For example, a University of Michigan analysis commissioned by the Korea Economic Institute estimated that U.S. GDP will increase by $25.12 billion (0.14% of U.S. GDP). This is larger than the USITC estimate partly because it estimated the effects of liberalization in services trade. The authors also analyzed the impact of a KORUS FTA before the final text had been released and assumed, among other things, that rice trade would be liberalized, which, in the end, was not the case. In December 2005, the Korea Institute for International Economic Policy (KIEP) published a study measuring the potential economic impact of the KORUS FTA on South Korea alone. The study estimated some of the dynamic, or long-run, economic effects, in addition to the static, one-time effects. The KIEP study estimated that the FTA would eventually lead to a 0.42% to 0.59% increase in South Korea's GDP according to a static analysis, and 1.99% to 2.27% according to a dynamic analysis. The Economic Policy Institute estimated that the KORUS FTA would increase the U.S. trade deficit by $13.5 billion and eliminate approximately 159,000 jobs. The study utilizes an unconventional approach in its estimation, using historical data on the changes in trade flows following other FTA agreements as a predictor of KORUS' economic impact. Economic Impact: Two Years of the KORUS FTA On entry into force of the KORUS FTA on March 15, 2012, 82% of U.S. tariff lines and 80% of South Korean tariff lines became duty free, whereas prior to the KORUS FTA, only 38% of U.S. tariff lines and 13% of South Korean tariff lines were duty free. By the tenth year of the agreement, the figures are estimated to be 99% and 98%, respectively, with tariff elimination occurring in stages and the most sensitive products, such as agricultural products, having the longest phase-out periods. Non-tariff barriers in goods trade and barriers in services trade and foreign investment also will be reduced or eliminated under the KORUS FTA. Assessing the impact of the KORUS FTA on U.S.-South Korea trade flows and the U.S. economy is a difficult question to answer definitively for several reasons. First, assessing the impact of a policy change (the KORUS FTA) on an economic variable (trade flows) requires a careful analysis that takes into account other variables, which may also affect the outcome. Without a more dynamic modeling framework that accounts for these other variables, one may attribute a change in the trade balance to the KORUS FTA when a change in exchange rates or aggregate demand, for example, is actually responsible. In addition, the KORUS FTA has only been in effect for about two years, making it difficult to discern its long-term direct economic and trade effects on the United States. Tariffs on the most sensitive products will be phased out over several more years, and production and consumption patterns take time to adjust. Indeed, the benefits of trade agreements are generally long-term in nature, accruing gradually over time. In addition, aggregate data on trade flows may not capture the full impact of the agreement. Any significant effects of the KORUS FTA are more likely to be evident on individual firms and industries rather than trade flows as a whole. Moreover, some of the potential benefits of freer trade, which include lower-priced and more diverse goods and services, as well as improved productivity among firms, cannot be easily measured by trade balances. With these challenges in mind Table 1 and the discussion that follows provides an examination of U.S. trade flows with South Korea since 2011, the last full year prior to the KORUS FTA's entry into force. From 2011 to 2013, U.S. goods exports to South Korea decreased from $41.3 billion to $39.2 billion (5% decrease), while imports increased from $56.0 billion to $62.1 billion (11% increase). This caused the U.S. goods trade balance with South Korea to decrease (become more negative) from $-14.7 billion to -$23.0 billion (56% decrease). During the same period, U.S. services exports increased from $16.7 billion to $20.9 billion (25% increase), while imports increased from $9.7 billion to $10.8 billion (10% increase), such that the U.S. services trade balance with South Korea increased from $6.9 billion to $10.1 billion (46% increase). The increase in the U.S. goods trade deficit with South Korea since the implementation of the KORUS FTA has caused concern among some U.S. policymakers. Some of the decrease in exports to South Korea, a contributor to the rising trade deficit, is likely due to fluctuations in the business cycle in South Korea during the same time period and is not unique to the United States. Figure 1 charts the annual percent change of South Korea's imports from the world and the United States as well as its annual change in GDP. GDP growth slowed in South Korea in both 2011 and 2012, and South Korea's imports from the United States as well as the world at large fell in 2012 and 2013. From 2011 to 2013, South Korea's goods imports from the world overall fell 1.7%, as did South Korea's imports from its top three import suppliers ( Table 2 ). South Korea's imports from China fell by 3.9%, imports from Japan dropped by 12.1%, and imports from the United States shrank by 6.9%. Table 3 provides additional information on the U.S.-South Korea import and export commodity categories that experienced the greatest increase or decrease in absolute terms between 2011 and 2013. Categories with large fluctuations include both those with and without large tariff changes as a result of the KORUS FTA, suggesting that other factors also affected the changing pattern of U.S.-South Korea trade flows. For example, U.S. imports of South Korean vehicles and vehicle parts increased by $4.5 billion, with imports of vehicles alone increasing by $3.3 billion, yet the U.S. import tariff on passenger vehicles (currently 2.5%) will not be reduced until 2016 and the U.S. truck tariff (currently 25%) will stay in place through 2018 and will be duty-free beginning in 2022. Meanwhile, U.S. exports of cereals to South Korea, primarily corn, fell by more than $1.7 billion from 2011 to 2013. This had a large negative impact on the declining trade balance and resulted from the 2012 drought in the Midwest and Plain States—U.S. corn exports to the world were down over $7 billion during the same period. U.S. exports of pharmaceuticals increased by $374 million (60% increase) while the South Korean average import tariff on such products was reduced from 5% to 0%. Implementation Issues During the more than two years that the KORUS FTA has been in force, the United States has raised several issues regarding its implementation. Some of these issues are being addressed currently, while others are a matter of monitoring progress, and ongoing bilateral engagement. Several working groups and committees were established under the KORUS FTA and serve as the venues for monitoring implementation. Perceptions regarding how these issues are resolved and the adequacy of the KORUS FTA's mechanisms for their resolution may influence the negotiations and consideration for future FTAs including the TPP and T-TIP. Some issues U.S. officials and companies have raised include: Origin verification . The customs office of each trading partner applies procedures to determine whether an import from an FTA partner country meets the criteria under the rules of origin provisions of the FTA and therefore qualifies for the preferential treatment (i.e., the lower tariffs or duty free treatment). U.S. exporters have raised concerns that South Korean Customs Service (KCS) procedures require excessive documentation, unduly burdening importers of U.S. products and undermining the effectiveness of the FTA by eliminating the companies' tariff benefits. The U.S. government has questioned negative KCS rulings on imports of U.S.-origin products such as frozen orange juice concentrate, chemicals, cars, and other products. USTR and CBP reportedly are working with KCS to resolve this issue, and recent positive rulings may suggest some improvements have been made. Express delivery packages . U.S. officials have also raised concerns that South Korea may not be abiding by KORUS FTA requirements that express deliveries of packages of less than $200 in value be exempt from formal entry document requirements, thus slowing down shipments. Data transfers . The KORUS FTA includes provisions allowing financial services companies operating in South Korea to process data off-shore and new regulations in South Korea allow for such activities. U.S. companies have raised concerns, however, with the discretion afforded regulators in determining whether or not data offshoring activities are permissible. The South Korean government has agreed to review implementation quarterly of its commitments on data transfers. Proposed a utomotive regulations . The South Korean government has proposed a new regulation on auto sales intended to incentivize consumers to purchase cars with lower greenhouse gas emissions, generally closely correlated with engine size. U.S. automakers are particularly concerned about a potential tax penalty for consumers purchasing cars with a higher emissions profile, which they claim could effectively eliminate the tariff benefits they receive through the KORUS FTA. The South Korean government is reviewing the proposed regulation scheme, which was to be implemented in January 2015. Pharmaceuticals and Medical Devices . U.S. industry has raised concerns over a new pricing regime for pharmaceuticals in South Korea that they argue may undervalue new drugs. U.S. business groups also claim that the South Korean government's proposed patent linkage system, which is required under the KORUS FTA, may be biased toward generic drug manufacturers. U.S. industry has also suggested that factors not adequately covered in the KORUS FTA may be negatively impacting their ability to export to South Korea. For example, some groups, particularly U.S. automakers claim that South Korea has intervened in international currency markets in order to weaken the South Korean won relative to the U.S. dollar, thereby effectively raising the price of U.S. exports into the South Korean market. Implications for U.S. Trade Policy and U.S. Asia Policy The KORUS FTA continues to have implications for U.S. trade policy and U.S. Asia policy. It is economically significant as South Korea is the sixth largest U.S. trade partner making the agreement the largest U.S. FTA after NAFTA. As more data becomes available, further analysis of the agreement's economic impact may influence debate over future trade agreements. Furthermore, as one of the most recent U.S. FTAs to be implemented the KORUS FTA reflects the most current U.S. trade and investment policy priorities of any existing FTA and its provisions likely serve as a starting point for current U.S. trade negotiations. The agreement also reflects both U.S. and South Korean use of bilateral trade agreements, alternative efforts to the WTO and the multilateral trading system, to achieve trade and investment liberalization. As such, the KORUS FTA may have an impact on the trade priorities of other nations as they consider participation in ongoing bilateral and regional trade liberalization talks. The Asia-Pacific region is well known for its economic dynamism and the United States has sought to make the region a foreign policy priority. The entry into force of the KORUS FTA deepened the institutionalization of the United States' economic presence in the region. President Obama, Secretary of State Hillary Clinton, and other U.S. officials have said that the KORUS FTA, along with the TPP, are key parts of their move to "rebalance" U.S. strategic orientation toward the Asia-Pacific, in that they are designed to help shape the economic rules that will govern the region's economic activity in the coming decades. Many Asia-Pacific countries are also pursuing non-U.S. led trade initiatives in the region, including bilateral and plurilateral FTAs. South Korea's decision to negotiate and implement a comprehensive FTA with the United States may also influence these other region-wide trade policies. As a participant in the Regional Comprehensive Economic Partnership (RCEP) negotiations, South Korea will help determine the structure and disciplines included in that potential regional FTA. RCEP includes the 10 members of the Association of Southeast Asian Nations (ASEAN) as well as Australia, China, India, Japan, and New Zealand, and is the other major Asia-Pacific trade initiative in addition to the TPP. Some observers note that the KORUS FTA may have sparked the interest of other Asia-Pacific countries to negotiate FTAs with the United States, such as Japan's entry, in July 2013, into the TPP negotiations. Japan and South Korea trade similar products with the United States, and despite generally low U.S. import tariffs, the KORUS FTA now provides South Korea with a competitive advantage in the U.S. market. Japan's entry into the TPP negotiations may likewise have prompted South Korea's interest in joining TPP. In the fall of 2013, South Korea announced its interest in participating in the TPP negotiations, despite existing trade agreements with a number of the TPP participants, including the United States. While the U.S. Administration has welcomed South Korea's interest, President Obama highlighted that full implementation of the KORUS FTA would help prepare South Korea to "meet the high standards of the Trans-Pacific Partnership," and the Administration also appears to wish to conclude an initial TPP agreement with current members before allowing new negotiating partners to participate. The KORUS FTA also highlights the pursuit of alternative routes to trade liberalization beyond the WTO Doha Round negotiations and multilateral trading system. Both the United States and South Korea are major global trading nations and both have made bilateral FTAs a key component of their trade policy. Challenges in implementation of the recent WTO trade facilitation agreement suggest that in the near term, bilateral, regional, and plurilateral initiatives among nations with similar trade policy priorities will continue to play a key role in international trade liberalization efforts. Sector-Specific Issues and General Provisions of the KORUS FTA Under the KORUS FTA, the market access provisions include the elimination of tariffs on most goods immediately and nearly all remaining tariffs will be removed within ten years. This section provides additional information on the provisions related to some of the most sensitive traded products such as agricultural products, autos, and textiles and apparel. It also includes a discussion of the general provisions of the FTA such as disciplines covering foreign investment, government procurement, and labor and environmental standards. Agriculture and Sanitary and Phytosanitary Issues Overview Attaining comprehensive market access for U.S. agricultural products to South Korea's large market and finding a way to resolve South Korea's continued restrictions on U.S. beef purchases (imposed to protect human health following the late 2003 discovery of mad cow disease in the U.S. cattle herd) were the two primary objectives pursued by U.S. agricultural negotiators. Though South Korea ranks among the leading agricultural importing countries in the world, its farm sector is highly protected with high tariffs and quotas. This reflects its farmers' long-standing political influence (particularly that of rice producers) and its urban population's deep ties to its rural roots. In 2013, South Korea was the fifth-largest market for U.S. agriculture, as export sales totaled $5.1 billion. With the KORUS FTA's agricultural provisions taking effect in March 2012, South Korea immediately granted duty-free status to almost two-thirds of current U.S. agricultural exports. Tariffs and tariff-rate quotas (TRQs) on most other agricultural goods will be phased out within 10 years (i.e., 2021), with a few commodities and food products subject to provisions that phase out such protection in year 23 (i.e., 2034). Seven U.S. products (skim and whole milk powders, evaporated milk, in-season oranges, potatoes for table use, honey, and identity-preserved soybeans for food use) will be subject to Korean import quotas that slowly expand in perpetuity. However, the agreement did not give U.S. rice and rice products additional access to South Korea's market (see below). With the immediate elimination or phase-out of most of South Korea's relatively high agricultural trade barriers under the KORUS FTA, certain U.S. agricultural and food processing sectors are expected to noticeably benefit from additional exports. The USITC estimated that the increase in U.S. exports of agricultural commodities and processed foods will account for up to one-third of the entire projected increase in total U.S. exports to South Korea's market once the KORUS FTA's provisions are fully implemented. It projected that the sale of agricultural products to South Korea would be $1.9 billion to $3.8 billion (44% to 89%) higher, compared to what exports would be under a no-agreement scenario. Almost half of this export increase would accrue to the U.S. beef sector, based on the USITC's assumption that U.S. beef exports recover to the level before South Korea imposed import restrictions in late 2003. About 20% of the export increase would benefit U.S. producers and exporters of pork, poultry and other meat products. In another analysis, the American Farm Bureau Federation (AFBF) projected that U.S. agricultural exports by the end of the transition period would be more than $1.5 billion (45%) higher under the KORUS FTA than would be the case otherwise. Sales of beef, poultry, and pork would account for $644 million (or 42%) of the change in export value. Because South Korean agricultural exports to the United States are small and largely complementary, there was no controversy in negotiating access to the U.S. market. The United States agreed to phase out tariffs and quotas on all agricultural imports from South Korea under seven phase-out periods ranging up to 15 years (i.e., 2026). One 10-year TRQ will apply to imports of fluid milk and cream, among other specified dairy products. The USITC projected that imports of agricultural products (primarily processed food products) from South Korea under the KORUS FTA would range from $52 million to $78 million (12% to 18%) higher than such imports would have been under a no-agreement scenario. In 2013, U.S. agricultural imports from South Korea totaled $242 million. Beef Market Access Under the KORUS FTA, South Korea agreed to eliminate its 40% tariff on beef muscle meats imported from the United States over a 15-year period. South Korea, though, has the right to impose safeguard tariffs on a temporary basis in response to any potential surge in imports of U.S. beef meats above specified levels. The trigger for this additional tariff was 270,000 metric tons (MT) in year 1 (2012), which will increase 2% annually; in year 15 (2026), the trigger is 354,000 MT. In year 16 (2027), this protective mechanism will no longer apply. The 18% tariff on imports of beef offals (tongues, livers, tails, and feet), and tariffs ranging from 22.5% to 72% on other beef products, are also eliminated in 15 years. Assuming that South Korea fully lifts its restrictions on U.S. beef and bilateral beef trade returns to normal, the USITC estimated that the phase-out of South Korea's beef tariff and safeguard could increase U.S. beef exports from about $600 million to almost $1.8 billion (58% to 165%) above what would be sold if no trade agreement were in place. Under the KORUS FTA, the AFBF projected that U.S. beef sales would be $265 million higher as the United States recaptures its historic share of the South Korean market. However, its analysis noted that the market share of U.S. beef likely will not increase over time. That is because South Korean tastes have developed a preference for grass-fed Australian beef, according to the AFBF, and will continue to be competitive in price against U.S. beef even with the current 40% tariff removed. Australia in late 2013 also secured a 15-year tariff phase-out of Korea's 40% beef tariff in its FTA with South Korea. Assuming this FTA takes effect in 2015, the tariff on Australian beef will be almost 11% higher than on U.S. beef until eliminated. This differential, though, could be irrelevant if Australian beef continues to be preferred by Korean consumers, and/or if a more favorable exchange rate entices a Korean importer to purchase Australian rather than U.S. beef. Sanitary Rules In 2003, South Korea was the third-largest market for U.S. beef exports, prior to the ban imposed after the first U.S. cow infected with mad cow disease, or BSE (bovine spongiform encephalopathy), was discovered. Korea's commercial significance was reflected in the position taken by some Members of Congress, who had stated that congressional consideration of, and support for, the KORUS FTA depended upon South Korea fully opening its market to U.S. beef. On April 18, 2008, U.S. and South Korean negotiators agreed to a protocol on the sanitary rules that South Korea will apply to beef imports from the United States. It allows for imports of all cuts of U.S. boneless and bone-in beef and other beef products from cattle, irrespective of age, as long as specified risk materials known to transmit mad cow disease are removed and other conditions are met. However, to address subsequent Korean concerns, both sides revised this agreement on June 21, 2008, to limit sales of U.S. beef from cattle less than 30 months old. South Korea quickly published rules to put this agreement into effect, and began to inspect U.S. beef shipments. The U.S. Department of Agriculture similarly began to implement a new program to verify that the beef sold is processed from cattle under 30 months old. U.S. beef exporters have since worked to recapture a key overseas market. While the U.S. beef industry and U.S. policymakers welcomed the initial April 2008 deal, Korean TV coverage of the issue and Internet-spread rumors that questioned the safety of U.S. beef resulted in escalating protests and calls for the beef agreement to be renegotiated or scrapped. U.S. officials countered that measures already in place to prevent the introduction of BSE in U.S. cattle herds meet international scientific standards. To address mounting public pressure, the South Korean government twice pursued talks with the United States to find ways to defuse public concerns without "renegotiating" the beef agreement. In late June 2008, both governments confirmed a "voluntary private sector" arrangement that allows South Korean firms to import U.S. beef produced only from cattle less than 30 months old. Both viewed this as a transitional step until Korean consumers regain confidence in the safety of U.S. beef. Subsequent Debate on Terms of U.S. Access to Korea's Beef Market Obama Administration officials, following the President's June 26, 2010, announcement of his decision to present the KORUS FTA to Congress, stated their intent was to resolve the beef and auto issues with South Korea by November 2010 once consultations with Congress and stakeholders were complete. In the negotiations concluded on December 3, 2010, the beef issue reportedly received little discussion as both sides focused on revising the auto provisions. President Obama, in discussing the supplemental agreement, indicated that the United States will continue to work toward "ensuring full access for U.S. beef to the Korean market." Congressional reaction on the outcome of the beef issue was mixed. Senator Baucus (chairman of the Senate Finance Committee), who had advocated for full access for U.S. beef irrespective of the age of cattle in accordance with international scientific standards, expressed "deep disappointment" that the supplemental deal "fails to address Korea's significant barriers to American beef exports." He stated his commitment to right "this wrong" and to work with the Administration to ensure that ranchers "are not left behind." At that time, Senator Baucus said he will not support the KORUS FTA until South Korea opens up its beef market. A few other Senators, though concerned with the lack of progress on beef, viewed the deal positively and welcomed the prospect for considering the KORUS FTA in 2011. Meat industry groups expressed support for this trade agreement that they expect over time will significantly increase their exports to South Korea, and urged Congress to move quickly to ratify it. Beef interests, also supportive, called for continued efforts to secure full market access. Memories of the size and intensity of the 2008 anti-beef agreement protests in South Korea appeared to have directly influenced the position then taken on the beef issue by Korean negotiators. Reflecting this political sensitivity, they reportedly rejected any discussion on this matter in the negotiations held in early November 2010 leading up to the summit between Presidents Obama and Lee and in the final talks leading to the supplemental agreement. Their position was that this issue "did not fall under" the FTA concluded in 2007. Subsequently, South Korea's trade minister confirmed that there will be no more discussions on ending the age limits of U.S. cattle slaughtered for beef—a stance that was affirmed by its ambassador to Washington in late January 2011. The outcome appeared to have been successful in that it did not alter the political debate expected to occur in South Korea on the KORUS FTA. However, if changes had been made to the terms of current U.S. beef access, opponents would have been given another opening to shift the debate on the agreement. Seeking to move closer toward submitting the KORUS FTA to Congress for consideration, the USTR on May 4, 2011, announced two measures to be taken on the U.S. beef access issue. In a letter to Senator Baucus, the Administration committed to request consultations with South Korea on the "full implementation" (e.g., opening Korea's market "to all ages and all cuts of U.S. beef") of the protocol as soon as this trade agreement takes effect. The letter referenced one specific provision that stipulates bilateral consultations on the interpretation or application of the protocol's terms "shall be held within seven days" of a request. On the same day, the U.S. Department of Agriculture (USDA) announced a $1 million award to the U.S. Meat Export Federation (USMEF) to be used in FY2011 to promote U.S. beef sales in South Korea, and its intent to consider future funding requests from the USMEF to implement its planned five-year market beef promotion strategy in this key market. Senator Baucus welcomed both steps, stating he will support the KORUS FTA and work with the Administration on a package of trade measures that includes all three FTAs and renewing trade adjustment assistance and trade preference programs. Since the KORUS FTA entered into force, the USTR has not had formal consultations with South Korea on the beef issue. Impact of Resumed U.S. Beef Exports Under the 2008 arrangement, exports of U.S. beef (including bone-in cuts) to South Korea quickly resumed, and reached $578 million in 2013. This represents 71% of the 2003 beef export level of $815 million. Though Australia still is the main competitor, U.S. beef exporters have gained noticeable market share since the South Korean market reopened (38% in 2013, compared to 76% in 2003 and 1% in 2005). Promotional efforts to rebuild consumer confidence in U.S. beef, aggressive marketing efforts by large store chains, and much lower retail prices for foreign than for Korean beef, account for the continued growth in U.S. beef sales in Korea. Rice South Korean negotiators succeeded in excluding the entry of U.S. rice on preferential terms—its prime objective in negotiating agriculture in the KORUS FTA. This reflects Korea's efforts to maintain its stated policy of self-sufficiency in rice production, the national sentiment that preserving rice production is inseparable from the country's identity, and the political reality that rice farming preserves the basis for economic activity in the countryside. That rice was a make-or-break issue for Seoul is seen in the comment made by then-Deputy United States Trade Representative Karan Bhatia, the day after the talks concluded: "Ultimately, the question that confronted us was whether to accept a very, very good albeit less perfect agreement or to lose the entire agreement because South Korea refused to move on rice." On rice, the KORUS FTA only requires South Korea to continue to abide by its multilateral trade commitments to increase rice imports. At present, U.S. rice exporters have access to the South Korean market under (1) a 24% share (50,076 MT) of the rice import quota established under that country's multilateral World Trade Organization (WTO) commitments in 1995, and (2) a separate "global" quota available to all countries. Rice entering under both quotas faces a 5% tariff. Entries above each quota are prohibited—a unique concession that South Korea received in the 1993 Uruguay Round of multilateral trade negotiations. U.S. rice exports against both quotas have fluctuated much from year to year, and in 2011 peaked at $125 million (162,291MT). With Korea's current WTO minimum market access agreement scheduled to expire at year-end 2014, South Korea has decided to eliminate its cap on the amount of rice allowed to enter each year. This means that beginning in 2015, rice above the currently-set 408,700 maximum quota will be allowed to enter, but will face an over-quota tariff of from 300 to 500%. With such prohibitive duties, U.S. rice exports likely will not increase much from recent year levels. Further, Korean preference for the flavor of Japonica rice not produced in the United States may limit sales. Oranges Differences on how quickly to liberalize trade in fresh oranges were not resolved until just before the FTA negotiations concluded. The United States sought the complete elimination of South Korea's border protection on all citrus products, while South Korea wanted to retain its quotas and tariffs, primarily because of the importance of the citrus industry to the economy of Cheju Island. Under its WTO commitments, South Korea imposes a 50% tariff on all imports of oranges, irrespective of whether they enter within or outside an existing TRQ. In reaching a compromise, negotiators agreed to a multi-part solution. First, a small duty-free quota was created for "in-season" U.S. navel oranges (a variety that is not produced in Korea) that enter between September 1 and the end of February—a period that coincides with the Island's unshu (mandarin) orange harvest season. The initial 2,500 MT TRQ will increase at a compound 3% annual rate in perpetuity. Shipments in excess of the quota amount during this six-month period will continue to be subject to the 50% tariff. Second, in the first year (2012), this high tariff was reduced to 30% for "out-of-season" oranges that enter between March 1 and August 31, and will continue to be phased out in stages until eliminated in year 7 (2018). Third, South Korea's 144% tariff on other mandarin oranges will be phased out over 15 years. The cost of selling to what already is a leading U.S. export market for fresh oranges will be significantly reduced as Korea's high 50% tariff is partly phased out. In 2013, South Korea continued to rank as the number 1 market, with U.S. orange exports totaling $96 million (73,448 MT). Though U.S. orange shipments declined from 2012's $216 million, they are higher than pre-KORUS levels. Pork According to the December 2010 modifications to the initial agreement, South Korea will phase out its 25% tariff on one tariff line of frozen pork cuts on January 1, 2016. This change will affect about 75% of all U.S. pork exports, as recorded by 2010 value. This is two years later than what both sides had agreed upon in the 2007 text (i.e., January 1, 2014). Korea's tariffs on most other U.S. pork products were phased out on January 1, 2014. On U.S. fresh/chilled pork, South Korea's 22.5% tariff will be phased out in stages over 10 years (2021). In the interim, a safeguard is available to protect against import surges of only this pork product category, which will expire in 2020. The National Pork Producers Council acknowledged that, even with the last minute concession on pork in order to resolve the auto issue, the KORUS FTA is "a good deal." It expected the agreement to "be one of the most lucrative for the U.S. pork industry," with a substantial increase projected in exports to South Korea, live hog prices, and direct jobs. U.S. pork exports to South Korea in 2013 totaled $234 million, higher than sales levels seen in the late 2000s. Geographical Indications for Dairy Products The U.S. dairy sector in late 2010 expressed concern that the geographical indications (GI) provisions that apply to various EU cheeses in the KOREU FTA would undercut the potential benefits negotiated under the KORUS FTA for U.S. cheeses with identical names that sell into the Korean market. GIs (similar to a trademark) refer to marks that "identify a good as originating in the territory of a country, or a region or locality in that territory, where a given quality, reputation or other characteristic of the good is essentially attributable to its geographical origin." To illustrate, "champagne" and "Idaho potatoes" are examples of GI designations. Products so designated are eligible for relief from acts of infringement and/or unfair competition under a country's trademark laws and regulations. Because GIs are commercially valuable in the international trade of agricultural products, wines, and spirits, the EU in negotiating its bilateral trade agreements has sought to secure additional protection for its GI-designated agricultural and beverage products in FTA-partner country markets beyond what multilateral trading rules currently provide. More than 50 Members of the House requested the USTR to ensure that as South Korea develops regulations to implement the KOREU FTA's GI provisions, those rules "do not undercut the dairy market gains secured" in the KORUS FTA. They expressed concern that the U.S. dairy industry will not be able to increase cheese exports if the United States (1) does not "combat European efforts to carve out the sole right for their producers to use … cheese names most familiar to consumers around the world (e.g., feta, gorgonzola, muenster, parmesan, provolone)," and (2) act to safeguard against possible threats to the use of such generic terms as cheddar and mozzarella "that could arise as a result of recent EU legal precedents" to protect the names of some EU wines and spirits. A June 2011 exchange of letters between the USTR and Korea's trade ministry clarified that the use of generic terms used to identify types of cheeses (e.g., camembert, mozzarella, emmental, grana, parmesan, brie, cheddar) will not be restricted by the Korea-EU FTA. In other words, U.S. exporters will be able to sell these cheeses into the important South Korean market. A U.S. trade official stated the United States is satisfied with the clarifications provided by South Korea's trade minister. U.S. milk and dairy product groups welcomed these assurances, noting that Korea already is one of the largest export markets for U.S. cheese. Though U.S. cheese exports to South Korea have increased since the KORUS FTA took effect, U.S. exporters of certain cheeses listed as protected (i.e., only EU exporters can sell such-labeled cheeses) under the Korea-EU FTA GI annex (e.g., asiago, feta, gorgonzola) have been shut out of the Korean market. Sanitary and Phytosanitary Provisions As found in most other U.S. FTAs, the KORUS FTA established a bilateral standing committee to address food safety and animal/plant life or health issues that frequently emerge in agricultural trade. However, the agreement did not include any commodity-specific sanitary and phytosanitary (SPS) provisions to address outstanding issues, such as Korea's import health requirements on U.S. beef imports or Korean standards that have prevented sales of some U.S. horticultural products to that market. The Committee on SPS Matters will serve as a forum to implement the WTO's Agreement on the Application of SPS Measures, enhance mutual understanding of each country's SPS rules, resolve future bilateral SPS disputes that arise, coordinate technical assistance programs, and consult on issues and positions in the WTO and other international bodies where SPS issues are considered. The text of the SPS chapter specifically states that neither the United States nor South Korea has recourse to pursue dispute settlement to address any SPS issue that arises. Instead, any matter will be resolved using the formal process established under the WTO's SPS Agreement. U.S. beef producers had argued until the 2008 bilateral agreement was reached that Korea's stance on U.S. beef imports must be scientifically based upon internationally recognized guidelines issued by the World Organization for Animal Health, also known as OIE by its French acronym. Other agricultural groups also have raised concerns about Korea's implementation of SPS measures on food additives and those that have restricted U.S. fruit and vegetable exports. This SPS standing committee potentially could be used as the venue to attempt to resolve future SPS disputes, taking into account latest available scientific findings and knowledge. Automobiles The final KORUS FTA modified the initial commitments on trade in automobiles in December 2010 and subsequently in an exchange of legal texts on February 10, 2011. The Obama Administration claimed this was a necessary step in approval of the agreement because "the [original] U.S.-Korea trade agreement did not go far enough to provide new market access to U.S. auto companies and to level the playing field for U.S. auto manufacturers and workers." The main components of the KORUS FTA specifically related to automotive trade include: Elimination of South Korean tariffs on U.S.-made motor vehicles. South Korea reduced its 8% tariff on U.S.-built passenger cars, including electric vehicles and plug-in hybrids, to 4% and removed its 10% tariff on trucks. Tariffs on U.S.-made motor vehicles, including electric cars and plug-in hybrids, will be phased out entirely in 2016. In addition, each country dropped its duties to zero on virtually all auto parts, which cover everything from gear boxes to seat belts, imported from the other in 2012. Elimination of U.S. tariffs on South Korean-made automobiles and a "snapback" clause . The United States maintains its passenger vehicle rate of 2.5% until 2016. U.S. tariffs on electric and fuel cell vehicles will be reduced annually until duty free in 2016. The 25% duty on trucks, a residual rate dating from an earlier trade dispute with Europe, will stay in place through 2018 and will be duty-free beginning in 2022. The FTA, in Annex 22-A, also establishes a special bilateral dispute settlement panel, designed to resolve automotive issues within six months. If the panel finds a violation of an auto-related commitment or the nullification/impairment of expected benefits, the complaining Party may suspend its tariff concessions on passenger vehicles and assess duties at the prevailing MFN rate (i.e., "snapback" any tariff reductions provided by the FTA). The final agreement does not extend the snapback to the higher 25% U.S. truck tariff, but measures affecting trucks could lead to the snapback of the 2.5% passenger car tariff. Reduction of alleged discriminatory effects of engine displacement taxes. Automotive-specific taxes play an important role in determining the final price of a vehicle. U.S. automakers have complained that South Korea's steeply ascending vehicle tax schedule, with very high rates on vehicles with larger engine capacities that might be exported by U.S. producers, makes U.S. imported cars more expensive than smaller South Korean cars. Moreover, the tax system has a "cascade" effect, so that subsequent taxation rates also incorporate the duty paid on an imported vehicle. A special consumption tax, an educational tax, a value-added tax, a registration tax, and a subway bond are currently among the taxes that apply to motor vehicles. As part of the KORUS FTA, the South Korean government agreed to simplify and reduce the taxes imposed on each category of passenger vehicles. They also agreed to eliminate the discrepancy in the rates between imported and domestic vehicles by reducing the tax rate for vehicles in the largest engine-displacement-size categories. U.S. automakers have raised concerns about a prospective Korean incentive/penalty regulation giving a consumer of a new car either a subsidy or a surcharge to the price of the car, at the point of sale, depending on the car's emission profile. They claim this new regulation is simply an engine displacement tax and such taxes are prohibited under KORUS. Improved regulatory transparency for new automotive regulations . South Korea also committed to an improvement in its regulatory process. U.S. auto companies are provided one year between the time a final auto regulation is issued and when U.S. automakers must comply with the new regulation. In addition, South Korea agreed to develop a new post-implementation review system within two years after the agreement takes effect to ensure that existing auto regulations are applied in the least burdensome manner possible. The Korean government would argue that it is meeting its regulatory obligations under KORUS. However, the U.S. auto industry has already identified a few proposed Korean automotive regulations that could impose additional burdens and costs on them, making it more difficult for them to sell cars in Korea. Regulations on harmonization of automotive safety and environmental standards. U.S. manufacturers have long complained that South Korea sets automotive safety and environmental regulations in a closed and non-transparent manner, and that its standards remain idiosyncratic. As one remedy, the KORUS FTA provides for self-certification to U.S. federal safety standards for a limited number of U.S.-exported vehicles raising the ceiling to 25,000 per automaker per year. Further, the agreement permits some flexibility in meeting new, higher South Korean environmental standards. U.S. automakers will be considered in compliance with new South Korean fuel economy or greenhouse gas emissions standards if "they meet a target level that is 19% more lenient than the relevant target level provided in the regulation that would otherwise be applicable to that manufacturer." This provision applies to U.S. carmakers that sold fewer than 4,500 cars in South Korea in calendar year 2009. Creation of an "Automotive Working Group." The KORUS FTA established an Automotive Working Group (AWG), which should meet at least annually, to address regulatory issues that may endure or new issues that could emerge with respect to developing, implementing, and enforcing relevant standards, technical regulations, and conformity assessment procedures. The AWG, which includes representatives from the Office of the U.S. Trade Representative and the Korean Ministry of Foreign Affairs, met once in June 2013, to discuss assorted issues, such as automotive safety, fuel economy, and greenhouse gas regulations. It expects to convene again sometime in 2014. Inclusion of a Special Motor Vehicle Safeguard . The KORUS FTA includes a special safeguard for motor vehicles to ensure that the U.S. auto industry is not hurt owing to any "harmful surges" in South Korea auto imports. The new auto-specific safeguard provision allows the United States to impose extra duties if there is an import surge due to the trade agreement. Any higher tariff that might be imposed could be applied for four years. In the case of truck tariffs, the auto safeguard could be in place until 2031 as it is allowed to continue for 10 years after the full elimination of tariffs. Another feature of the safeguard is that it can be applied to a particular auto product more than once in the event of a recurring surge that causes serious injury to U.S. production of that product. It appears easier to apply the safeguard if there are complaints because, as a White House fact sheet notes, "fewer procedural steps are required to speed up the application of the safeguard when workers need faster relief." The KORUS FTA will not affect the hundreds of thousands of cars assembled by South Korean automakers in the United States and their U.S. production capacity is poised to grow. Thus, a surge in automobile imports from South Korea seems unlikely in the next few years. GM Korea, the South Korean arm of U.S. automaker GM, has manufactured over 100,000 cars in South Korea every year since 2005. See Appendix for an overview of South Korea's motor vehicle manufacturing industry. The USITC simulation model of the KORUS FTA estimates that while U.S. automotive exports to South Korea will increase by a range of 45% to 59%, this will only amount to about $300 million-$400 million because of the low current baseline. It states that tariff elimination "would likely have a positive effect on U.S. exports ... further, the overall tax burden on the South Korean consumer who purchases an imported vehicle would be reduced, more or less equalizing the total taxes paid on imported and domestic vehicles." It particularly emphasizes the potential gain for U.S.-exported hybrid vehicles to South Korea. Currently, most hybrids in the U.S. market are imported from Japan. With sales at 222,140 in 2013, the Toyota Prius, including the Prius C and V, accounted for 45% of all hybrid electric vehicles sold in the United States. Hyundai's Sonata hybrid, the first South Korean hybrid sold in the United States, represented 4% of all such vehicles sold in 2013 to become one of the best-selling gas-electric cars in the United States. Combined, the Detroit-based U.S. manufacturers have increased their hybrid electric vehicle sales in recent years, rising from 0 in 2003 to nearly 100,000 in 2013. Alongside hybrids, Hyundai and Kia seem to be considering the development of pickup trucks that could be sold in the U.S. market, although whether they will be produced, and where (in the United States or South Korea), remains unclear. Hyundai and Kia do already produce small pickup-type vehicles in South Korea, such as the Porter and Bongo, but they would not appear to be suitable in design or style for the United States. Textiles and Apparel Textiles and apparel are a small and decreasing portion of U.S. manufactured imports from South Korea. Their respective shares of the U.S. market have fallen in relative and absolute terms. South Korea provided 3% of textiles imported by the United States in 2013, compared with 9% in 1990. Purchases of garments by the United States from South Korea shrank to less than 1% of all apparel imports in 2013, down from 10% in 1990. This decrease is largely the result of the surge in U.S. apparel imports from China, which accounted for about 40% of all U.S. apparel imports in 2013, rising from 14% in 1990. The United States exports small volumes of textiles and apparel to South Korea—approximately $285 million and about $100 million in 2013, respectively. The KORUS FTA eliminated U.S. tariffs immediately on 52% (in terms of value) of U.S. imports of South Korean textiles and apparel, and will phase out U.S. tariffs on 19% by 2016 and on the remaining 21% by the end of 2021. Currently, the average U.S. MFN tariff on textiles is 7.9% with a maximum applied tariff of 38%. The average applied U.S. MFN tariff on apparel imports is 11.6%, with a maximum tariff of 32%. The KORUS FTA eliminated South Korean tariffs on 77% (by value) of U.S. exports of textiles and apparel in 2012, then will phase out tariffs on 13% by 2015 and the remaining 10% by 2016. The average South Korean applied tariff on textiles is 9.0% with a maximum of 13%. South Korean tariffs on apparel range from 8% to 13%. The KORUS FTA, with some exceptions, uses the yarn-forward rule of origin for apparel imports; that is, apparel made from yarn or fabric originating in either the United States or South Korea is eligible for duty-free treatment under the FTA. Also included is a special safeguard provision whereby, if imports of textiles or garments to one KORUS FTA partner country from the other increases at such a rate as to cause or threaten to cause serious injury to the domestic industry of the importing country, the importing country can suspend further reduction of tariffs, or it can increase the duty on the imported product to (the lesser of) the MFN rate applicable at the time the action was taken or the MFN duty that was in force when the FTA went into effect. The safeguard action can be in place for two years with a possible extension of two years, but no more than a total of four years. However, the importing country will have to compensate the exporting country by making additional trade liberalizing concessions equivalent in value to the additional duties expected to result from the safeguard action. The concessions will be limited to textiles and apparel unless the two countries agree otherwise. The USITC has estimated that the KORUS FTA will over time lead to an increase in U.S. imports of South Korean textiles of $1.7 billion to $1.8 billion and of apparel of $1 billion to $1.2 billion, with the major portion of the increase being diverted from other countries. The USITC also has estimated that the KORUS FTA will lead to an increase in U.S. exports of textiles of $130 million to $140 million and of apparel of $39 million to $45 million to South Korea. The KORUS FTA allows some fibers, yarns, and fabrics originating outside the United States and South Korea to become eligible for preferential treatment if the product is not available domestically in commercial quantities in either country. Absent is a cumulation-specific rule, which, in other trade preference programs and FTAs, allows preferential treatment for limited amounts of apparel woven from components outside the FTA area. A Committee on Textile and Apparel Trade Matters was established to raise concerns under the FTA regarding mutual trade in these products. The committee, which has met only once in November 2012, may be convened at the request of either party. Other Manufactured Goods Beyond the automotive sector and textiles and apparel, the KORUS FTA affects a wide range of other industries. Capital Goods Machinery and Equipment U.S. machinery exports could be the largest single sectoral gainer from the KORUS FTA. According to the USITC's simulation analysis, the sector stands to gain nearly $3 billion in exports of products such as U.S.-made computer-numerically controlled machine tools. The tariffs on U.S. machinery and equipment imported into South Korea range from 3% to 13%, but U.S. products are often competitive and the United States runs an annual trade surplus in machinery products. Most machinery tariffs have been eliminated; others will be phased out between 2014 and 2021. Already duty-free before the implementation of the KORUS FTA, aircraft is another major capital goods item in which the United States has a strong bilateral trade position. U.S. exports to South Korea of aircraft products and parts totaled $3.5billion in 2013. The U.S. Commercial Service reports that Korea is the tenth-largest market for U.S. aerospace exports. Recently, South Korea has embarked on making its aerospace sector more competitive. It intends to raise domestic aerospace production to $20 billion by 2020, with the aim of becoming the world's seventh-largest aerospace producer within a decade by among other ways supplying components to Boeing and EADS-Airbus. It also plans to provide maintenance of both commercial and military aircraft. Electronic Products and Components Because they are parties to the multilateral Information Technology Agreement eliminating tariffs among more than 70 countries, South Korean and U.S. tariffs on most electronics products including semiconductors, telecommunications equipment, and computers were duty-free before the implementation of the KORUS FTA. The few remaining tariffs on U.S. electronics exports such as radio and television parts, certain static converters, and certain telecommunications apparatus—most of which were at 8% prior to March 15, 2012—were eliminated in 2014. In 2013, the United States ran a trade deficit in computer and electronic products with South Korea of $8.8 billion, compared with $6.5 billion in 2012. The U.S. trade deficit with South Korea in semiconductors and other electronic components totaled $1.2 billion in 2013, dropping from a record high of $3 billion in 2010. Besides tariffs, the KORUS FTA provides improvements for U.S. products in South Korea with respect to intellectual property protection, technical barriers, government procurement, and competition policy. Steel Steel products represent a significant share of trade between the United States and South Korea. In 201 3 , South Korea was the sixth- largest U.S. export partner in steel products and the fourth-largest source of overseas steel imports. South Korea's steel industry is a global player and includes South Korean Pohang Iron and Steel Company (POSCO), the sixth -largest steel producer in the world , according to the World Steel Association . The United States ran a steel products trade deficit with South Korea of $ 1.9 billion in 201 3 . The American steel industry registered a strongly negative position on the KORUS FTA, raising various objections related to trade remedies, rules of origin provisions, the treatment of products being produced in the Kaesong Industrial Complex of North Korea, and concerns about currency manipulation issues. The specific details of the trade remedies chapter and Kaesong are discussed elsewhere in this report. Pharmaceuticals and Medical Devices While pharmaceuticals and medical devices (P&M) are a relatively small part of U.S.-South Korean trade, they are products in which U.S. producers compete well in the South Korean market. U.S. manufacturers also see increasing export opportunities as the South Korean economy matures. For years, the U.S. industry and government have complained about a number of South Korea's pharmaceutical policies that allegedly are designed to protect South Korean industry, which predominately produces generic drugs. Overseas sales are critical to the U.S. pharmaceutical industry; some U.S. multinational firms generate revenues of 40% or higher in foreign markets. The South Korean pharmaceutical market is one of the largest in Asia, with pharmaceutical sales at an estimated $18.6 billion in 2013, and is expected to reach $24.3 billion by 2020. Although South Korea's pharmaceutical sector is a fast-growing developed country market, according to IMS Healthcare, it currently represents less than 2% of the global pharmaceutical market. South Korea is also an important market for U.S. medical equipment and device manufacturers valued at an estimated $4.9 billion in 2013 and could grow 10%-15% each year in the next several years, partly due to a rapidly aging population. While potentially lucrative, South Korea is a market in which U.S. P&M manufactures claim government regulations have limited their ability to penetrate that market. Despite the implementation of KORUS, U.S. industry continues to express concern about transparency in the regulation of pricing and reimbursements of drugs and medical devices, which it claims impede their ability to sell in the Korean market. The United States sold $1.2 billion in pharmaceuticals and medicines to South Korea in 2013, representing around 2.4% of all U.S. exports of pharmaceuticals to South Korea. Exports of medical equipment and supplies to South Korea totaled $497 million in 2013, accounting for less than 2% of total U.S. exports of medical equipment to South Korea. In the same year, the United States ran trade surpluses with South Korea in both pharmaceuticals and medical equipment and supplies. Of major concern during the KORUS FTA negotiations was the South Korean government's May 2006 change in how it determined reimbursement amounts. Prior to the change, it maintained a "negative list" system, under which products would be eligible for reimbursement unless they appeared on the list. With the change, the South Korean government switched to a "positive list" requiring a product to be listed before it would be eligible making it potentially more difficult for a product to become eligible. Announcement of the policy came without prior notification to U.S. officials or affected U.S. manufacturers and occurred at an early point in the negotiations placing a cloud over them. Despite complaints from the United States, South Korea went ahead with implementing its positive list system. P&M manufacturers also cited the South Korean government's policies on reimbursements for pharmaceuticals and medical devices under its single-payer health insurance program. U.S. manufacturers argued that the policies discriminate against innovative pharmaceuticals because they establish relatively low reimbursement amounts for medicines thus not taking into account the costs that producers of leading-edge pharmaceuticals incur and that are reflected in higher prices. U.S. manufacturers wanted the KORUS FTA to establish transparency as an important principal in South Korea's development and implementation of pricing and reimbursement policies, including an appeal process for decisions going against U.S. manufacturers. The KORUS FTA provisions allow U.S. pharmaceutical makers to apply for increased reimbursement levels based on safety and efficacy. South Korea also agreed to publish proposed laws, regulations, and procedures that apply to the pricing, reimbursement, and regulation of pharmaceuticals and medical devices in a nationally available publication and to allow time for comment. In addition, South Korea agreed to establish a process for U.S. manufacturers to comment on proposed changes in laws and regulations and for them to obtain a review of administrative determinations that adversely affect them. Intellectual property rights protection in South Korea has been a critical issue for U.S. pharmaceutical manufacturers. Specifically, the failure of the South Korean government to protect from competitors proprietary data that manufacturers must submit for market approval. In addition, the South Korean government has, in some cases, approved marketing of some pharmaceuticals before it has determined that the applicant is the rightful owner of the patent and trademark. In response, under the KORUS FTA's data exclusivity provisions, South Korea will not allow a third company, such as a generic drug manufacturer, from marketing a new pharmaceutical using the safety and efficacy data, supplied by an original U.S. manufacturer as part of the market approval process, without the permission of the original U.S. maker for five years from the date of marketing approval for the original product. In addition, if a third party submits safety or efficacy information for a product that an FTA partner government had already approved, the government is to notify the original patent holder of the identity of the third party and is to prevent the marketing of the third party's product on its territory if permission had not been granted by the original patent holder. In a side letter, the United States and South Korea originally agreed to not invoke the data exclusivity provision until the FTA had been in effect 18 months. Under the modifications to the commitments, the United States agreed to double to 36 months, or three years, the time South Korea will have to put in place a system of patent linkages for pharmaceuticals that is required under the FTA. Furthermore, South Korea agreed to a patent-linkage system; that is, neither government is to approve the marketing of a generic drug while the original patent is still in effect. Another provision, known as patent-term extension, requires the United States and South Korea to adjust the length of the effective period for patents on pharmaceuticals to take into account delays incurred in receiving patent approval and marketing approval. The KORUS FTA states that no provision would prevent either government from taking measures to protect the public health of its residents from HIV/AID, tuberculosis, malaria, and other epidemics, by ensuring access to medicines. The FTA reaffirms each country's commitment to the WTO TRIPS/health Declaration. Financial and Other Services U.S. service providers exported $20.9 billion in services to South Korea in 2013. Among them were charges for the use of intellectual property ($7.3 billion); South Koreans' travel to the United States including passenger fares ($6.9 billion); other transportation, such as freight services ($2.2 billion); and financial and insurance services ($1.3 billion). However, this amount probably undervalues the total volume of U.S. sales of services to South Korea as services are also sold through three other modes of delivery: by U.S. companies with a long-term presence in South Korea, by U.S. providers to South Korean residents located temporarily in the United States, and by U.S. providers temporarily located in South Korea. In 2013, the United States imported $10.8 billion in private services, including transportation such as freight services ($5.4 billion), and U.S. travel to South Korea and passenger fares ($1.5 billion). This figure does not include services sold to U.S. residents by South Korean firms through the other modes of delivery. U.S.-South Korean trade in services cuts across several chapters of the KORUS FTA—Chapter 12 (cross-border trade in services); chapter 13 (financial services); and Chapter 15 (telecommunications); and chapter 11 (foreign investment), among others. A major U.S. objective in the KORUS FTA negotiations was to obtain South Korean commitments to reduce barriers to trade and investment in its services sector, especially in professional, financial, express delivery, and telecommunications services. In general the two countries committed to: provide national treatment and most-favored-nation treatment to the services imports from each other; promote transparency in the development and implementation of regulations in services providing timely notice of decisions on government permission to sell services; prohibit limits on market access, such as a caps on the number of service providers, on the total value of services provided, on the total quantity of services provided, and on the total number of persons that can be employed by services providers; prohibit foreign direct investment requirements, such as export and local content requirements and employment mandates; and prohibit restrictions on the type of business entity through which a service provider could provide a service. Under KORUS, the two countries agreed to the "negative list" approach in making commitments in services. That is, the KORUS FTA applies to all types of services unless specifically identified as an exception in the relevant annexes. In addition, the commitments are ratcheted—when new services emerge in the U.S. or South Korean economies, those services are automatically covered by the FTA unless identified as an exception; if either country unilaterally liberalizes a measure that it had listed as an exemption, it is automatically covered under the FTA. Furthermore, if one KORUS FTA partner extends preferential treatment to service providers from a third country under another FTA, it is to extend the preferential treatment to its KORUS FTA partner. The United States sought greater reciprocity in the treatment of professional services and thereby gain increased access to the South Korean market for U.S. providers. The United States and South Korea agreed to form a professional services working group to develop methods to recognize mutual standards and criteria for the licensing of professional service providers. Under the KORUS FTA, South Korea allows U.S. law firms and U.S. licensed attorneys to provide advisory services on U.S. and international law. South Korea also permits U.S. legal representative offices to establish cooperative operations with a South Korean firm to handle matters pertaining to domestic and foreign legal matters, and, no later than five years after the agreement's entry into force, will allow U.S. law firms to form joint ventures with South Korean firms. However, South Korea will still reserve the right to restrict the activities of foreign lawyers. Regarding financial services , under the KORUS FTA, if a domestic provider in one partner country develops and sells a new financial service in its home market, providers from the FTA partner country will be able to sell a like service in that market. The agreement allows an FTA partner government to impose restrictions on the sale of financial services by providers from the other partner country for prudential reasons, for example, to protect investors, depositors, policy holders, or persons to whom a fiduciary duty is owed. The FTA will also permit either partner government to restrict monetary transfers in order to ensure the soundness of financial institutions. The South Korean insurance market is the seventh-largest in the world. The USITC estimates, therefore, that U.S. insurers will be poised to obtain sizeable gains in a liberalized South Korean services market. U.S. insurance companies have been concerned that the state-owned Korea Post and the cooperative insurance providers—the National Agricultural Cooperative Federation and the National Federation of Fisheries Cooperative—are not regulated by the Korean Financial Supervisory Commission or by the Financial Supervisory Service, while both private-sector foreign and domestic providers are so regulated. Under KORUS, South Korea agreed that those entities will be subject to an independent state regulator as opposed to being self-regulated. In addition, Korea Post will not be allowed to offer new insurance products. The two countries will allow a partner country financial services provider to transfer electronically information from its territory as necessary in the course of doing business. This is a provision that the U.S. industry highlighted as being particularly important. In telecommunications services , South Korea will reduce government restrictions on foreign ownership of South Korean telecommunications companies. As of March 2014, U.S. companies can own up to 100% of voting shares in domestic South Korean telecommunications companies, and by March 2015 will be able to own 100% of program providers, network operators, and cable television-related system operators. These provisions do not apply to KT Corporation nor to SK Telecom Co for which a 49% foreign ownership limit will remain. In addition, each KORUS FTA partner will ensure that telecommunications providers from the other would have access to and use of its public telecommunications network for purposes of interconnection under non-discriminatory conditions and will guarantee dialing portability among other conditions. Visas For years, a priority for South Korea has been to convince the United States to ease restrictions on the issuance of visas for South Korean business representatives. The visa issue—along with South Korea's request to be added to the Visa Waiver program (VWP), which allows visa free travel for short-term visitors—was addressed in discussions outside of the KORUS FTA negotiations. On October 17, 2008, President Bush announced that South Korea was one of seven countries that would be admitted into the program. With this step, the VWP is likely to no longer be an issue in bilateral relations. South Korea is one of the United States' largest sources of foreign visitors. In FY2012 there were 1.5 million short-term visitors for business or pleasure from South Korea. On a separate track, as part of the package of modifications agreed to on December 3, 2010, the United States agreed to extend the initial validity period of L-1A visas for South Korean nationals. These visas are used by foreigners entering the United States to work at U.S.-subsidiary of a foreign company. One group of these visas is used for foreigners coming to establish a U.S. subsidiary and the initial validity period was extended from one to five years. A second group is used for foreigners coming to work at an already established subsidiary and the initial validity period was extended from three to five years. General Provisions The KORUS FTA text contains a number of provisions that cut across many sectors in bilateral trade. Many of these provisions have become a standard part of the template for FTAs in which the United States participates. Trade Remedies115 Trade remedies, laws, and actions designed to provide relief to domestic industries that have been injured or threatened with injury by imports, are regarded by many in Congress as an important trade policy tool to mitigate the adverse effects of lower priced imports on U.S. industries and workers. The three most commonly used trade remedies are antidumping (AD), countervailing duty (CVD), and safeguard actions. Antidumping (19 U.S.C. §1673 et seq. ) actions provide relief from the adverse impact of imports sold at prices shown to be less than fair market value, and countervailing duty (19 U.S.C. §1671 et seq. ) actions provide similar relief from goods that have been subsidized by a foreign government or other public entity. Safeguard actions (19 U.S.C. §2251 et seq. ) are designed to give domestic industries an opportunity to adjust to new competition and are triggered by import surges of fairly traded goods. The relief provided in a safeguard case is a temporary import duty, temporary import quota, or a combination of both, while the relief in an antidumping or countervailing duty action is an additional duty placed on the dumped or subsidized imports. These actions are authorized by the WTO as long as they are consistent with the rights and obligations of Article XIX of the General Agreement on Tariffs and Trade (GATT) 1994, the WTO Agreement on Safeguards and Countervailing Measures (Subsidies Agreement), and the WTO Agreement on Implementation of Article VI of the GATT 1994 (Antidumping Agreement). Many Members of Congress have expressed support for maintaining and strengthening U.S. trade remedy laws in the face of growing import competition. As a result, the preservation of U.S. authority to "enforce rigorously its trade laws" was a principal negotiating objective included in presidential Trade Promotion Authority (TPA) in the 107 th Congress. According to news reports during the KORUS negotiations, the "single most important South Korean demand" in the bilateral talks was changes to U.S. antidumping rules. This may be due, in part, to the significant number of U.S. trade remedy cases brought by U.S. industries on South Korean goods. As of May 29, 2014, antidumping duties were being collected on 12 South Korean imports (mostly on stainless steel specialty products such wire rod and pipe fittings), and countervailing duties were being assessed on 3 South Korean products. The U.S. global safeguard cases imposed on steel in February 2000 (line pipe) and March 2002 (many steel products) also significantly reduced South Korean steel imports to the United States. Of the 16 WTO dispute resolution complainant cases South Korea has brought to date, 10 have been disputes against U.S. trade remedy actions. South Korea is also a member of the "Friends of Antidumping" group in the WTO Doha Round that insists on implementing changes to the Antidumping and Subsidies Agreements in any new multilateral agreement. The KORUS FTA, just as in earlier FTAs the United States has entered into, indicates that each party to the agreement will retain all rights and obligations under the WTO agreements—meaning that the trading partners will be permitted to include each other in global safeguard actions (although, as in other FTAs, it does extend a possible exemption from global safeguard measures to either party if its imports are not a substantial cause of serious injury) and to implement AD and CVD actions against each other. Additionally, as in earlier FTAs, the trade remedy provisions authorize either party to the agreement to apply a transitional safeguard measure against imports of the other party if, as the result of the reduction or elimination of a duty mandated by the agreement, a product is being imported in increased quantities as to be a substantial cause of serious injury to a domestic industry that produces a like or directly competitive good. In the case of a safeguard, the party imposing it must provide a mutually agreed-upon amount of compensation. If the parties do not agree, the other party may suspend concessions on imports of the other party in an amount that has trade effects substantially equivalent to the safeguard measure. As such, the agreement did not require any changes to U.S. AD or CVD laws, or regulations. However, in an apparent departure from previous FTAs, the KORUS FTA includes additional administrative steps prior to initiation of a trade remedy investigation involving goods from the other party. First, each party will have to notify the other if an antidumping petition is received regarding the other party's imports, as well as provide an opportunity for a meeting between the parties before an investigation is initiated. Additionally, the party initiating an AD or CVD investigation will be required to provide written information regarding its procedures for negotiating a price or quantity undertaking (known in U.S. law as a suspension agreement), and, after a preliminary affirmative determination is reached, "provide due consideration and adequate opportunity for consultations regarding proposed price undertakings" which could result in suspension of the investigation without imposition of duties provided a mutually agreeable undertaking is reached. The KORUS FTA established a Committee on Trade Remedies (which is to meet at least once a year) made up of representatives from each party who has responsibility for trade remedies matters. Committee functions include enhancing knowledge of the parties' trade remedy laws and practices, overseeing the implementation of the trade remedies chapter of the agreement, improving cooperation between the parties, developing educational programs on trade remedy laws, and providing a forum for exchange of information on trade remedies and other topics of mutual interest. As discussed earlier, the Industry Trade Advisory Committee on Steel (ITAC 12) believes that the procedural concessions made on trade remedies could politicize trade remedy actions, thus possibly weakening U.S. trade laws. In particular, the ITAC 12 stated that the U.S. AD-CVD investigative process is already transparent and that the pre-initiation notification and consultation requirements will delay and politicize the process. It also objected to the "undertakings" provisions, saying that these provisions will encourage the use of suspension agreements and introduce actions of foreign governments into trade remedy procedures. (For more information on the steel industry's reaction, see discussion in section on "Other Manufactured Goods.) The ITAC 12 also opposed the establishment of a Committee on Trade Remedies, saying that it such a forum will give South Korea an opportunity to attempt to further try to weaken U.S. trade remedy laws. Speaking in April 2007, Assistant U.S. Trade Representative for Korea, Japan, and APEC Wendy Cutler, the chief U.S. negotiator, implied that the consultative committee will focus on information sharing and "will not provide a forum to discuss specific cases." She also mentioned that the committee could be a benefit to the United States by providing a platform for discussing certain industrial subsidies that the South Korean government may be supplying to manufacturing firms, and that negotiators worked out an "accommodation" that was beneficial to both sides' needs on a very contentious part of the negotiations. Kaesong Industrial Complex133 A significant goal for South Korea in the FTA talks was securing preferential treatment for products made in the Kaesong Industrial Complex (KIC) in North Korea, a position the United States opposed throughout most of the negotiations. Located near the North Korean city of Kaesong (also spelled "Gaesong"), 40 miles north of Seoul, the KIC is designed for South Korean companies to employ North Korean workers. As of the end of 2010, over 120 medium-sized South Korean companies were employing over 47,000 North Korean workers to manufacture products in Kaesong. The facility, which in 2010 produced $323 million in output, has the land and infrastructure to house two to three times as many firms and workers. Products vary widely, and include clothing and textiles (71 firms), kitchen utensils (4 firms), auto parts (4 firms), semiconductor parts (2 firms), and toner cartridges (1 firm). The KIC generated controversy because it provides an ongoing revenue stream to the Kim Jong-il regime in Pyongyang, by virtue of the share the government takes from the salaries paid to North Korean workers. South Korean and U.S. officials estimate this revenue stream to be around $20 million per year. On the other hand, the KIC arguably helps maintain stability on the Peninsula and provides a possible beachhead for market reforms in the DPRK that could eventually spill over to areas outside the park and expose tens of thousands of North Koreans to outside influences, market-oriented businesses, and incentives. In the final KORUS FTA agreement, the two sides reached a compromise on the KIC. On the one hand, the agreement does not include any reference to the complex, and KIC products are not eligible for the agreement's special treatment provisions. On the other hand, a binational committee was formed to study the possibility of eventually incorporating products from "Outward Processing Zones" (OPZs), including those—like the KIC—that are located in North Korea. The agreement identifies three general categories for which the committee is to develop more detailed criteria: progress in the denuclearization of North Korea, developments in intra-Korean relations; and wages, business management practices, the environment, and labor standards. For the third category of issues, the committee is to consider relevant international norms as well as the "situation prevailing elsewhere on the Peninsula." After the committee has developed criteria, the OPZ provisions in the FTA lay out a three- step process by which products made in the KIC could be incorporated into the FTA. First, the committee must deem that an outward processing zone meets the criteria it has established. Second, the two governments must agree that the FTA should be amended accordingly. Third, both governments must seek "legislative approval for any amendments to the Agreement with respect to outward processing zones." The agreement does not lay out the procedures by which the committee is to arrive at decisions, except that decisions would have to be reached by unified consent. For years, neither the Bush nor Obama Administrations specified what form "legislative approval" for OPZ-related amendments to the KORUS FTA would take. In March 2011, the office of the United States Trade Representative (USTR) issued a statement that Congress "would need to pass, and the President would need to sign, a law to extend any KORUS FTA tariff benefits to products made in Kaesong or any OPZ." Some observers, particularly opponents of the KORUS FTA, argued that the agreement could lead to increased U.S. imports of goods or components made in North Korea. The scenario they suggest involves South Korean firms obtaining low-cost Kaesong-made goods or components, incorporating the latter into finished products such as electronics or automobiles, and then reshipping the goods to the United States with "Made in [South] Korea" labels. If the KORUS FTA were in effect, the argument runs, these goods might receive preferential treatment. However, a close analysis of the agreement and the nature of trade flows reveals that unless the KIC is brought into the KORUS FTA, the FTA would likely have only a marginal impact on whether the United States imports North Korean finished products or goods that contain North Korean components. Instead, the extent of the problem of North Korea imports will be largely determined by the degree to which North Korean producers become integrated into the global economy. In addition, imports from North Korea require U.S. government approval. This restriction includes finished goods originating in North Korea as well as goods that contain North Korea-made components. Another criticism of the KORUS FTA was that it could constrain the United States' ability to restrict imports of North Korean goods or components, for instance, by invoking the agreement's dispute settlement procedures to challenge a U.S. decision to prohibit the entry of a South Korean product that contains North Korean components. However, provisions in the KORUS-FTA will appear to allow either the United States or South Korea to impose or maintain trade restrictions against the goods of a third country (such as North Korea); thus the agreement will accord each Party the right to restrict trade with the other Party in implementing any such embargo. In the KORUS FTA negotiations, the United States backed away from the principle of its initial position of not ever expanding the KORUS FTA to North Korea-made products, a significant achievement for South Korea. At the same time, the United States appeared to give up little in substance in the near-to-middle term. The United States apparently would be able to control the decision to and pace of any move to grant preferential treatment to North Korea-made products. Any perceptions of foot-dragging by the United States, however, may come at a diplomatic price if future South Korean governments push for more rapid integration of North Korean industrial zones into the FTA. Foreign Investment Foreign investment is becoming an increasingly significant element in the U.S.-South Korean bilateral economic relationship. Over the past decade, the stock of U.S.-South Korean foreign direct investment (FDI), valued on an historical cost basis, has increased substantially, due in no small part to the market-oriented reforms South Korea undertook after its 1997 financial crisis. In 1997, the value of stock of U.S. FDI in South Korea was $6.5 billion and increased to $32.8 billion by the end of 2012 (latest data available). South Korean FDI in the United States has increased even more substantially. In 1997, the stock of South Korean FDI in the United States was valued at $0.6 billion and had increased to $32.5 billion by the end of 2013. Foreign investment has been a sensitive issue in U.S.-South Korean relations for many years as U.S. investors have tried to make inroads into the South Korean economy. U.S. investors' criticisms have included restrictions on foreign investment in key sectors, such as communications, and the lack of adequate protection for intellectual property. (See section on " Intellectual Property Rights .") Efforts to establish bilateral rules have failed in the past. In the 1990s, the two countries tried to negotiate a bilateral investment treaty (BIT) that would commit each party to provide national treatment to the investments from the other party and abstain from performance requirements for foreign investments from the other party. But the negotiations collapsed largely over U.S opposition to South Korea's so-called screen quota on domestic films and the latter's resistance to lifting or reducing it. (The South Korean government reduced the screen quotas by half just before the KORUS FTA negotiations were launched in February 2006.) The KORUS FTA chapter on investment essentially contains the commitments that would otherwise have been in a BIT. The FTA sets down general principles for the treatment by South Korea and the United States of investors and investments from one partner in the territory of the other. The principle of non-discriminatory national treatment—that one party to the agreement will treat covered investments and investors from the other party no-less favorably than it treats domestic investors and investments—is paramount. The FTA allows each party to make exceptions to the national treatment principle, but those exceptions must be specified in the relevant annexes to the agreement. A second fundamental principal is most-favored-nation treatment (MFN)—the two parties agree to treat investors and investments from the other no less favorably than it treats investors and investments from third, non-party countries. A third principle is minimum standard of treatment, that is, each party shall accord to all covered investments treatment in accordance with customary international law, including fair and equitable treatment and full protection and security. The KORUS FTA sets limits on government expropriation of covered investments—that they be only for public purpose and carried out in a non-discriminatory manner, and affected investors will be provided with prompt and adequate compensation (fair market value). It also requires each KORUS FTA partner-country government allow for the free transfer of financial capital pertaining to covered investments both into and out of the country with exceptions, such as cases related to criminal offenses. The KORUS FTA prohibits the U.S. and South Korean governments from imposing performance requirements (domestic content requirements, export-ratios, import limits, etc.) on the investments from the other. It will allow exceptions for measures intended to accomplish social objectives, such as to increase employment in certain regions of the country, promote training of workforce, and protect the environment. The agreement also prohibits a requirement that senior managers be of a particular nationality but will allow a requirement that the majority of board of directors be of a particular nationality. Similar to other U.S. FTAs, the KORUS FTA establishes procedures for the settlement of investor-state disputes involving investments covered under the agreement where the investor from one partner-country alleges that the government of the other partner-country is violating his rights under the FTA. The FTA stipulates that the two parties should try to first resolve the dispute through consultations and negotiations. But, if that does not work, the agreement provides for arbitration procedures and the establishment of tribunals as provided under the "Convention on the Settlement of Investment Disputes Between States and Nationals of Other States." The USITC concluded that U.S. investors, especially investors in financial services, would likely gain from the KORUS FTA. (See section on " Financial and Other Services .") The United States has been the predominate partner in terms of foreign investment and stands to gain the most from the protections provided by the KORUS FTA. However, South Korean investments in the United States are increasing, and therefore, South Korea could benefit as well. Intellectual Property Rights In addition to those sections addressing pharmaceutical manufacturing (see discussion above), the KORUS FTA contains other provisions on intellectual property rights (IPR) protection in U.S.-South Korean trade. Under the FTA the United States and South Korea reaffirm their commitments under the WTO Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement and other international agreements and conventions on intellectual property. But the two countries made IPR commitments beyond those agreements with provisions that require each government to extend national treatment to IPR holders from the other country; require transparency through the publication of regulations and laws regarding intellectual property rights; facilitate the registration of and protection of trademarks and established limitations on the use of geographical indications; ensure the right of authors, performers, producers of recordings to determine use of copyrighted products; require copyright protection for no less than 70 years; thus, South Korea agrees to extend its copyright protection term, an objective of U.S. copyright holders; protect copyrighted material against piracy and provide penalties for those who abet piracy including the seizure and destruction of pirated and counterfeit products; protect copyrighted performances on the Internet; and protect encrypted programming over satellites and cable signals. Worker Rights On May 10, 2007, a bipartisan group of congressional leaders and the Bush Administration released a statement that provided language to be included in pending FTAs, including KORUS FTA. Among other things, the statement, or framework, called "The New Trade Policy for America," requires U.S. FTA partners to commit to enforcing the five basic international labor standards and would require that the commitment be enforceable under the FTA. Neither country is to waive or otherwise derogate from its labor statutes that reflect the five labor rights in a manner that affects trade or investment between the two FTA countries. Each country is to ensure that those affected by their respective labor laws have access to tribunals that enforce their rights under those laws. During his nomination process, former-USTR Ron Kirk stated the Obama Administration's position that the KORUS FTA appropriately incorporates the May 10 th understanding. Under the KORUS FTA the two countries formed a Labor Affairs Council made up of officials from the respective labor ministries and agencies.The council first met March 18-19, 2013, to discuss the implementation of the Labor Chapter's provisions and to provide a forum to engage with the public on related issues. Disputes regarding labor matters under the FTA are to be resolved first by consultations, but if those fail, the parties in dispute may take the matter to the Labor Council and eventually to a dispute settlement panel if these mechanisms fail to resolve the dispute. The KORUS FTA also calls for the establishment of a Labor Cooperation Mechanism whereby the two countries would develop and work in areas pertaining to labor rights in each country. To many outside observers, South Korea's labor rights regime is generally considered to be strong for regular workers. South Korea ranks in the top third of the OECD's thirty members in terms of employment protection for regular workers. Indeed, for years, a major complaint of U.S. multinationals is that restrictions in the South Korean labor market, such as mandatory severance pay, significantly raise the cost of investing and doing business in Korea. In contrast, U.S. union representatives argue that recent changes to make South Korean labor markets more flexible are reducing the rights of South Korean workers. Korea's unions have earned a reputation for activism; the number of working days lost to strikes is regularly among the highest in the OECD. Hyundai Motors, for instance, has experienced a strike every year since 1994. Moreover, strikes in South Korea are notable in that they are sometimes accompanied by violence and the occupation of workplaces and public spaces (such as highways), to which the government often responds with police action. In its comments on the KORUS FTA, the Labor Advisory Committee for Trade Negotiations and Trade Policy (LAC), criticized South Korea for the imprisonment of around 200 unionists who were "exercising basic labor rights" and for mobilizing riot police against union activity. Korea's labor pool is divided into two segments: (1) South Korean "salarymen" (salaried workers, overwhelmingly men, in large corporations) comprise less than one-third of the workforce. Over half of this segment of the workforce is represented by powerful unions. (2) The remainder of the workforce is comprised of employees in small-scale firms plus the country's temporary and day laborers. Few of these workers are unionized. The proportion of temporary workers has grown markedly, to nearly one-third of the workforce, one of the highest rates in the industrialized world. These workers tend to receive low wages and receive limited coverage by the social safety net, points highlighted by the LAC. Labor markets are notoriously rigid. Government Procurement A great deal of business is conducted by governments through the purchase of goods and services for their own use. Most governments, including the United States have laws (The Buy American Act) which require such goods and services to be of domestic origin. However, the General Agreement on Tariffs and Trade (GATT) and now the WTO have some provisions, the WTO Government Procurement Agreement (GPA), under which the countries agree to open up some of their government procurement business, to foreign companies as a way to promote trade. This agreement is plurilateral, that is it only applies to those WTO members that have signed it. The United States and South Korea are among the 41 signatories to the GPA. The GPA established rules for governments to publish information about contract tenders, including technical specification, about qualification for suppliers, the awarding of contracts, with a specific emphasis on nondiscrimination and transparency in the conduct of government procurement. The KORUS FTA reaffirms the GPA as a baseline for government procurement but would expand the criteria to include more contracts. The GPA applies to contracts valued at around $203,000 and above. The KORUS FTA applies to contracts valued at $100,000 and above, potentially increasing the value of bilateral government-procurement trade. The GPA applies only to contracts tendered by 79 U.S. federal government agencies and by 42 South Korean central and subcentral agencies listed in the annex. Under the KORUS FTA, South Korea added nine more agencies to be covered. Environment In keeping with the May 10, 2007, understanding on labor and the environment between the Bush Administration and congressional leaders, KORUS commits the United States and South Korea to enforce a list of seven multilateral environmental agreements to which both are parties and to add to the list when other agreements enter into force. (See the " Worker Rights " section above.) In addition, the FTA contains provisions that prohibit the two countries from easing environmental standards in order to allow firms on their territory from gaining a competitive trade advantage. Furthermore, violations of the environmental provisions are to be handled in the same manner as commercial provisions through the dispute settlement mechanism. Transparency Making information publically available is a fundamental principle imbedded in international trade rules and in each of the FTAs that the United States has entered into. For years U.S. exporters and trade negotiators identified the lack of transparency of South Korea's trading and regulatory systems as one of the most significant barriers to trade with South Korea, in almost every major product sector. Under the KORUS FTA, the United States and South Korea commit to: publish relevant regulations and administrative decisions as well as proposed regulations; hhallow persons from the other party to make comments and ask questions regarding proposed regulations; notify such persons of administrative proceedings and allow them to make presentations before final administrative action is taken; and allow such persons to request review and appeal of administrative decisions. Institutional Provisions and Dispute Settlement The KORUS FTA provides several options for the United States and South Korea to resolve disputes arising under the agreement, in addition to the special dispute settlement provisions under the foreign investment chapter and other chapters. KORUS FTA requires the two countries to establish a joint committee chaired by the USTR and the Minister of Foreign Trade or their designees to supervise the implementation of the agreement. The trade agreement provides for the establishment of a panel to adjudicate disputes between the two countries under the agreement, if consultations do not lead to a resolution of the dispute. Annex 22A of the KORUS FTA contains provisions for the settlement of disputes regarding motor vehicles, specifically the snap-back provision. (See discussion in section on " Automobiles ") Annex 22-B provides for eventual discussion of the inclusion of products made in outward processing zones in North Korea. (For more information, see discussion in " Kaesong Industrial Complex " section.) Other Technical Provisions The KORUS FTA includes other sets of provisions intended to facilitate market access. Technical barriers to trade are standards and regulations that are intended ostensibly to protect the health and safety of consumers and for other legitimate non-trade purposes but may through design and implementation discriminate against imports. The KORUS FTA commits both countries to uphold their obligations under the WTO Agreement on Technical Barriers to Trade (TBT). In addition, South Korea and the United States will promote transparency, by allowing persons from the other party to participate in the development of standards, technical regulations, and conformity assessment procedures. Regarding customs administration and trade facilitation , the KORUS FTA promotes joint cooperation to ensure compliance with each other's customs laws and regulations and requires both parties to adopt or maintain various practices designed to facilitate more efficient processing of international trade transactions. For example, it requires that customs authorities release goods in a timely manner and stipulates that both countries adopt procedures and regulations to facilitate express delivery shipments. Rules of origin define what are goods that originate in the FTA region and therefore are eligible for preferential treatment. (Textiles and apparel have separate rules of origin.) The KORUS FTA requires that goods must be wholly obtained or produced in the territory of both countries and country. The FTA sets a regional value threshold to be met to be considered originating in the FTA territory and provides formulas for determining the regional values for other products such as autos. National competition laws and regulations are intended to ensure that one firm does not so dominate a sector of the economy as to inhibit market entry and stifle competition. Among other things, the KORUS FTA requires that the United States and South Korea inform persons, who are subject to administrative actions, of hearings and provide them the opportunity to make their case. The two countries will cooperate in enforcing competition laws through the exchange of information and consultation. In addition, designated monopolies and state-enterprises will have to operate in conformance with the agreement and in accordance with commercial considerations. The KORUS FTA includes provisions to facilitate trade via electronic commerce ( e-commerce ). They prohibit discrimination against digital products and imposing customs duties on these products. They also require the recognition of electronic authentication and electronic signatures and promote consumer access to the Internet. Appendix. South Korean Motor Vehicle Manufacturing South Korea came late to the table of major motor vehicle manufacturing nations. Government attempts to foster a domestic automobile industry began in 1962 when the South Korean government enacted the Automobile Industry Protection Law, with assembly line production of automobiles in Korea beginning that year using complete knock down kits imported from Japan. The 1980 edition of the Automotive News Market Data Book , an authoritative industry source, listed no South Korean company among the top 50 global producers. By 2013, according to the International Organization of Motor Vehicle Manufacturers (OICA), South Korean production of cars and commercial vehicles totaled 4.5 million units; South Korea ranked as the global number five national producer, behind, in order, China, the United States, Japan, and Germany. Yet, South Korea remains only a mid-level consumer of motor vehicles, with domestic sales of around 1.4 million in recent years. Exports accounted for about 70% of Korea's motor vehicle production volume in 2013, a figure that is matched by no other major motor vehicle producing country. South Korea has aggressively developed and protected its automotive manufacturing base. Motor vehicle imports were prohibited in South Korea until 1987, and imports from Japan were banned until 1999. Originally, the South Korean government promoted the development of a fleet of domestically owned producers, but this strategy failed. In the shakeout after South Korea's economic crisis of 1997-1998, only one major South Korean-owned company was left, Hyundai, which also took control of the number-two producer by volume, Kia. Others were marginalized, out of the business altogether, or controlled by foreign companies. Korea's third producer, and their only other major manufacturer left in the business, Daewoo, is now controlled by General Motors. The lone major South Korean-owned producer, the Hyundai-Kia combination, in 2012 produced 6.8 million passenger cars worldwide, ranking it fourth globally, behind Toyota, G.M., and Volkswagen. Hyundai is a world-class global competitor, with current and planned assembly operations in the United States, the European Union, and other countries. The export orientation of the South Korean motor vehicle industry, the quality of South Korean cars, and the relatively low U.S. tariff on all imported motor vehicles, except trucks, has made the United States a good market of opportunity for South Korean automobile exports. Until 2016 and 2021, respectively, the United States will impose a 2.5% duty on imported passenger vehicles and a 25% duty on trucks. South Korean automakers export many more cars to the United States than U.S. car manufacturers export to South Korea. Total South Korean motor vehicle exports to the United States peaked at more than 860,000 units in 2004, according to U.S. Commerce Department data, and dropped every year through 2009, but increased to more than 750,000 passenger vehicles and light trucks in 2013 (see Figure A-1 ). U.S.-based automobile exporters, which could include South Korean and other foreign-owned manufacturers, shipped more than 27,550 passenger cars and light trucks to South Korea in 2013, up from slightly more than 22,600 units in 2012. Another important development affecting automotive exports and imports are the investments South Korean automakers have made in the U.S. market since the mid-2000s. Hyundai and Kia have established production facilities in the United States. Thus, Hyundai's Montgomery, AL, plant and Kia's West Point, GA, facilities allow them to substitute for some imports. In 2013, Hyundai and Kia sold 1.26 million light vehicles in the United States, of which some 60%, or about 770,000 units, were produced in the United States. Nearly 400,000 Sonata's, Elantra's, and Santa Fe's were assembled in Hyundai's Alabama facilities and about 370,000 Kia Sorento's and Optima's and Hyundai Santa Fe's were produced in Georgia in 2013. At full capacity, the Georgia Kia plant can produce 360,000 vehicles. Meanwhile, GM Korea, which is the South Korean arm of U.S. automaker GM, builds and sells cars in South Korea. In 2013, GM Korea sold 145,300 domestically built cars. Since these vehicles are not exported they are not covered by the KORUS FTA. The total value of South Korean automotive exports to the United States, including parts, was $19.7 billion in 2013, compared with U.S. exports of similar products to South Korea of $1.5 billion. The United States ran a bilateral trade deficit in autos of $18.2 billion in 2013, which widen from $10.6 billion five years ago. One analyst who examined the effects of the FTA, found in simulation models of projected market changes, South Korea would always gain relative to the United States from bilateral liberalization, "because Korea has a comparative advantage over the United States in the automobile sector; in other words, Korea has been much more successful in accessing the U.S. market than the United States has been in accessing the Korean market." Through aggressive and successful marketing, Hyundai and Kia together have significantly increased U.S. market share from the 2000s. Recent data show that Hyundai's sales of their domestic and imported vehicles rose by 3% from 2012 to 2013, while Kia's car sales were virtually flat, up 1% during the same time period. By comparison, overall sales of U.S. light vehicles grew to 15.6 million units in 2013 from 14.5 million in 2012, rising 8%. Despite their growth in sales in recent years, South Korean automakers' share of the U.S. market dropped in 2013 to 8.1% from 8.7% in 2012. Sales of Chevrolet's Spark EV model, which is imported from South Korea, totaled 34,130 units in 2013, its first full year on the market. For years, South Korean policies that allegedly restrict imports of foreign-made motor vehicles have been a major target of U.S. trade policy. In 1995 and 1998, the USTR negotiated memoranda of understanding (MOUs) with South Korea, aimed at reducing formal and informal South Korean policies that were said to discriminate against imports of U.S.-made vehicles and other foreign imports. U.S. policy primarily focused on motor vehicle taxation policies and South Korean motor vehicle standards, which supposedly did not conform to international standards, or those widely used in major markets. The import share of the domestic market in South Korea has increased since the MOUs were signed. According to data from the Korea Automobile Manufacturers Association and the Korea Automobile Importers and Dealers Association, total imports grew from a low of less than 1% of the market (4,400 units) in 2000 to 10.2% market share by 2013 (156,500 units). Together, European manufacturers accounted for more than three-quarters of imported cars in the South Korean market in 2013 and Japanese manufacturers combined comprised another 14%. U.S.-headquartered automakers constituted the remainder with a 7.4% share of new imported cars sold in South Korea (i.e., Ford at 7,200, Chrysler at 4,100, and GM at 300).

President Obama signed the legislation implementing the U.S.-South Korea Free Trade Agreement (KORUS FTA) on October 21, 2011 (P.L. 112-41), and the Korean National Assembly passed the agreement on November 22, 2011. The KORUS FTA entered into force on March 15, 2012. With the KORUS FTA now in force for over two years, focus has shifted from the debate over its passage to its implementation, economic impact, and effect on future U.S. FTAs. Some U.S. companies have argued that certain aspects of the KORUS agreement are not being implemented appropriately, citing issues related to rules of origin verification, express delivery shipments, data transfers, and pending auto regulations. In addition, a widening trade deficit with South Korea since the implementation of the agreement has led some observers to argue the agreement has not benefitted the U.S. economy, but it is difficult to distinguish the KORUS FTA's impact on U.S.-South Korea trade patterns from the impact of other economic variables. As the largest of the recently passed U.S. FTA's, perceptions of the KORUS FTA's economic impact and concerns over its implementation may influence congressional debate in the new FTAs now under negotiation, specifically the Trans-Pacific Partnership (TPP), which South Korea has signaled an interest in joining, and the Transatlantic Trade and Investment Partnership (T-TIP) between the United States and the European Union. The KORUS FTA is the second-largest U.S. FTA (next to NAFTA). In goods trade in 2013, South Korea was the sixth-largest trading partner of the United States, and the United States was South Korea's second-largest trading partner. The KORUS FTA covers a wide range of trade and investment issues and, therefore, could have significant economic implications for both the United States and South Korea. Congress approved the KORUS FTA implementing legislation using expedited procedures authorized by Trade Promotion Authority (TPA). Under TPA, which expired in 2007, the President had the discretion on when to submit the implementing legislation to Congress. The KORUS FTA was negotiated and signed on June 30, 2007, by President George W. Bush. However, President Bush did not submit the legislation because of differences with the Democratic leadership over treatment of autos and beef, among other issues. On December 3, 2010, after a series of negotiations, President Obama and South Korean President Lee announced that they had reached an agreement on addressing the outstanding issues related to the KORUS FTA. As a result, the final implementing legislation modified certain provisions of the 2007 agreement, primarily focused on trade in agriculture and autos. A broad swath of the U.S. business community supported the KORUS FTA. With the modifications in the commitments reached in December 2010, the three Detroit-based auto manufacturers and the United Auto Workers (UAW) union changed their positions and backed the agreement. Other labor unions and some nongovernmental organizations opposed the agreement. Many U.S. supporters viewed the KORUS FTA as important to secure new opportunities in the South Korean market, while opponents claimed that the KORUS FTA did not go far enough to break down South Korean trade barriers or that it would benefit U.S. corporations without producing gains for U.S. workers. Other observers suggested the KORUS FTA could have implications for the U.S.-South Korean alliance as a whole, as well as on U.S. Asia policy and U.S. trade policy.

Introduction Three royalty debates may be revived in the 114 th Congress: (1) whether to increase the statutory minimum rate for onshore federal oil and gas leases from 12.5% to 18.75%, (2) whether to enact revenue sharing laws for Outer Continental Shelf (OCS) leases to include all coastal states, and (3) whether to charge a royalty on hardrock locatable minerals produced on federal public domain lands. The onshore royalty rate for federal oil and gas leases has remained at 12.5% since the inception of the Mineral Leasing Act of 1920. If a lease produces oil or gas, a royalty is paid to the landowner on the value of extracted production. For federal onshore leases, lessees pay the statutory minimum of 12.5% on the value of production, but for offshore leases, royalty rates currently range from 12.5% to 18.75%. There is currently no royalty on locatable minerals extracted from public domain lands. However, there is a 5% gross revenue royalty on minerals extracted from acquired federal lands. This includes a relatively small amount of minerals produced in National Forests in some of the midwestern states. Revenue sharing from OCS leases occurs under the Gulf of Mexico Energy and Security Act (GOMESA) enacted in 2006 ( P.L. 109-432 ) for four Gulf coastal states: Louisiana, Texas, Alabama, and Mississippi. The states collect 37.5% of leasing revenues from selected leases off their coasts. Another revenue sharing feature of offshore leases allows the states to collect 27% of leasing revenues from leases within 3 miles beyond the states' offshore boundaries. A relatively small amount was disbursed to coastal states from offshore leases. For example, in FY2014, this share was about $38 million out of nearly $2.2 billion in total state onshore and offshore disbursements. Oil and natural gas produced on federal lands account for 5% and 13% of total U.S. oil and gas production, respectively. The volume and value of hardrock minerals produced on federal lands is unclear but some estimates have been made by the Government Accountability Office (GAO), the House Natural Resources Committee Democratic Staff, and the Department of the Interior. There is a significant amount of leasing revenue collected by the Office of Natural Resources Revenue (ONRR) within the Department of the Interior and disbursed to various states, the general Treasury, and specific funds such as the Land and Water Conservation Fund and the Reclamation Fund. Federal revenues from energy and mineral leases were estimated at $14.4 billion in FY2013 by ONRR (using sales data), but have ranged from a low of about $8.1 billion in FY2004 to a high of about $24.1 billion in FY2008, during the10-year period (FY2004-FY2013). Changing prices for oil and gas are the most significant factors in the revenue swings. See the Appendix for details on revenues received and disbursed from mineral leasing programs and hardrock mining claims from FY2011 to FY2013. House and Senate bills in the 113 th Congress proposed to raise the minimum royalty rate from 12.5% to 18.75% on oil and gas produced on federal leases, improve the permitting process, provide for revenue sharing of OCS revenues, or establish a "gross proceeds" royalty on federally owned locatable mineral production. This report serves as a primer on selected royalty issues debated by previous Congresses and likely to be faced in the 114 th Congress. Why a Royalty? Minerals (fuel and non-fuel) are an exhaustible resource; when extracted today they are unavailable for extraction at a later date. The miner must decide whether to produce now or in the future. If production occurs now, the miner must consider the value of foregone future production. Ideally a mineral producer would like to extract the resource so that the present value of its net income is the same for each production period. Mining firms must constantly explore for new minerals to replace those they have extracted. A mineral royalty is a payment to the resource owner for the extraction of the mineral. In the mining industry the royalty is typically based on production ($/ton) or income (percent of gross or net income). For federal oil and gas leases, royalties are assessed on the gross value of production minus allowable deductions. Royalties could be a significant portion of the overall costs of a mining operation and they could influence mining investment decisions. A wide range of income-based royalties are now applied to oil and gas production and hardrock mining on private and state-owned lands. The federal government's perspective is to generate revenue to fund society's needs for the use of its resources and make payments available to states that are impacted. All mining companies want a stable, predictable ability to pay; early recovery of capital; and rates that do not distort production decisions (i.e., cut off grades or mine life) or add significantly to operating costs. The mining industry is used to paying royalties; they are typically built into the firms' cost structure. The issue is how an increase in the royalty rate or a new royalty would change the firms' cost structure (lower-grade ores may become unprofitable after a royalty is imposed). The government objective of obtaining revenues from mining operations on federal lands may be balanced with the goal of maintaining a viable U.S. mining industry and meeting environmental requirements and social concerns. Oil and Gas Leasing and Royalty Rates Onshore Development of oil and gas on federal lands is governed primarily by the Mineral Leasing Act of 1920 (MLA). Leasing auctions and implementing activities are administered by the Bureau of Land Management (BLM) for all federal lands. The MLA authorizes the Secretary of the Interior—through the BLM—to lease the subsurface rights to virtually all BLM and Forest Service (FS) lands that contain fossil fuel deposits, with the federal government retaining title to the lands. The MLA authorizes both competitive and noncompetitive bidding processes for oil and gas exploration and production leases. In a competitive lease sale, a bonus payment is required to win the lease. Rents are then paid on a per-acre basis prior to production. The revenue associated with the onshore leasing process is collected and disbursed by ONRR. Rental rates for onshore oil and gas leases start at $1.50 per acre for the first five years then increase to $2.00 per acre until production commences or the lease expires or is relinquished. Then royalty payments, based on the value of production, are made upon production. In addition to the MLA, the Energy Policy Act of 2005 (EPACT-05) includes provisions governing access, leasing, and management of energy development on federal lands managed by the Bureau of Land Management and the Forest Service. Raising Royalty Rates There is precedent for raising federal oil and gas lease royalty rates (which the Secretary of the Interior has the authority to do). Under the Bush Administration in 2008, Interior Secretary Dirk Kempthorne raised the deepwater rate for new leases from 12.5% to 16.67%. Then, in March 2009, Secretary Ken Salazar of the Obama Administration increased the royalty rates for new offshore leases to 18.75%. The 12.5% rate for federal onshore oil and gas leases appears low when compared to the state rate and the private sector rate, but there are upfront costs such as bonus bids involved in the purchase of a federal lease that increase the government's overall revenue stream. Most states have a statutory minimum rate of 12.5%, but actual state royalty rates are more likely 16.67% or 18.75% and can be as high as 25%. Private sector rates are typically around 18.75%. The relatively low percentage of the total U.S. production coming from federal onshore lands may not likely translate into a major underpayment of revenues by the oil and gas industry as a whole, but higher royalty rates would translate into relatively significant amounts of money that would go back to the states. The lower federal onshore royalty rate for oil and gas may be viewed as an incentive rate to encourage bidding on federal lands when competing for industry investment spending and to provide some balance from the disproportionate time it takes to process applications for permits to drill (APDs) on federal lands. This may be particularly significant when oil prices are declining. Production on onshore federal lands is up as it is elsewhere onshore. Would a higher rate have made a difference in production? When Secretary Salazar increased the OCS new lease rate to 18.75%, he contended that there was no longer a need to keep the deepwater royalty rate at the minimum level because the royalty relief act had helped spur the technical change and innovations necessary for deep water drilling to be commercially viable. The incentives and high oil prices had worked and deepwater drilling and development had begun to move forward with great potential ahead for lease sales given the higher resource potential in the deepwater Gulf of Mexico. Production in the OCS has fluctuated over the past 10 years but was lower in FY2013 than FY2004. One of the biggest deterrents to federal land development for oil and gas may be the timetable from lease purchase to drilling (exploration), discovery, and production. The leasing and permitting processes are dramatically different on private versus federal lands. One controversial issue has been the permitting process, considered by some to be too lengthy and cumbersome, particularly when compared to permitting for oil and gas exploration on private lands. The Energy Policy Act of 2005 (EPACT-05, P.L. 109-58 ) enacted several provisions that were aimed at expediting the development of oil and gas on public lands, particularly with respect to the approval of applications for permits to drill (APDs). Some critics of EPACT-05 believe that the permitting is now moving too fast without adequate environmental review. In addition to potential procedural deterrents, there may be better prospects on private land. Currently, most onshore oil and gas exploration and development activity is on privately owned land and state land. There are still substantial amounts of oil and gas available on federal lands. Lower costs and high oil and gas prices (until recently) in general serve as an incentive to invest on public lands. Even though oil production on onshore federal lands has gone up over the past five years, albeit slowly, federal oil production is not proportional to its share of U.S. reserves (i.e., 5% of production; estimated at 15%-18% of reserves). Natural gas production from onshore federal leases has declined over the past five years. Onshore federal natural gas reserves account for about 21% of total U.S. natural gas reserves and 13% of U.S. production. Policy Options and Legislative Proposals If they deem a change is necessary, lawmakers may continue to encourage the Administration to raise the onshore royalty rate but keep the statutory minimum at 12.5%, consistent with what was done for OCS leases. One group, the Center for Western Priorities, supports increasing the statutory minimum rate from 12.5%, to as high as 18.75%. Does the Secretary simply raise the current onshore rate for new leases above the statutory minimum rate or seek an increase in the statutory minimum rate? A graduated rate increase over a five-year (or some other) period from 12.5% to 18.75% that would apply to new FY2016-FY2020 leases might also be considered. The Administration continues to evaluate royalty rate reforms among other federal oil and gas leasing program reforms. What would justify a higher rate—improved technology, higher prices, a more efficient permitting process? Lower royalty rates for federal onshore leases may be justified to keep sustained interest in federal lands. An increase in royalty rates coupled with low oil or gas prices could impact high-cost marginal producers negatively. Two bills introduced in the 113 th Congress would have raised the statutory rate of federal oil and gas leases from 12.5% to 18.75%: S. 329 (Sustainable Energy Act); and H.R. 3574 (End Polluter Welfare Act of 2013). Revenue Sharing from Federal Oil and Gas Leases New royalty revenue sharing proposals have generally addressed allocating more revenues to the coastal states where offshore leases are held. This section on the OCS leasing system provides a framework for understanding how the offshore leasing program works. OCS Leasing System The Outer Continental Shelf Lands Act (OCSLA) of 1953, as amended, provides for the leasing of OCS lands in a manner that protects the environment and returns revenues to the federal government in the form of bonus bids, rents, and royalties. OCSLA requires the Secretary of the Interior to submit five-year leasing programs that specify the time, location, and size of the areas to be offered. Each five-year leasing program entails a lengthy multistep process that includes environmental impact statements. After a public comment period, a final proposed plan is submitted to the President and Congress. The offshore leasing and revenue system is managed by three agencies: the Bureau of Ocean Energy Management (BOEM), which administers the leasing of offshore tracts; the Bureau of Safety and Environmental Enforcement (BSEE); and the Office of Natural Resources Revenue, which manages the collection and disbursement of revenues, among other functions. All three of the entities are carrying out the functions of the former Minerals Management Service (MMS). Revenue Sharing Systems There are two major revenue sharing systems for federal oil and gas leases. One is used for onshore leases and another used for offshore leases. The largely decentralized revenue sharing system for onshore federal energy and mineral resources under the Mineral Leasing Act of 1920 provides the states generally with a 50% share of revenues collected (rents, bonuses, and royalties), less 2% for administrative costs; Alaska, however, receives 90% of all revenues collected on federal leases. The onshore mineral leasing program is administered by the Bureau of Land Management (BLM). The decentralized onshore system also makes sizable contributions to the Reclamation Fund which is administered by the Bureau of Reclamation (BuRec). The Reclamation Fund, which receives 40% of onshore federal mineral leasing receipts, provides funding for numerous water and irrigation projects in 17 western states. Project funds must be appropriated annually by Congress. Generally, the Fund receives most of its funding from mineral leasing revenue, most of which comes from two states: Wyoming and New Mexico. Project funding is not based on where the leasing revenues originate, but on whether the projects are considered to be of high-value and, according to the BuRec, part of the United States' strategy to meet its water needs and address the current climate change challenges. The U.S. Treasury receives 10% of the onshore mineral leasing receipts annually. These onshore receipts are intended to maintain or establish infrastructure, and mitigate environmental, social, and other impacts from the development of mineral resources. Also, it is a common practice that most states use much of these revenues to financially support their school systems. These onshore revenue payments are important to the states with federal mineral leases as substitutes for private taxes because of the tax-exempt status of federal property. This is different from the much more centralized system used for offshore revenue. The largely centralized offshore revenue system has provided the U.S. Treasury with 80% or more annually of its total energy and mineral leasing revenue stream over the past several fiscal years. The coastal states, by contrast, have consistently received less than 2% of the total revenue generated from federal offshore leases, allocated under Section 8(g) of the Outer Continental Shelf Act, as amended. This centralized approach was slightly modified in 2006, under the Gulf of Mexico Energy Security Act (GOMESA, P.L. 109-432 ), which provided four coastal states 37.5% of the revenue generated from selected leases off their coasts. A small amount of GOMESA revenues have been allocated while the vast majority is set to be disbursed beginning in 2017. Beginning in FY2017, and thereafter, the Gulf producing states would also receive 37.5% of the revenues generated from leases awarded within the 2002-2007 planning area and from historical leases (described in the statute). There is an annual combined cap of $500 million that can be awarded to the states. The Land and Water Conservation Fund (currently funded from OCS revenues) would receive 12.5% of the qualified revenues for state programs and the U.S. Treasury would receive 50% of those revenues. Similarly to the onshore decentralized system, offshore revenues flow into entities unrelated to mineral and energy development for projects deemed by Congress, among many others, to be in the national interest and providing benefits to the general population. Revenues from the offshore leases are statutorily allocated among the coastal states, the Land and Water Conservation Fund (LWCF), the National Historic Preservation Fund (HPF), and the U.S. Treasury. States receive 27% of all OCS receipts closest to the shore (within 3 miles from the state coastal boundary) under Section 8(g) of the OCSLA amendments of 1985 ( P.L. 99-272 ). As noted above, this state share is about 2% of total federal offshore revenue. OCS Revenue Sharing Analysis Proposals have been made to use OCS revenue receipts to provide support directly to all states that have oil and gas drilling and development off their coasts, similar to the allocation under the onshore system, even though actual production in the OCS and deepwater regions occurs strictly within federal jurisdiction; there are no lost private taxes for the offshore federal lands. Other congressional arguments assert that the revenue is for the general public good, not necessarily to benefit any particular state. Advocates of greater OCS revenue sharing contend that projects in the affected coastal states that might be funded from OCS revenues would likely provide benefits to the national economy and the general public. Oil and gas production alone is viewed by many as vital to the national economy and energy security. States have argued for a greater share of the OCS revenues based on the significant impact of oil and gas activities on their infrastructure and the environment. According to the coastal producing states, the revenues are needed to mitigate environmental impacts and to maintain the necessary support structure for the offshore oil and gas industry. These costs may be incurred indirectly from events (e.g., a hurricane or flood) that require maintenance to ensure continual offshore activity. Infrastructure costs include roads, water and waste facilities, pipelines, storage facilities, disposal facilities, public safety, and education. Protection and conservation of coastal states' ecosystems include barrier islands, marshes, etc., to protect near-shore facilities. How are these impacts and costs built into the cost structure of the producing firm? One way is to consider a firm's payment (a royalty) to the federal government as a payment for the use of state and local resources and for the extraction of oil and gas. Issues such as hurricane protection, rebuilding from the impacts of a hurricane, and rebuilding barrier islands are considered vital to the economic interest of the states affected. Without any federal revenue-payments for these associated costs, they must be absorbed by the state. Firms that develop resources offer significant external benefits as well. They may compensate some states with employment opportunities (direct and indirect jobs) that become available in the oil and gas industry. These businesses and employees in related fields pay taxes, make investments, and support local economies. This, however, may be insufficient to cover the full impact of the industry, states contend. Those revenues generated by related industry may be spent within the state but may not necessarily be spent to mitigate impacts and prevent infrastructure erosion. On balance, states argue, external costs may outweigh the external benefits for coastal states. However, such a cost/benefit determination is beyond the scope of this report. Policy Options and Legislative Proposals The states' view along with that of some Members of Congress is that the federal Treasury could share part of its revenues with the states to address the issue of external costs associated with offshore development. Alternatively, the states could impose a user fee. However, the offshore revenue system does not necessarily need to mirror the onshore system (states receiving 50% of the revenue generated within that state, 40% going to the Reclamation Fund, and the federal Treasury receiving 10%). These offshore acres are not tax-exempt federal properties within a state's boundaries but rather waters located entirely on the federal OCS and deepwater regions. A "fair and equitable" revenue system could, in principle, provide a percentage of the total, sufficient to address the costs these states incur. The "fair and equitable" payment may be a fixed amount of revenue related to the external costs rather than a fixed percent of the total revenue. Or the percent could reflect the needs of both the states and the federal treasury and not necessarily be tied to the onshore system. Fifty percent of offshore revenues is a substantially larger amount than 50% of the onshore revenue stream and would be allocated to a smaller number of states. The policy decision is to determine if the states should receive a revenue-based payment, and if they do, what would be the optimal amount to address those production costs incurred by the states as part of OCS oil and gas development. Further analysis is needed on what an optimal level of federal support would be for the states' supportive role in offshore development. Among the legislative proposals in the 113 th Congress that included revenue sharing provisions were H.R. 2 (American Energy Solutions for Lower Costs and More American Jobs Act); H.R. 1165 (Maximize Offshore Resources Exploration Act of 2013); and H.R. 4956 (American Energy Opportunity Act of 2014. None of these bills were enacted into law. Hardrock Minerals—Location System and Fee Structure Mining on Federal Lands Mining of hardrock minerals on federal lands is governed primarily by the General Mining Law of 1872. The original purposes of the Mining Law were to promote mineral exploration and development on federal lands in the western United States, offer an opportunity to obtain a clear title to mines already being worked, and help settle the West. The Mining Law grants free access to individuals and corporations to prospect for minerals on open public domain lands, and allows them, upon making a discovery, to stake (or "locate") a claim on the deposit. A valid claim entitles the holder to develop the minerals. The 1872 Mining Law originally applied to all valuable mineral deposits except coal (17 Stat. 91, 1872, as amended). The Mining Law continues to provide the structure for much of the western mineral development on public domain lands. Western mining, although not as extensive as it once was, is still a major economic activity, and a high percentage of hardrock mining is on public lands. The Claim-Patent System As of September 1, 2014, to hold a claim on public land, claimants must pay an annual maintenance fee of $155 per claim. Claimants with 10 claims or fewer may file for a waiver of the annual maintenance fee and perform annual assessment work instead. There also is a $37 fee for first-time locators to locate and record a claim. The fees above are to be adjusted every five years based on the Consumer Price Index (30 U.S.C. 28 j (c)). The next adjustment is projected to be made on September 1, 2019. The annual maintenance fee replaces the requirement that $100 of annual development work be conducted per claim. Once a claimed mineral deposit is determined to be economically recoverable, and at least $500 of development work has been performed, the claim holder had the right to file a patent application to obtain title to surface and mineral rights. Beginning January 3, 1989, a fee of $250 per patent application plus $50 per claim within each application had been required. If the patent application is approved, the claimant had the right to purchase surface and mineral rights at a rate of $2.50 per acre for placer claims and $5 per acre for lode claims. These per-acre fees were substantial when the Mining Law was enacted; claimed land and minerals now far exceed these amounts in value. The following provisions currently apply to mining claims: there is no limit on the number of claims a person can locate; there is no requirement that mineral production ever commence; mineral production can take place without a patent or royalty payments to the federal government; and claims can be held indefinitely with or without mineral production. Beginning in FY1995, Congress has enacted (in the Interior appropriations laws) a series of one-year moratoria on the issuance of mineral patents. However, applications meeting certain requirements that were filed on or before September 30, 1994, are allowed to proceed, and third-party contractors are authorized to process the mineral examinations on those applications. The patent moratorium will not stop the production of valuable mineral resources from the public lands, but will prevent the further transfer of ownership of public lands to the private sector (with the exception of the 237 patent applications already in the pipeline). The annual one-year moratorium on patenting continues along with the uncertainty over whether efforts will continue to try to reform the 1872 Mining Law. The mining industry would like to end the uncertainty to facilitate its long-term business planning. Environmentalists, who were hoping for new environmental protection language in a major mining law reform bill, argue that the patent moratorium does not protect the environment from current mining practices. Types of Hardrock Mineral Royalties The two types of royalties being debated generally include gross proceeds/net smelter return royalty and a net income royalty. A gross proceeds (income) royalty or similarly a net smelter returns royalty is based on the gross revenue minus smelting charges and transportation costs and other allowable costs. This type of royalty would generally guarantee royalty revenues when production occurs. Collections and administration are relatively simple and inexpensive. The royalty would apply even when the operation was unprofitable; if it caused the mine to shut down, all royalties would be lost. Assessing royalties at the smelter stage could also lead to mining only the highest quality ore. The added costs could cause some mines to be uneconomic. A net income royalty would be applied after all costs were subtracted from gross income and would be based on profitability of the mine. This royalty would focus not on gross production but on the operation's economic rent; that is, any profit in excess of that necessary to maintain the mine in operation. The net income royalty would be expected to have less impact on marginal mines, and thus be less likely to shut them down. One disadvantage with this type of royalty is that it would require a much higher percentage royalty to achieve the same level of revenue flow. In addition, when there are no profits, there are no royalties, unlike the net smelter royalty. The mining industry argues that this is "socially equitable," because the royalty is applied to what it defines as excess profits or rents. A net income royalty could be difficult to administer and subject to "creative accounting," meaning that firms could increase deductions to show little or no net profits, thus avoiding payment of the royalty. Analysis The right to enter the public domain lands and prospect for and develop minerals is the feature of the claim-patent system that draws the most vigorous support from the mining industry. Modern hardrock mineral exploration requires a continuous effort using vast tracts of land and sophisticated and expensive technology. Industry officials argue that being able to obtain full and clear title to the land enhances a company's ability to bring an economic deposit into production; financing the project, for example, may be more feasible. They contend that restrictions on free access and security of tenure would curtail exploration efforts among large and small mining firms. In their view, the incentive to develop would be lost, long-run costs would increase, and the industry and the country would suffer. Mining Law critics consider the claim-patent system a giveaway of publicly owned resources because of the small charges associated with keeping a claim active and obtaining a patent and the absence of royalties. They maintain that although such generous terms may have been effective ways to help settle the West and develop minerals, there is no solid evidence that under a different system, minerals would not be developed today. They also believe the current system, by conveying title and allowing other uses of patented lands, creates difficult land management problems through the creation of private inholdings on public land, and that current law does not provide for adequate protection of the environment. In the claim-patent system, mineral claims may be held indefinitely without any mineral production. Once lands are patented to convey full title to the claimant, the owner can use the lands for a variety of purposes, including non-mineral ones. However, using land under an unpatented mining claim for anything but mineral and associated purposes violates the Mining Law. Critics believe that many claims are held for speculative purposes. However, industry officials argue that a claim may lie idle until market conditions make it profitable to develop the mineral deposit. The industry generally opposes placing hardrock minerals under a leasing system because this would give the federal government discretionary control over development, impose royalty payments, and retain government ownership of surface and/or mineral rights. Policy Options and Legislative Proposals The policy debate on federal lands used for hardrock mineral development focuses on whether a royalty will be charged at all. There is currently no royalty payment required to the federal government for minerals extracted from federal public domain lands. There is ongoing congressional debate over the following: whether to place selected minerals (e.g., gold, copper, and silver) in a leasing system and charge a royalty, perhaps even a sliding scale royalty based on prices; alternatively, whether to retain the claim-patent system, adding a royalty to production costs; whether to establish a gross income royalty or a net income royalty; the most vigorous debate has centered on this issue; whether to establish a gross income royalty of 8% on the production of locatable minerals from new mining claims and 4% of gross income on production from certain existing claims. A legislative proposal in the 113 th Congress, H.R. 5060 (Hardrock Mining and Reclamation Act of 2014), included these provisions; this proposal was not enacted; and an Administration proposal to establish a leasing process (under the Mineral Leasing Act of 1920) for certain hardrock locatable minerals, including a gross proceeds royalty of not less than 5% on the value of production for new leases. Existing mining claims would be exempt from the new leasing process. Appendix. Federal Onshore and OCS Revenues Onshore Leasable Minerals Receipts Receipts from leasing are collected by the DOI ONRR. For oil and gas, areas identified as known geological structures are offered for lease competitively; for areas with bids less than the identified minimum or outside known geological structures, leases may be offered to applicants without competition for a $75 application fee (in lieu of a bonus bid). Bonus Bids —Competitive bonus bidding is used for lease sales, with leases awarded to the highest bidder. A minimum acceptable bonus bid is determined by BLM (based on their economic analysis of fair market value) for each tract offered. Successful bidders make an up-front cash payment, called a bonus bid, to secure the lease. Rents —Administratively determined annual payments are charged per acre leased until production commences or the lease is terminated or relinquished. Royalties —Payments of a share of production are made, generally set at 12.5% of the value of production. The Secretary of the Interior may reduce or eliminate the royalty established by the lease to promote increased recovery. Permit Fees —Administratively determined fees are charged for filing applications for permits to drill. The fees are intended to recover administrative costs of permit processing Disposition of Receipts Payments to States, except Alaska (Mineral Leasing Act of 1920; 30 U.S.C. §191)—50% of receipts are permanently appropriated to the states. Reclamation Fund —40% of receipts, except in Alaska, are deposited in the Reclamation Fund; expenditures require an annual appropriation. Payments to Alaska (Mineral Leasing Act of 1920; 30 U.S.C. §191, as amended by P.L. 85-505) — 90% of receipts from leases in Alaska are permanently appropriated to the state. Federal Administrative Costs —2% of the states' share (1% of receipts, except for 1.8% of receipts in Alaska) is retained and permanently appropriated to the BLM to cover administrative costs of the leasing program, under language in the Interior appropriation bills since FY2008. General Treasury —The remaining 10% of receipts is deposited in the Treasury. Offshore Leasable Minerals Receipts Leasing minerals (primarily oil and gas) under the federal Outer Continental Shelf (OCS, typically from 3 to 200 miles offshore) is governed by the 1953 Outer Continental Shelf Lands Act (OCSLA, 43 U.S.C. §§1301, et seq.). The DOI BOEM prepares five-year leasing plans and periodically offers leases at auction. Bonus Bids —Competitive sealed bonus bidding is used for lease sales, with leases awarded to the highest bidder. Successful bidders make an up-front cash payment, called a bonus bid, to secure the lease. A minimum acceptable bonus bid is determined by BOEM (based on their economic analysis of fair market value) for each tract offered. In contrast to onshore oil and gas leasing, if no bids match or exceed the minimum, the lease is withheld, to be offered again at a later sale. Rents —Administratively determined annual payments are charged per acre leased for nonproducing active leases. Royalties —Payment of a share of production is made by the successful bidder. Royalty rates are generally set at 12.5%, 16.7%, or 18.75% of the value of production, with the highest rate used in recent offshore lease sales. The Secretary of the Interior may reduce or eliminate the royalty established by the lease to promote increased recovery. Permit Fees —Administratively determined fees are charged for filing and maintaining permits. Disposition of Receipts Land and Water Conservation Fund (LWCF, P.L. 88-578; 16 U.S.C. §§460 l -4, et seq.) —Up to $900 million annually is allocated to the LWCF. It receives deposits from several sources, such as surplus federal property sales and federal motorboat fuel taxes, and then revenues from OCS leasing to fulfill the $900 million annual authorization; expenditures require an annual appropriation. National Historic Preservation Fund (National Historic Preservation Act, P.L. 89-665; 16 U.S.C. §§470, et seq.)—$150 million annually from OCS lease receipts is allocated to the fund; expenditures require an annual appropriation. Section 8(g) Payments to States (§8(g) of the OCSLA Amendments of 1985, P.L. 99-272 )—27% of receipts from §8(g) common pool lands is permanently appropriated to the states; §8(g) common pool lands are defined as submerged acreage lying outside the 3-nautical mile state-federal demarcation, typically extending to a total of 6 nautical miles offshore but including a pool of oil common to both federal and state jurisdiction. A 1978 OCSLA amendment provides for "fair and equitable" sharing of revenues from §8(g) common pool lands. Section 8(p) Payments to States (Gulf of Mexico Energy Security Act (GOMESA) of 2006, P.L. 109-432 , amending OCSLA)—37.5% of receipts from specified federal oil and gas leases off the coasts of selected Gulf states is permanently appropriated to those states (Alabama, Louisiana, Mississippi, and Texas; no leasing occurs off the Florida coast). LWCF, Stateside Program (GOMESA)—12.5% of receipts from specified federal oil and gas leases off the coasts of selected Gulf states is permanently appropriated to the National Park Service to be used consistent with the stateside program under the LWCF Act. Coastal Impact Assistance Program (CIAP, Energy Policy Act of 2005, P.L. 109-58 , §384)—$250 million of annual spending for FY2007-FY2010 was permanently appropriated, 65% to coastal producing states (Alabama, Alaska, California, Louisiana, Mississippi, and Texas) and 35% to eligible political subdivisions, allocated among states by the formula in law (based on previous qualified OCS revenues). General Treasury —Any remaining funds are deposited in the Treasury. Hardrock/Locatable Minerals Receipts The General Mining Law of 1872 established a system of free access for individuals and corporations to prospect for hardrock (or locatable) minerals (e.g., gold, silver, copper) on open federal lands and to stake a claim on the deposit (30 U.S.C. Chapter 2). The minerals can then be extracted from sites with valid claims. The claim can be "patented" to transfer title to the relevant lands to the claimant, although patenting the land is not necessary to extract the minerals. Since FY1995, Congress has included a provision prohibiting land patents under the General Mining Law in the annual Interior appropriations acts. Receipts from hardrock/locatable minerals are generated from fees to locate the claim, an annual fee to maintain the claim, and a per-acre fee to patent the claim. The location fee is $37 per claim to locate and record the claim. The annual maintenance fee is $155 per claim. This fee replaces the previous annual requirement of $100 of development work to maintain each claim. Claimants with 10 claims or fewer may file to waive the annual maintenance fee and perform the annual work assessment instead. Fees are adjusted every five years for inflation, based on the Consumer Price Index. Patenting the claim (which has been prohibited under a provision in the annual Interior appropriations acts since FY1995) includes two fees: Patent application fee is $250, plus $50 for each claim in the application. Land patent fee is $2.50 or $5.00 per acre, depending on the type of claim. Disposition of Receipts Cost of Collections ( P.L. 111-8 , FY2009 Omnibus Appropriations Act at 123 Stat. 701)—The BLM is authorized to retain a portion of the receipts based on BLM's cost of collections. General Treasury —Any remaining receipts are deposited in the Treasury.

Three royalty debates may be revived in the 114th Congress: (1) whether to increase the statutory minimum rate for onshore federal oil and gas leases from 12.5% to 18.75%, (2) whether to enact revenue sharing laws for Outer Continental Shelf (OCS) leases to include all coastal states, and (3) whether to charge a royalty on hardrock locatable minerals produced on federal public domain lands. House and Senate bills in the 113th Congress proposed to raise the minimum rate from 12.5% to 18.75% on oil and gas produced on federal leases, provide for revenue sharing of OCS revenues, and establish a "gross proceeds" royalty on federally owned locatable mineral production. Raising the Onshore Oil and Gas Royalty Rate A mineral royalty is a payment to the resource owner for the extraction of the mineral. Typically, in the mining industry the royalty is based on production ($/ton) or income (percent of gross or net income). For federal oil and gas leases, royalties are assessed on the gross value of production minus allowable deductions. There is precedent for raising federal oil and gas lease royalty rates. Under the Bush Administration in 2008, Interior Secretary Dirk Kempthorne raised the deepwater rate for new leases from 12.5% to 16.67%. Then, in 2009, Secretary Ken Salazar of the Obama Administration increased the royalty rates for new offshore leases to 18.75%. The lower federal onshore royalty rate (12.5%) for oil and gas may be viewed as an incentive rate to encourage bidding on federal lands. Revenue Sharing The largely decentralized revenue sharing system for onshore federal energy and mineral resources under the Mineral Leasing Act of 1920 provides states generally with a 50% share of revenues collected (rents, bonuses, and royalties), less 2% for administrative costs; Alaska, however, receives 90% of all revenues collected on federal onshore leases (less administrative costs). These onshore receipts are intended to maintain or establish infrastructure, and mitigate environmental, social, and other impacts from the development of mineral resources. This is different from the much more centralized system used for offshore revenue, which has much less revenue sharing. Establish a Locatable Minerals Royalty The Mining Law continues to provide the structure for much of the western mineral development on public domain lands. Western mining, although not as extensive as it once was, is still a major economic activity. Industry officials argue that the current claim-patent system enhances a company's ability to bring an economic deposit into production. They contend that restrictions on free access and security of tenure would curtail exploration. Mining Law critics consider the claim-patent system a giveaway of publicly owned resources because of the absence of royalties and the small charges associated with keeping a claim active and obtaining a patent.

Introduction Technological advances, a looming statutory deadline, and the need to reclaim analog spectrum occupied by television broadcasters have put digital television (DTV) on a fast track. At the same time, development of digital television has necessitated balancing the competing interests of content holders and consumer and technological industries. Reconciling these interests has led to the development of a broadcast video flag to combat unauthorized redistribution of content broadcast through digital television signals. The move to protect digital content has been given urgency by the Federal Communications Commission's (FCC's) determination that broadcast transmissions be digital by December 31, 2006. The 105 th Congress, in the Balanced Budget Act of 1997, P.L. 105-33 , made this date statutory. However, the lack of widespread purchase and adoption by consumers of digital television equipment prompted the 109 th Congress to extend the 2006 deadline; a provision of the Deficit Reduction Act of 2005, P.L. 109-171 , established a "firm deadline" of February 17, 2009, for the digital transition. What Is DTV? Digital Television is a new television service representing the most significant development in television technology since the advent of color television in the 1950s. Three major components of DTV service must be present for consumers to enjoy a fully realized high-definition television viewing experience. First, digital programming must be available. Digital programming is content assembled with digital cameras and other digital production equipment. Second, digital programming must be delivered to the consumer via a digital signal. Third, consumers must have digital television equipment capable of receiving the digital signal and displaying digital programming for viewing. Developing a protocol for transmitting and receiving digital television in a way that accommodated competing interests has proved challenging. Digital content, like other media, can be relatively easily duplicated and distributed, especially with the aid of the Internet. Unlike other types of content, duplication of digital information does not degrade the original. Whereas the quality of a VHS tape degrades after successive copies, a DVD may be copied almost infinitely with no effect on the quality of the medium. It is because of the ease and inexhaustible potential of copying digital media, coupled with the proliferation of Internet peer-to-peer file-sharing services, that content providers have greeted this new technology with some trepidation. The Broadcast Video Flag The broadcast video flag is a combination of technical specifications and federal regulations designed to combat unauthorized redistribution of content broadcast through digital television signals. Its adoption was prompted largely by the FCC's determination that broadcast transmissions be digital by December 31, 2006 (a deadline that has since been extended by Congress to February 17, 2009). The FCC imposed a transition to DTV in part to capitalize on the sharper images, CD-quality sound, and wider screen angles that are available from advanced digital technologies. However, in addition to the technological impetus, the FCC also has been motivated by the knowledge that broadcasters, upon receiving digital spectrum allotments, must relinquish their analog spectrum allotments to the FCC. The analog spectrum will in turn be auctioned for other commercial and public interests. Content providers, fearing widespread piracy that would endanger aftermarket sales (such as cable re-broadcast and DVD sales), urged the FCC to provide for a means to protect their assets. Meanwhile, consumer electronics and information technologists, as well as consumer rights groups, came together in an effort to minimize the possible negative outcome that a wide-scale regulation might have imposed. The technical specifications behind the broadcast video flag were a compromise measure, premised on an understanding that more restrictive approaches (such as encrypted signals created at the source of transmission) imposed economically or technologically infeasible conditions. The compromise came after a consortium of content providers and consumer electronics and information technology groups came together, forming the Broadcast Protection Discussion Group (BPDG). The result of this consortium was a Final Report published in June 2002, which was delivered to Representative Billy Tauzin, then-Chairman of the House Committee on Energy and Commerce. The report suggested a set of "robustness and compliance" rules for devices capable of demodulating digital television signals, which would require that such devices protect "flagged" content from being recorded by unauthorized devices. However, the flag itself would not require that all machines recognize it, and would act only as a means to halt unauthorized use in machines capable of detecting it. In November 2003, the FCC published a Report and Order that required all digital devices capable of receiving digital broadcast over the air, and sold after July 1, 2005, to incorporate a standard content-protection technology that would recognize the broadcast video flag and limit redistribution when the flag is recognized. The FCC's regulations apply the flag mark to all devices and receivers capable of receiving digital content. Such devices include, but are not limited to, televisions, computers, digital video-recorders (e.g., TiVo), and DVD players. The broadcast flag itself is optional for broadcasters, allowing them to determine how much copy-protection they wish to impose on their digital broadcast content. Because the flag does not prevent the distribution of content to non-compliant devices, a consumer who continues to use an older television set (or theoretically, a non-compliant demodulator) will still be able to receive and copy television programs in non-digital form. In addition, digital television sets made prior to July 1, 2005, will still enjoy digital content with no obstruction. In citing its support for a flag-based approach over encryption or other means, the FCC noted concerns over "the implementation costs and delays" associated with other solutions. In addition to the "compliance" requirements imposed on receiving devices, the FCC also imposed a "robustness" requirement that forces makers of consumer devices to ensure that circumvention is difficult. The standard of care adopted by the FCC was that of "an ordinary user using generally available tools or equipment." FCC Authority The FCC derives its regulatory authority over digital television from both direct and ancillary statutory authority. Digital Television Implementation Under the Telecommunications Act of 1996 The Telecommunications Act of 1996 directed the FCC to promulgate regulations regarding the licensing of advanced television services. The act defined "advanced television services" as "television services provided using digital or other advanced technology." In prescribing such regulations, the Commission was authorized to adopt such "technical and other requirements as may be necessary or appropriate to assure the quality of the signal used to provide advanced television services ... and prescribe such other regulations as may be necessary for the protection of the public interest, convenience, and necessity." Pursuant to the Telecommunications Act of 1996, the FCC has issued regulations regarding spectrum allocation for digital television stations and has established a time line for the implementation of digital broadcasting by licensees. At least one court has agreed that in regard to television digital tuners, the FCC possessed reasonable authority to act, based on an "unambiguous command of an act of Congress." Copyright Protection While copyright protection generally lies outside the scope of the FCC, the Commission may exercise jurisdiction over matters not explicitly provided for by statute if the exercise is "reasonably ancillary to the effective performance of the Commission's various responsibilities for the regulation of television broadcasting." The FCC has asserted that television receivers generally, and digital television receivers specifically, fall within the scope of that authority. Under the FCC Report and Order, "pursuant to the doctrine of ancillary jurisdiction, we adopt use of the ... flag as currently defined for redistribution control purposes and establish compliance and robustness rules for devices with demodulators to ensure that they respond and give effect to the ... flag." However, the FCC initially put off deciding on permanent mechanisms for approving "content protection and recording technologies to be used in conjunction with device outputs." Instead, in its Report and Order, the FCC proposed examination of such issues at a later time and established an interim certification process for currently proposed devices. In addition to the need to regulate television broadcasting, the FCC's action arguably protects broadcasters from any unreasonable loss in advertising revenue that may result from unauthorized sharing of copyrighted digital television broadcasts. However, the FCC was careful to note that the "scope of our decision does not reach existing copyright law," and that its rulemaking established a "technical protection measure" that did not change the underlying "rights and remedies available to copyright holders." In addition, "this decision is not intended to alter the defenses and penalties applicable in cases of copyright infringement, circumvention, or other applicable laws." Possible Implications of the Broadcast Video Flag While the broadcast flag is intended to "prevent the indiscriminate redistribution of [digital broadcast] content over the Internet or through similar means," the goal of the flag was not to impede a consumer's ability to copy or use content lawfully in the home, nor was the policy intended to "foreclose use of the Internet to send digital broadcast content where it can be adequately protected from indiscriminate redistribution." However, current technological limitations have the potential to hinder some activities that might normally be considered "fair use" under existing copyright law. For example, a consumer who wishes to record a program to watch at a later time, or at a different location (time-shifting and space-shifting, respectively), might be prevented when otherwise approved technologies do not allow for such activities or do not integrate well with one another, or with older, "legacy" devices. In addition, future fair or reasonable uses may be precluded by these limitations. For example, a student would be unable to e-mail herself a copy of a project with digital video content because no current secure system exists for e-mail transmission. In addition, some consumer electronics and information technology groups contend that the licensing terms for approving new compliant devices are limiting and may potentially stifle innovation, especially with regard to computer hardware. While the FCC in its Report and Order declined to establish formal guidelines for which "objective criteria should be used to evaluate new content protection and recording technology," it has stated an intention to take up these issues in the future. Finally, consumer rights and civil liberties groups worry about the possibility that such content protections will limit the free flow of information and hamper the First Amendment. This concern is expressed most prominently regarding news or public interest-based content, or works that have already entered the public domain. Despite suggestions raised by consumer rights groups, the FCC has so far declined to adopt language to prevent content providers from using the broadcast flag on such programs, largely because of the "practical and legal difficulties of determining which types of broadcast content merit protection from indiscriminate redistribution and which do not." Legal Challenges to the Broadcast Video Flag In October of 2004, the American Library Association (ALA), Association of Research Libraries, American Association of Law Libraries (AALL), Medical Libraries Association, and others petitioned the U.S. Court of Appeals for the District of Columbia Circuit to review the FCC's Report and Order. Bringing a challenge on behalf of "libraries, librarians and educators ... and ... television viewers and computer users," the petitioners, as parties to the agency proceedings, questioned the FCC's statutory authority to establish the broadcast flag system under the Communications Act of 1934. On May 6, 2005, the United States Court of Appeals for the District of Columbia Circuit granted the ALA's petition for review and reversed and vacated the Commission's order requiring DTV reception equipment to be manufactured with the capability to prevent unauthorized redistributions of digital content. In American Library Association v. Federal Communications Commission , the court of appeals determined that the FCC lacked the authority "to regulate apparatus that can receive television broadcasts when those apparatus are not engaged in the process of receiving a broadcast transmission." The court noted that in adopting the broadcast flag rules, the Commission "cited no specific statutory provision giving [it] authority to regulate consumers' use of television receiver apparatus after the completion of the broadcast transmission." The Commission's reliance on its ancillary jurisdiction under Title I of the Communications Act of 1934 was rejected by the court. The court found that although the jurisdictional grant under Title I plainly encompasses the regulation of apparatus that can receive television broadcast content, the Commission's regulatory authority does not extend beyond the actual receipt of such content by the apparatus in question. The court's decision was limited to resolving whether the Commission had the authority to impose the broadcast flag requirements; it did not address the imposition of the broadcast flag requirements in terms of copyright law. Broadcast Video Flag Legislation Introduced in the 109th Congress In response to the American Library Association decision, two bills were introduced in the 109 th Congress that would have expressly granted statutory authority to the FCC under the Communications Act of 1934 to implement the FCC's Report and Order In the Matter of Digital Broadcast Content Protection . These legislative proposals represent approaches that may be taken in the 110 th Congress for authorizing a broadcast video flag system. The Digital Content Protection Act of 2006 was introduced by Senator Ted Stevens in the 109 th Congress as part of two bills, S. 2686 and H.R. 5252 (as reported in the Senate). Section 452 of S. 2686 , as introduced, would have required the FCC to modify its Report and Order to permit the following transmissions: short excerpts of broadcast digital television content over the Internet, broadcast digital television content over a home network or other localized network accessible to a limited number of devices connected to such network, and redistribution of news and public affairs programming (not including sports) in which the primary commercial value depends on timeliness, as determined by the broadcaster or broadcasting network. The Senate version of H.R. 5252 would have prohibited television broadcast stations from using the broadcast video flag "to limit the redistribution of news and public affairs programming the primary commercial value of which depends on timeliness." However, the bill expressly allowed each broadcaster or broadcasting network to make the determination as to whether the primary commercial value of a particular news program depends on timeliness. The bill also authorized the FCC to "review any such determination by a broadcaster or broadcasting network if it receives bona fide complaints alleging, or otherwise has reason to believe, that particular broadcast digital television content has violated" this limitation concerning timeliness and commercial value. Hearings on the broadcast flag held by the 109 th Congress revealed that educators and librarians who use digital materials in education are concerned that a broadcast video flag regime could frustrate the utilization of digital television in distance education. Both bills contained provisions that sought to preserve this statutory right under the Technology, Education, and Copyright Harmonization (TEACH) Act of 2002: S. 2686 required the FCC's video flag regulation to "permit government bodies or accredited nonprofit educational institutions to use copyrighted work in distance education courses pursuant to" the TEACH Act and the amendments made by that Act. H.R. 5252 , as reported in the Senate, contained a provision that would have directed the FCC to, within 30 days of enactment of the Act, initiate proceedings "for the approval of digital output protection technologies and recording methods for use in the course of distance learning activities." In addition, the Senate version of H.R. 5252 clarified that nothing in the bill shall "be construed to affect rights, remedies, limitations, or defenses to copyright infringement, including fair use," under the Copyright Act. S. 2686 did not contain a similar provision with regard to the broadcast video flag.

In November 2003, the Federal Communications Commission (FCC) adopted a rule that required all digital devices capable of receiving digital television (DTV) broadcasts over the air, and sold after July 1, 2005, to incorporate technology that would recognize and abide by the broadcast video flag, a content-protection signal that broadcasters may choose to embed into a digital broadcast transmission as a way to prevent unauthorized redistribution of DTV content. However, in October 2004, the American Library Association and eight organizations representing a large number of libraries and consumers filed a lawsuit that challenged the power of the FCC to promulgate such a rule. In May 2005, the United States Court of Appeals for the District of Columbia Circuit ruled in American Library Association v. Federal Communications Commission that the FCC had exceeded the scope of its delegated authority in imposing the broadcast flag regime, and the court thus reversed and vacated the FCC's broadcast flag order. Parties holding a copyright interest in content transmitted through DTV broadcasts, in particular broadcasters and television program creators, remain concerned about the unauthorized distribution and reproduction of copyrighted DTV content and thus continue to advocate the adoption of a broadcast video flag. However, several consumer, educational, and technology groups raise objections to the broadcast flag because, in their view, it would place technological, financial, and regulatory burdens that may stifle innovation, limit the consumer's ability to use DTV broadcasts in accordance with the Copyright Act's "fair use" principles, and possibly frustrate the use of digital television content by educators and librarians in distance education programs. This report provides a brief explanation of the broadcast video flag and its relationship to digital television and summarizes the American Library Association judicial opinion. The report also examines a legislative proposal introduced in the 109 th Congress, the Digital Content Protection Act of 2006, which appeared as portions of two bills, S. 2686 and H.R. 5252 (as reported in the Senate), that would have expressly granted statutory authority to the FCC under the Communications Act of 1934 to promulgate regulations implementing a broadcast video flag system. Although not enacted, these bills represent approaches to authorizing the broadcast video flag system that may be of interest to the 110 th Congress.

The Technology Boundary: A Perennial Issue Technology as a boundary for law enforcement is by no means a new issue in U.S. policing. In the 1990s, for instance, there were concerns that increasing adoption of technologies such as digital communications and encryption could hamper law enforcement's ability to investigate crime. More specifically, concerns have been whether these technologies could interfere with surveillance or the interception and understanding of certain communications. Communications Assistance for Law Enforcement Act (CALEA) In the 1990s, there were "concerns that emerging technologies such as digital and wireless communications were making it increasingly difficult for law enforcement agencies to execute authorized surveillance." Specifically, the Government Accountability Office (GAO; then, the General Accounting Office) cited the increasing use of digital, including cellular, technologies in public telephone systems as one factor potentially inhibiting the Federal Bureau of Investigation's (FBI's) wiretap capabilities. Congress passed the Communications Assistance for Law Enforcement Act (CALEA; P.L. 103-414 ) to help law enforcement maintain its ability to execute authorized electronic surveillance in a changing technology environment. Among other things, CALEA requires that telecommunications carriers assist law enforcement in executing authorized electronic surveillance. There are several notable caveats to this requirement, however: Law enforcement and officials are not authorized to require telecommunications providers (as well as manufacturers of equipment and providers of support services) to adopt "specific design of equipment, facilities, services, features, or system configurations." Similarly, officials may not prohibit "the adoption of any equipment, facility, service, or feature" by these entities. Telecommunications carriers are not responsible for "decrypting, or ensuring the government's ability to decrypt, any communication encrypted by a subscriber or customer, unless the encryption was provided by the carrier and the carrier possesses the information necessary to decrypt the communication." A decade after the passage of CALEA, federal law enforcement officials were again concerned that their ability to conduct electronic surveillance was constrained because of constantly emerging technologies. Not all telecommunications providers had implemented CALEA-compliant intercept capabilities. As such, the Department of Justice (DOJ), FBI, and Drug Enforcement Administration (DEA) filed a Joint Petition for Expedited Rulemaking asking the Federal Communications Commission to extend CALEA provisions to a wider breadth of telecommunications providers. Subsequently, the FCC administratively expanded CALEA's requirements to apply to both broadband and VoIP providers. Notably, CALEA is not viewed as applying to email or data while stored on smartphones and similar mobile devices. Reportedly, there has been "intense debate" about whether it should be expanded to cover this content. For instance, there have been reports over the past several years that the Administration has considered legislative proposals to amend CALEA to apply to a wider range of communications service providers such as social networking companies. Crypto Wars Also in the 1990s, what some have dubbed the "crypto wars" pitted the government against data privacy advocates in a debate surrounding the use of data encryption. This tension was highlighted by the federal investigation of Philip Zimmermann, the creator of Pretty Good Privacy (PGP) encryption software, the most widely used email encryption platform. When PGP was released, it "was a milestone in the development of public cryptography. For the first time, military-grade cryptography was available to the public, a level of security so high that even the ultra-secret code-breaking computers at the National Security Agency could not decipher the encrypted messages." When someone released a copy of PGP on the Internet, it proliferated, sparking a federal investigation into whether Zimmerman was illegally exporting cryptographic software (then considered a form of "munitions" under the U.S. export regulations) without a specific munitions export license. Ultimately the case was resolved without an indictment. Courts have since been presented with the question of how far the First Amendment right to free speech protects written software code—which includes encryption code. Law Enforcement Use of Cell Phone Data As cell phone—and now smartphone—technology has evolved, so too has law enforcement use of the data generated by and stored on these devices. As cell phones have advanced from being purely cellular telecommunications devices into mobile computers that happen to have cell phone capabilities, the scope of data produced by and saved on these devices has morphed. In addition to voice communications, this list can include call detail records, including cell phone records that indicate which cell tower was used in making or receiving a call; Global Positioning System (GPS) location points, stored both on the device and in some of its applications, indicating the location of a particular device; data—such as email, photos, videos, and messages—stored directly on a mobile device; data backed up to the "cloud" and stored off a mobile device. Cell phones "are potentially rich sources of evidence" for law enforcement. Where these data are stored varies based on factors such as default smartphone settings, users' personalized settings, and telecommunications providers' policies. When law enforcement accesses, or attempts to access, this information, it is often gathered through authorized wiretaps or search warrants. Its not always clear, however, exactly how often law enforcement gathers or relies upon these data in their investigations. Data exist on the number of wiretap requests and intercept orders that are issued in investigations of felonies as well as on how often law enforcement encounters encryption in carrying out these orders. These data provide a snapshot of law enforcement use of wiretaps and possible encryption barriers. In 2014, judges authorized 3,554 wiretaps, of which about 36% (1,279 orders) were under federal jurisdiction. Notably, 96% (3,409) of total authorized intercept orders were for portable devices. From the 1,279 federally authorized intercept orders, they produced an average of 5,724 intercepts, including an average of 886 "incriminating intercepts." In 2001, the Administrative Office of the U.S. Courts began collecting data on whether law enforcement encountered encryption in the course of carrying out wiretaps as well as whether officials were able to overcome the encryption and decipher the "plain text" of the encrypted information. Law enforcement has reported encountering encryption in at least one instance each year, with the exception of 2006 and 2007. The first known, reported instance of an authorized wiretap being stymied by encryption came in 2011. In 2014, there were 4 such instances—lower than the 10 known instances from 2013 in which encryption foiled officials. From the 3,554 total authorized wiretaps in 2014—of which 25 contained encrypted communications—officials could not decipher the plain text in 4 instances (or 0.11% of authorized wiretaps). Notably, these numbers relate to lawful wiretaps of certain suspected or actual criminal offenses, as authorized by Title III of the Omnibus Crime Control and Safe Streets Act of 1968. The data do not include wiretaps as authorized by the Foreign Intelligence Surveillance Act of 1978 (FISA)—the law which authorizes surveillance primarily of foreign intelligence and international terrorism threats. See Figure 1 for an illustration of the 2014 data. As noted, law enforcement has reported encountering encryption nearly every year since 2001, though law enforcement has only encountered encryption it could not circumvent since 2011. The number of instances in which this has occurred, however, has fluctuated and has been relatively low, such that analysts cannot make claims as to whether or not this number is on a specific trajectory. The presence of reported surveillance attempts wherein encryption could not be circumvented by law enforcement may have contributed to claims that advances in encryption have outpaced law enforcement's (and others') ability to crack it. Current Debate In September 2014, Apple released a major update to its mobile operating system, iOS 8. In the accompanying privacy policy, Apple noted that personal data stored on devices running iOS 8 are protected by the user's passcode. Moreover, the company stated, " Apple cannot bypass your passcode and therefore cannot access this data. So it 's not technically feasible for us to respond to government warrants for the extraction of this data from devices in their possession running iOS 8. " The company has also stated with respect to certain communications—namely, iMessage and FaceTime—that "Apple has no way to decrypt iMessage and FaceTime data when it's in transit between devices ... Apple doesn't scan your communications, and we wouldn't be able to comply with a wiretap order even if we wanted to." Similarly, Google 's Android 5.0 mobile operating system, which launched in November 2014, includes default privacy protections such as automatic encryption of data that is protected by a passcode. When devices running Android 5.0 are locked, data on them are only accessible by entering a valid password, to which Google does not have a key. Thus, like Apple, Google is not able to unlock encrypted devices. Enhanced data encryption, in part a response to privacy concerns following Edward Snowden's revelations of mass government surveillance, has opened the discussion on how this encryption could impact law enforcement investigations. Law enforcement officials have likened the new encryption to "a house that can't be searched, or a car trunk that could never be opened." There have been concerns that malicious actors, from savvy criminals to terrorists to nation states, may rely on this very encryption to help conceal their illicit activities. There is also concern that law enforcement may not be able to bypass the encryption, their investigations may be stymied, and criminals will operate above the law. Critics of these concerns contend that law enforcement maintains adequate tools and capabilities needed for their investigations. Major Components: Communications and Stored Data Developments in encryption—and companies' implementation of enhanced data protections—have reinvigorated the debate regarding the balance between privacy needs and information access. Most recently, the conversation has largely been in the context of smartphones and mobile devices. These devices present a unique discussion point because they bridge the realms of communications and stored data. Real-Time Access to Encrypted Communications CALEA requires that telecommunications carriers (including broadband Internet access and VoIP providers) assist law enforcement in executing authorized electronic surveillance of real-time communications. However, some developments in the communications landscape have allowed some communications to be exempt from being wiretap-ready, as is otherwise mandated by CALEA. First, some companies, for instance Apple, have implemented text messaging systems—Apple's is the iMessage—that are not readable by telecommunications (or broadband or VoIP) providers. Therefore, these communications fall outside of CALEA mandates. Also, Apple has implemented end-to-end encryption of messages sent through the iMessage system between Apple devices and does not maintain a key to decrypt these messages. CALEA exempts from its requirements encrypted communications for which telecommunications carriers (as well as manufacturers and service providers such as Apple) do not have a key. As evolving technology changes how communication takes place, not all communications may be readily accessible to law enforcement, regardless of whether law enforcement presents a warrant for a wiretap. If technology companies do not retain the ability to decrypt certain communications, they, in turn, may be unable to help law enforcement conduct court-authorized electronic surveillance of these communications. Encryption of Data Stored on Smartphones In addition to encryption's effect on access to communications data generated and received by smartphones, encryption also directly affects access to data stored on these mobile devices (as well as data stored elsewhere that may be retrieved via the mobile device). If companies like Apple and Google provide for encryption of data on locked mobile devices—and do not maintain the keys to unlock these devices—the companies may be unable to assist law enforcement in carrying out court-authorized searches of content stored on the device—even if the police possess a warrant. As these companies have noted, because they cannot break the encryption of a locked device, they also cannot provide decrypted information to authorities. Some have questioned how challenges for police in cracking encryption to obtain information on smartphones compare to those in obtaining information stored in other types of containers such as home safes and safe deposit boxes. Master Keys Technology companies like Apple and Google are not required under federal law to maintain a key to unlock the encryption of their devices sold to consumers. If they did maintain a key, however, they may be required to provide this key to unlock devices for law enforcement presenting a valid search warrant. Similarly, safe manufacturers are not required under federal law to maintain the combination or key to safes sold to consumers. However, if manufacturers voluntarily maintained such a master key, they, too, may be required to provide assistance to law enforcement to access the safe. In addition, if law enforcement presents a warrant to search an individual's safe deposit box, a bank may assist law enforcement by providing a master key for the box. Cryptanalytic Attack Since some companies may not retain a key to open a locked mobile device, one option for law enforcement in attempting to obtain information on a device for which they have a valid search warrant may be to use a cryptanalytic attack. One such form of cryptanalytic attack has been referred to as "brute force." Using this method, law enforcement would likely use software to try every possible combination of keys in an attempt to unlock the device. The success of this method may depend, among other things, on the amount of time available to try and unlock a device and on the number of keys used in the passcode. FBI Director Comey has cited barriers to law enforcement relying upon brute force tactics to break encryption. One challenge he has noted is increasingly advanced encryption techniques that even "supercomputers" may not be able to crack. In addition, "some devices have a setting whereby the [data] is erased if someone makes too many attempts to break the password, meaning no one can access that data." Just as police may use brute force to try and break encryption when executing a search warrant, they are authorized to break other locks—such as those to physical buildings—in order to carry out a lawful search with a warrant. The Supreme Court has noted that "[i]t is well established that law officers constitutionally may break and enter to execute a search warrant where such entry is the only means by which the warrant effectively may be executed." Going Dark or Going Forward? As modern technology has developed, there has arguably been an evolving gap between law enforcement's investigative authorities and capabilities to carry out authorized activities. This is not a new phenomenon; rather, as experts have noted, " [l]aw enforcement has been complaining about 'going dark' for decades now. " The FBI, for instance, established a Going Dark i nitiative in an attempt to maintain law enforcement's ability to conduct electronic surveillance in a rapidly changing technology environment. Originally, the "going dark" debate centered on law enforcement's ability to intercept real-time communications. As communications technologies evolved, so did questions about whether or how law enforcement could work within existing electronic surveillance laws to carry out court-authorized surveillance on real-time communications. Experts, officials, and stakeholders debated whether certain laws such as CALEA should be expanded to require additional entities—such as all VoIP and Internet service providers—to assist law enforcement in accessing this real-time information. The most recent encryption enhancements by companies like Apple and Google "highlight the continuing challenge for law enforcement in responding to new technologies. Other innovations, such as texting, instant messaging and videogame chats, created hurdles to monitoring communication," though some contend that law enforcement has found means to overcome many of these technological challenges. Others, however, are concerned about law enforcement's ability to keep pace with advancing technology, particularly "the expansion of online communication services that—unlike traditional and cellular telephone communications—lack intercept capabilities because they are not required by law to build them in." Concerns over "going dark" have become two–pronged. More recent technology changes have potentially impacted law enforcement capabilities to access not only communications, but stored data. As a result, current law enforcement concerns around "going dark" now involve how, in practice, encryption of stored data as currently implemented by technology companies may affect law enforcement investigations. Analysts have not yet seen data on whether or how encryption has affected law enforcement access to stored data or influenced the outcome of cases. In the past, Congress has requested that similar information be collected and reported. P.L. 106-197 required the Administrative Office of the U.S. Courts to report on whether law enforcement encountered encryption in the course of carrying out wiretaps, as well as whether officials were prevented from deciphering the "plain text" of the encrypted information. While current data collection and reporting requirements on encryption relate to real-time communications , policymakers may debate the potential utility of asking law enforcement to report on encryption relating to stored data as well. While some contend that law enforcement is "going dark," others have argued that law enforcement and intelligence agencies are in a "golden age of surveillance," with more robust surveillance capabilities. They contend that police access to location data, information about individuals' contacts, and a host of websites that collectively create "digital dossiers" on a person all enhance law enforcement surveillance. Those who see the current technology environment as a golden age of surveillance may believe that, while technology advances (such as encryption) may slow or stymie law enforcement access to certain information, these advances can also create alternate opportunities for information access that law enforcement can learn to harness. One particular case has recently highlighted this debate. Following the December 2, 2015, terrorist attack in San Bernardino, CA, investigators recovered a cell phone belonging to one of the suspected shooters. FBI Director Comey testified before Congress two months later and indicated that the bureau was still unable to unlock the device. On February 16, 2016, the U.S. District Court for the Central District of California ordered Apple to provide "reasonable technical assistance to assist law enforcement agents in obtaining access to the data" on the cell phone. The outcome of this case may have implications for how law enforcement and policymakers respond to the broader conversation on enhanced encryption. Evaluating a Need for Action If there is evidence that investigations are hampered or that lives are at risk because of law enforcement's inability to access critical encrypted information, will there need to be some sort of compromise between law enforcement and the technology industry? What might be the congressional role? Policymakers may weigh whether aiding federal law enforcement will involve incentives or requirements for communications and technology companies to provide specified information to law enforcement, enhanced investigative tools, bolstered financial and manpower resources to help law enforcement better leverage existing authorities, or combinations of these and other options. Requirements for Communications and Stored Data Access In debating law enforcement's need to access certain real-time communications and stored data, Congress could move to update CALEA and related laws to cover a broader range of communications and data. Currently, requirements under CALEA apply to telecommunications carriers as well as facilities-based broadband Internet access and interconnected Voice over Internet Protocol (VoIP) providers. Proposals have reportedly been floated that would extend CALEA requirements to apply to a wider range of technology services and products such as instant messaging, video game chats, and real-time video communications like Skype. Proponents of expanding CALEA mandates may believe that it would enhance law enforcement's abilities to carry out existing authorities to intercept real-time communications. Opponents to CALEA expansion proposals, however, may contend that mandating other communications services and technology manufacturers to build in intercept capabilities could be costly, both financially and in terms of security. Financially, companies may need to dedicate resources to reengineer their products; they may need to add or allocate personnel to liaise with law enforcement to facilitate wiretap requests. On the security front, companies would necessarily need to build in a "back door" to allow for authorized access, and any means of access necessarily opens the doors to exploitation. If policymakers are interested in requiring technology companies to assist law enforcement carry out authorized surveillance and searches, legislators may consider options other than amending CALEA. One such option may be to directly mandate that technology companies build in "back door" access for law enforcement into specified communications products sold in the United States. One unintended consequence of this could be that U.S. consumers, in search of privacy, might buy more products from overseas, and consumers outside the United States might decline to buy certain U.S. products that conform with these requirements. Law Enforcement Tools While placing requirements on technology companies may be one route to assisting law enforcement, policymakers may also debate options that could enhance the tools available to law enforcement. These could include making it a crime for an individual (when presented with a court authorized warrant) to fail to turn over his passcode or other information that would allow law enforcement to decrypt a given device. However, those in support of encryption note that a search warrant is "an instrument of permission, not compulsion." In other words, individuals need not proactively reveal or open hiding places for investigators presenting a search warrant. Additionally, judges may in some cases be able to hold individuals in contempt for failure to turn over information that would help law enforcement unlock certain electronic devices. Although technology companies like Apple and Google may not have the ability to unlock and thus reveal some information stored on locked, encrypted smartphones, they generally retain the ability to turn over information on unencrypted communications and data stored off the devices in locations such as the "cloud." As such, some supporting encryption may contend that regardless of what data in motion may be encrypted or what data is encrypted on locked devices, law enforcement still has effective tools to retrieve digital data. Encryption proponents may also suggest that stronger digital security could benefit law enforcement by helping prevent malicious activity, including hacks and data breaches. Law Enforcement Capabilities Combating malicious actors (including cybercriminals and those who exploit technology to conceal their crimes) is an issue that cuts across the investigative, intelligence, prosecutorial, and technological components of law enforcement. Because clear data on how technological advances such as enhanced encryption of communications and stored data on mobile devices may impact law enforcement capabilities to combat these bad actors do not exist, policymakers may be hesitant to take any significant legislative actions to "fix" a problem of an unknown magnitude. Even if policymakers believe there is a significant problem with law enforcement's ability to carry out authorized activities, they may debate whether expanding requirements for certain technology companies and communications services or adding to law enforcement's toolbox of authorities may be the more appropriate options. Some have argued that another option may be to enhance law enforcement's financial resources and manpower. This could involve enhancing training for existing officers or hiring individuals with bolstered technology expertise.

Because modern-day criminals are constantly developing new tools and techniques to facilitate their illicit activities, law enforcement is challenged with leveraging its tools and authorities to keep pace. For instance, interconnectivity and technological innovation have not only fostered international business and communication, they have also helped criminals carry out their operations. At times, these same technological advances have presented unique hurdles for law enforcement and officials charged with combating malicious actors. Technology as a barrier for law enforcement is by no means a new issue in U.S. policing. In the 1990s, for instance, there were concerns about digital and wireless communications potentially hampering law enforcement in carrying out court-authorized surveillance. To help combat these challenges, Congress passed the Communications Assistance for Law Enforcement Act (CALEA; P.L. 103-414), which, among other things, required telecommunications carriers to assist law enforcement in executing authorized electronic surveillance. The technology boundary has received renewed attention as companies have implemented advanced security for their products—particularly their mobile devices. In some cases, enhanced encryption measures have been put in place resulting in the fact that companies such as Apple and Google cannot unlock devices for anyone under any circumstances, not even law enforcement. Law enforcement has concerns over certain technological changes, and there are fears that officials may be unable to keep pace with technological advances and conduct electronic surveillance if they cannot access certain information. Originally, the going dark debate centered on law enforcement's ability to intercept real-time communications. More recent technology changes have potentially impacted law enforcement capabilities to access not only communications, but stored data as well. There are concerns that enhanced encryption may affect law enforcement investigations. For instance, following the December 2, 2015, terrorist attack in San Bernardino, CA, investigators recovered a cell phone belonging to one of the suspected shooters. FBI Director Comey testified before Congress two months later and indicated that the bureau was still unable to unlock the device. On February 16, 2016, the U.S. District Court for the Central District of California ordered Apple to provide "reasonable technical assistance to assist law enforcement agents in obtaining access to the data" on the cell phone. The outcome of this case may have implications for how law enforcement and policymakers respond to the broader conversation on enhanced encryption. If evidence arises that investigations are hampered, policymakers may question what, if any, actions they should take. One option is that Congress could update electronic surveillance laws to cover data stored on smartphones. Congress could also prohibit the encryption of data unless law enforcement could still access the encrypted data. They may also consider enhancing law enforcement's financial resources and manpower, which could involve enhancing training for existing officers or hiring more personnel with strong technology expertise. Some of these options may involve the application of a "back door" or "golden key" that can allow for access to smartphones. However, as has been noted, "when you build a back door ... for the good guys, you can be assured that the bad guys will figure out how to use it as well." This is often maintained to be an inevitable tradeoff. Policymakers may debate which—if either—may be more advantageous for the nation on the whole: increased security coupled with potentially fewer data breaches and possibly greater impediments to law enforcement investigations, or increased access to data paired with potentially greater vulnerability to malicious actors.

National Security and the Congressional Interest1 U.S. national security underpins the system in which Americans live. National security is essential to an environment and geographical space in which people can reside without fear. It consists, first, of physical security on both the international and domestic sides. This includes protection from threats external to the country and safety in the homeland. These generally are accomplished through hard power and homeland security efforts. Second, it consists of economic security—the opportunity and means for people to provide for their own well being under an economic system that is vibrant, growing, and accessible. Third, U.S. national security involves outreach through soft power in an attempt to win the "hearts and minds" of people across the globe. Soft power complements hard power, and, in cases, may substitute for it. Also, the myriad links between governments, businesses, and people across national borders means that American security increasingly depends on countries and activities in far flung places on the globe. Traditionally, the economy entered into the national security debate through four issues: the defense industrial base, base closures and program cuts, international economic sanctions, and export controls. These issues still garner much of the attention from the vantage point of the military. From the point of view of the nation as a whole, however, economic security takes on a broader meaning. This report examines the role of the economy in national security from both macroeconomic and microeconomic points of view. The macroeconomic issues center on the budget and deficit reduction. The microeconomic issues focus on providing for the general well-being of the people and in supporting other components of national security. This report also examines the major sources of long-term economic growth and progress and policies that affect them. It further addresses the coordination of policies among nations, particularly the G-20, and foreign policies that affect human rights, the development of democracy, and U.S. economic assistance. This broad review of economics and national security illustrates how disparate parts of the U.S. economy affect the security of the nation and that security is something achieved not only by military means but by the whole of the American economy and how it performs. In national security, the economy is both an enabler and a constraint. The economic issues related to national security are both broad and complex. In order to keep this report to a manageable length, this study takes the President's 2010 National Security Strategy as a beginning construct and largely limits the analysis to the issues raised there. The purpose of this report is to provide an overview of the economic contributors to national security as well as to furnish links to further resources. Issues, such as reducing the federal budget deficit, immigration, international trade, or innovation, are related to national security in ways that are too numerous and complex to address fully here. Further information can be found in the CRS reports cited or can be obtained by contacting the CRS analysts indicated. In the United States, the renewed public debate over national security appears to be generated primarily by three global changes. The first is the nature of the external threat to physical security—the rise of terrorism and militant Islam. The second is the aftermath of the global financial crisis, particularly the large federal budget deficit and slow rate of recovery. The third is the growing presence of emerging nations, such as China, India, and Brazil, and the shift of economic power toward them. These changes have created gaps and trade-offs that arguably are undermining the sense of security of Americans. Some may say, "What good is protection from a future threat, when I am unemployed because my job just went to China?" Others may say, "What good is a high salary, if I am dead in a terrorist attack? This debate over national security reaches deep into the fiber of American society. It is not merely political theater, and it is receiving a fillip by the weakened U.S. economy. A vibrant, growing, and dominant economy can hide a multitude of problems. Even though wealth and economic means cannot guarantee U.S. security, it can buy a comfortable sort of insecurity. The economic issue of the day now centers on what measures to take to return the economy to its long-term growth path and reduce the gap between the potential and actual levels of U.S. gross domestic product. If the economy were to grow faster, many of the constraints on the federal budget would be eased. There are two major schools of thought on this matter. The Keynesian approach to growth is to continue government deficit spending through the recession and initial recovery phase in order to offset lower consumption by households and reduced levels of investment by businesses. When the economy recovers, the deficit can be reduced. The supply side approach is to cut the federal budget deficit now because deficits may discourage investment by causing uncertainty about future policy changes that will be needed to restore fiscal balance. The supply side approach also attempts to keep taxes on entrepreneurs low in order to induce them to invest more in productive capacity and create more jobs. Each approach recognizes that the long-term security of the nation depends greatly on having a vibrant and growing economy. Congress plays a major role in each element of national security. Whether it be policies dealing with the military, economy, budget, education, economic growth, technology, international relations, or opening markets abroad, Congressional action is essential. Not only does Congress provide funding for these elements of national security, but it provides oversight, defines the scope of U.S. action, and provides a crucible in which U.S. policies are debated and often determined. Congress allocates the resources to respond to national security threats, and in so doing it plays a part in determining the relative strength of hard and soft power options and the roles individual agencies will play. National Security Strategy The Goldwater-Nichols Department of Defense Reorganization Act of 1986 ( P.L. 99-433 ) required that the President provide a National Security Strategy (NSS) for Congress. This document presents the major national security concerns of the country and how the existing administration plans to deal with them. The George W. Bush Administration's issued its final NSS in March 2006, and in May 2010, the Obama Administration released its first NSS. The 2010 NSS noted numerous world conditions, laid out a national security strategy, and set some goals, many of them economic. It began with three observations: the world is now in a moment of transition, of sweeping change; globalization has both opened opportunities and intensified the dangers Americans face from terrorism, the spread of deadly technologies, economic upheaval, and changing climate; and even as the war in Iraq ends and the focus of military action has turned to Afghanistan, a superior military is necessary as the United States faces multiple threats from nations, nonstate actors, and failed states. The NSS then laid out some goals, both military and economic, along with policies deemed necessary to ensure a safe and secure United States. Those related to the economy were: in order to build an America that is stronger, more secure, and able to overcome challenges while appealing to aspirations of people around the world, the United States must foster economic growth, reduce the federal budget deficit, educate our people, develop clean energy alternatives, pursue science and innovation, and build capabilities and alliances to pursue interests shared with other countries and peoples; the United States seeks an international order and cooperation with other nations that will counter violent extremism and insurgency, stop the spread of nuclear weapons, combat climate change, sustain global growth, and help countries feed themselves; and the United States will continue to advocate for and advance human rights, economic development, and democracy as a bulwark against aggression and injustice. Twenty-First Century Challenges to National Security The challenge of the twenty-first century is to adapt U.S. policy to account for how the world has changed. These changes can be highlighted by reviewing some traditional perceptions that helped shape U.S. security policy. During the latter half of the twentieth century, five large ideas seemed to have permeated politics in the Western world writ large: peaceful settlement of issues was better than going to war (no more world wars, although regional conflicts persisted); other countries would tolerate U.S. hegemony in exchange for keeping the peace; the United States and Europe could determine policy on most major international issues; the United States could assist countries to democratize because democracies were more likely than dictatorships to have shared values and to keep the peace; and Western culture was appealing and more universal than any other. These fundamental ideas played a large role in shaping and maintaining U.S. national security first in a bipolar world shrouded in the Cold War and then in a more multi-polar system in which countries, such as China, have gained relative economic power and have brought a different set of interests and values to the table. While each of the above ideas has carried over to a certain extent into the twenty-first century, each also has eroded considerably. Similarly, in the economic and financial realm, four large ideas or priorities helped shape both U.S. domestic and international economic policy: market capitalism was superior to socialism (high standards of living, vibrant entrepreneurs, and innovation were nourished best by free markets); security considerations trumped economics (e.g., wars had to be won even at high economic cost; U.S. retaliation against allies in trade disputes [such as those with Japan and South Korea] had to be tempered by its potential impact on alliance relationships); economic growth and employment were best fostered by monetary and fiscal policy rather than by industrial policies that "picked winners and losers"; and imbalances in trade and capital flows were largely self correcting (foreign exchange rates determined by capital markets and appropriate government fiscal and monetary policy would bring balance into international accounts). These economic and financial precepts still hold sway, but they are being challenged by an evolving and demanding security and economic environment. The rise of the Asian model of development with mixed market and socialist economies, large state-owned enterprises in China and the Middle East, government intervention into foreign exchange markets, and overt protection of domestic industries from import competition along with chronically large trade deficits and rising national debt of the United States and many European nations have called most of these economic ideas into question. In the globalized and conflicted world of today, the United States may require a more nuanced and direct approach to the economy in order to ensure the long-term security of the nation. The Role of the Economy in U.S. National Security5 For several decades following World War II, providing national security was conceptually simple. The United States maintained the world's preeminent military backed by the world's largest economy and led the Western world by providing power-based leadership, serving as a beacon for democratic values, and maintaining a system of military alliances. The conventional wisdom was that Washington could provide security for the nation primarily by keeping Soviet bombs at bay and communist ideology from creeping across the planet. The economy always was there, both to fund the military and underpin the provision of economic security for households. Policies for economic growth and issues such as unemployment were viewed as domestic problems largely separate from considerations of national security. As the world begins the second decade of the twenty-first century, the United States still has a preeminent military, large economy, strong alliances, and democratic values. However, the economy has come more into play because the country has long been accustomed to pursuing a "rich man's" approach to national security strategy. The United States could field an overwhelming fighting force and combine it with economic power and leadership in global affairs to bring to bear far greater resources than any other country against any threat to the nation's security. The world, however, has changed, and with it so have the challenges of providing U.S. national security. Setting aside questions concerning the size, composition, and capability of the U.S. military, the economy enters into the debate on national security through three overlapping roles. The first is the economy as the source of funds, materiel, and personnel for the military. The second is the economy as a provider of economic security and well-being for Americans. The third is the economy as the foundation for interaction among countries and of building shared or competing interests. This includes the flow of wealth generated by trade that allows countries to build their military and financial power, in particular the steady flow of oil revenues into the Middle East and the large trade surplus by China. It also includes U.S. legitimacy and resource availability as it strives to help other countries develop and to foster human rights and democracy abroad. In the United States, the domestic economic policy debate is divided into two major areas. The first centers on how to divide the existing economic pie or how to allocate existing economic resources among competing interests. This debate focuses on the macroeconomy, specifically on the level of the federal budget and its deficit; on the ability of the economy to fund both national defense and social programs and on issues such as savings, investment, and international trade. This deficit issue involves both cost and opportunity cost—both the size of the budget and the alternatives foregone by allocating funds to one use instead of another. It also revolves around whether current costs should be shifted to future generations by borrowing today to cover the federal budget deficit and expecting future taxpayers to repay the resulting debt. The second issue is how to enlarge the existing pie or how to increase economic growth and productivity in order to generate more resources for all programs. Growth depends both on sufficient aggregate demand by households, businesses, and government and by growing and productive supply. Over the long-term, the growth of supply depends on the microeconomic side of the economy and includes science and technology, education, business methods, natural resource use, and other elements of the economy that generate economic activity and progress. Figure 1 provides a simplified overview of how the economy enters into national security considerations. National security is sought through a combination of hard power, soft power, and economic opportunity. The economy underpins each of these by providing funding, human and other resources, capital, products, and an appealing culture and economic model. The operation of the economy, in turn, relies on government fiscal, monetary, and industrial policies; on the quality and quantity of human resources; on progress in science and technology; and on the global economy through trade and capital flows. Other Roles of the Economy in National Security The issues in Figure 1 comprise the focus of this report and are those emphasized in the 2010 National Security Strategy . The economy and economic tools, however, enter into national security considerations in several other ways. These include economic sanctions, export controls, economic incentives, expeditionary economics, and economic issues as a cause of conflict. They are briefly presented here because of their relevance to current security policy. Economic incentives or disincentives can be both an adjunct to and substitute for hard power. The use of hard power or the threat of using it by the military often is buttressed by economic tools such as financial and economic sanctions, financial incentives to change the behavior of potential enemies before or during combat, or reestablishing a local economy after combat (expeditionary economics). Economic and financial sanctions lie between diplomacy and open warfare. They are used either to punish countries for some action or to induce them to change their behavior without resorting to kinetic means (shooting them). The sanctions on Iran and North Korea imposed by the United Nations are two prominent examples of the use of this tool. Sanctions tend to be coercive but not lethal and less likely to trigger open warfare. The efficacy of economic and financial sanctions, such as a trade embargo, however, depends greatly on cooperation by countries near the target country. In the North Korean case, although the trade and financial sanctions are being implemented by nations, such as South Korea, Japan, and the United States, they cannot work well without the full cooperation of China. Related to economic sanctions are export controls. Under the Export Administration Act ( P.L. 96-72 ) Congress delegates to the Executive Branch the authority to regulate foreign commerce by controlling exports of sensitive dual-use goods and technologies. These are exports that have both civilian and military applications and that may contribute to the proliferation of nuclear, biological, and chemical weaponry. Congress is considering reauthorizing and rewriting this act. In the policy debates, there are those who advocate that controls be liberalized in order to promote exports. Although exports of particular goods and technologies can adversely affect U.S. national security, some argue that current export controls are too strict and hinder U.S. businesses in competing for sales abroad. They claim that many products under export control are available from other exporting countries and that the resultant loss of market share and jobs can harm the U.S. economy. This, in turn, has a negative effect on U.S. national security. Others, however, argue that further liberalization of export controls may compromise national security goals by putting sensitive products into the hands of potential adversaries. Those in this camp tend to view security concerns as being paramount in the U.S. export control system and that such controls can be an effective method to thwart proliferators, terrorist states, and countries that can threaten U.S. national security interests. As for the role of financial incentives as a weapon in open combat, armies have long been able to buy loyalties, pay potential enemies not to fight, finance local security forces consisting of unemployed potential insurgents, or offer rewards for the capture or killing of particular enemy leaders. This goes beyond, for example, carrying sacks of money into meetings with tribal sheiks. Such financial incentives can complement direct military campaigns by establishing a reward-based system in which members of the local citizenry view siding with the U.S. military preferable to aiding, or actually becoming, the adversary. For example, the U.S. Marine Corps Small Wars Manual stresses the importance of focusing on the social, economic, and political development of the people as well as on destruction. In Iraq, the use of financial incentives and the direct funding of armed Sunni militias as a key factor in the Awakening in Anbar province has been extensively debated. An emerging field of economics addresses how to re-establish a viable economy during or after an invasion or counter-insurgency campaign. This is referred to as expeditionary economics. The chaos and destruction following hot battles present an economic condition ripe for corruption and extortion often with a security, economic, and governmental infrastructure that does not function. Yet during and in the aftermath of war, street markets often thrive, vendors can price gouge, and civilians have to go somewhere for food, water, and necessities. The questions of expeditionary economics include who should set up and govern such markets (particularly if the existing government has been toppled), how to allocate military resources between waging war and providing security for citizens, and eventually how to build a self-sustaining economy. This entails creating jobs, extending basic services to citizens, improving infrastructure, and making progress toward fiscal sustainability. These are particularly difficult if they must be done while a war or counter-insurgency campaign is being conducted—as is the case currently in Afghanistan. A further role of economics in national security centers on economic factors as a contributor to conflicts both among countries and within national borders. Access to resources, such as oil, diamonds, water, and territory, continues to create tensions and can be a casus belli that either may lead to overt hostilities between contesting countries or incite sectional and factional violence within nations. The list of territorial claims in dispute among nations is long, and history is replete with examples of conflicts over diamonds, oil, or other minerals. Even though the sharing of resources, such as river water by India and Pakistan, can necessitate cooperation between countries, it also holds the potential for conflict, although, so far, conflicts over water have been minimal. Macroeconomic Issues in National Security At the macroeconomic level, the recession of 2008-2009 in combination with the wars in Iraq and Afghanistan and rising costs for domestic social programs have pushed the U.S. budget deep into deficit. Alarm bells have been sounding from many quarters that the nation is on an unsustainable fiscal path. The issues for Congress include whether to slow the growth of the budget deficit and how to do so without compromising national security, how to achieve a balance between military and civilian expenditures, and whether a "peace dividend" is forthcoming as expenditures for the wars in Iraq and Afghanistan diminish. Economic growth requires both sufficient demand on the macroeconomic level and increased productivity at the microeconomic level. Microeconomic policies combine with monetary and fiscal policies at the macroeconomic level to attempt to enlarge the overall size of the economy in order to provide the "rising tide that lifts all ships." The Federal Deficit and Military Spending13 The macroeconomic debate centers on the federal government's budget and its components in general and military expenditures in particular. The expectation is that the current and projected growth in the national debt is not sustainable and, given the slow recovery from the financial crisis, the nation is facing a period of increased austerity that will compel deep cuts in the federal budget. The question is when those cuts should be made and to what extent the Pentagon is to be included or exempt from budget cuts. In August 2010, Admiral Mike Mullen, Chairman of the Joint Chiefs of Staff, stated that the national debt is the single biggest threat to national security. In theory, the budget for the national security community, including the military and homeland security, should be sufficient to address foreign threats, defend the homeland, prevail in ongoing wars, and help define and advance U.S. interests abroad, including, to a certain extent, projecting U.S. democratic values and human rights. In practice, there is considerable disagreement on how best to address these tasks and the ways and means necessary to carry them out. Without concurrence on the tasks, one can hardly expect a public policy consensus on the optimal size of the military budget and whether the amount being spent is too great or too small. The line of reasoning in the public debate, therefore, tends to be that the military budget is either too large or too small relative to what the country can afford, to past expenditures, to the overall federal budget, to what is spent on other programs, or to what other nations spend. Another line of reasoning is that the military budget also is too large or too small relative to current war fighting needs, to rising threats from non-state actors (such as terrorists) or from states with nuclear weapon programs (such as North Korea and Iran), or for its participation in alleviating the effects of natural disasters (such as earthquakes, tsunamis, infectious diseases, or climate change). U.S. defense expenditures account for nearly $700 billion in annual budget outlays, including some $400 billion in contracts for goods and services. The impact on U.S. gross domestic product exceeds $1 trillion. U.S. defense expenditures are roughly equal to those of the next 14 countries combined, account for about 20% of the U.S. federal budget, and comprise an estimated 4.9% of U.S. gross domestic product. Since the debate over military spending is quite extensive, a detailed review of that debate lies beyond the purview of this report. Here we cite a statement from the Secretary of Defense plus two representative studies, one for increasing or maintaining defense expenditures and the other for considering cuts. We also present some relevant economic data. In 2010, Defense Secretary Robert Gates called for significant cuts in defense spending. He has outlined some details of his plans to save $100 billion over the next five years. This includes new guidelines on how the Pentagon buys goods and services with more fixed price contracts, cutting overhead, gaining efficiency, and closing the Joint Forces Command in Norfolk, Virginia. (For further discussion, see the section below on "Defense Acquisition and Contracting Process.) Secretary Gates, however, has warned against sharp reductions in military spending, arguing that such cuts would be "catastrophic" to national security. In October 2010, the Heritage Foundation, American Enterprise Institute, and the Foreign Policy Initiative issued a report claiming that the arguments frequently made for Pentagon spending cuts are false and that the Pentagon is actually underfunded given the need for comprehensive military modernization and to prepare fully for the wars of the future. The argument rests primarily on the global reach and expanding responsibilities of the U.S. military, the need to update military hardware, and the fact that spending on entitlements, Social Security, Medicare, and Medicaid, has outstripped that of the Pentagon. The report noted that even if Pentagon spending of about $700 billion were eliminated entirely, it would only halve the fiscal deficit of around $1.3 trillion and hardly put a dent into the $13.6 trillion national debt. The report was followed by an op-ed piece by the heads of the three authoring organizations that argued that a strong military is necessary to keep the peace, and peace is required for global prosperity. Hence, military spending is not a net drain on the U.S. economy. A counter view of the debate has been put forward by the Sustainable Defense Task Force. On June 11, 2010, it issued a report that concluded that at a time of "growing concern over federal deficits, it is essential that all elements of the federal budget be subjected to careful scrutiny. The Pentagon budget should be no exception." The report presents options that the Task Force argues could save up to $960 billion between 2011 and 2020. The options include recommendations that focus on cutting programs based on unreliable or unproven technologies, missions and capabilities with poor cost-benefit relationships, capabilities that mismatch or over-match current and emerging challenges, and management reforms. Based partly on this report, a group of 57 Members of Congress sent a letter to the Commission on Fiscal Responsibility calling on the Commission to subject military spending to the same rigorous scrutiny that non-military spending was to receive and to do it in a way that would not endanger national security. On December 1, 2010, the Commission released its proposals to reduce the budget deficit. These proposals included $828 billion in deficit reduction between 2012 and 2015 through cuts in discretionary spending, tax reform, health care cost containment, mandatory savings, Social Security reform, and changes in the budget process. In particular, the Commission recommended that both security and non-security discretionary spending be cut by an equal percentage. Since security spending is twice as large as non-security discretionary spending, equal percentage cuts imply that the amount of cuts in security spending would be twice as large as that in non-security spending. As shown in Figure 2 , since 1980, the share of national defense (excluding Veteran's Affairs) has been declining after a bulge in the late 1980s. From 22% in 1980 it is now around 20%. The figure also demonstrates the argument that defense alone will not solve the budget deficit problem. Human resources command a larger share of the budget (67% in 2010). Figure 3 shows federal government budget outlays and receipts in trillions of current dollars. This shows the dramatic impact of the global financial crisis on government revenues from 2008 and the gradual recovery expected through 2015. It also shows the steady increase across the budget that has occurred since 2000 and the futility of trying to cut outlays enough to reduce the budget deficit significantly without considering changes to entitlements (Health [mostly Medicaid], Medicare, Social Security, and Income Security) in addition to the Other category and National Defense. Data in Figure 3 are not adjusted for inflation to show how actual government outlays have changed relative to government receipts. While total receipts are projected to recover as the economy recovers, government outlays are projected to continue to rise. How much each will change depends greatly on actions by Congress. Figure 4 shows the amount of gross federal debt and that held by the public (including the Federal Reserve). The difference between the two amounts is that debt held in government accounts. The total debt is the accumulation of federal budget deficits and surpluses. In 2009, at $11.9 trillion, the gross debt amounted to 83% of U.S. annual gross domestic product. How much of a burden is this on the U.S. economy? Currently, the Treasury has few problems in issuing securities to fund the debt. Treasury securities are in such demand that in late October 2010, in some secondary markets, investors were willing to accept negative interest rates. It is true that China and Japan combined hold about $1.6 trillion in U.S. Treasury securities, and they are being pressured to reduce their trade surpluses and, in the case of China, reduce their buying of dollar assets in order to strengthen the dollar vis-à-vis the renminbi. In the short-term, therefore, the financing of the deficit does not appear to be a problem. Over the medium- to long-term, however, interest payments will take an increasingly larger share of the federal budget, and, as world economies recover, investors may seek higher returns elsewhere. This could cause interest rates to rise throughout the economy and reduce U.S. well-being as Americans are taxed to make interest payments to foreign holders of U.S. debt and as fewer investments are made in U.S. manufacturing and infrastructure because of higher interest costs. The national debt crises in Iceland, Greece, and Ireland, moreover, have raised the specter of countries nearing default on sovereign debts and requiring large rescue packages. Although the situation in the United States is different, at some point markets could become greatly concerned over the large U.S. debt and take actions adverse to U.S. interests. History has shown that when investors decide to dump a country's securities or currency, the drop in confidence is fast and the downward slope steep. Reducing the Federal Budget Deficit30 The federal budget is currently on an unsustainable path over the next several decades. This is primarily due to the impending retirement of baby boomers, rising life expectancy, and the increasing cost of medical care. Under current policies, federal debt, as a consequence of long-term and persistent budget deficits, is projected to grow to levels that may threaten the government's ability to meet its security and non-security obligations. As part of the 2010 National Security Strategy , the President calls for achieving long-term fiscal sustainability. To accomplish this goal, he calls for creating a responsible federal budget that reduces the budget deficit by making the best use of taxpayer dollars and working with global partners and institutions. The Administration initially proposed to work toward reducing the deficit using a multi-pronged approach. Components of this approach include placing a three-year freeze (in nominal dollar terms) on non-security discretionary spending, implementing a new fee on the largest financial services companies to recoup taxpayer losses for the Troubled Asset Relief Program (TARP), and eliminating "tax loopholes and unnecessary subsidies." The Administration also created the above-mentioned bipartisan fiscal commission, which is tasked with providing recommendations to generate additional budgetary savings and further improve the budget outlook in the medium-term. Together, these proposals, also included in the President's FY2011 Budget, are aimed at cutting the deficit in half by the end of the President's current term. The current economic climate poses challenges to achieving the deficit reduction goals of the NSS. Numerous actions taken by the federal government in FY2008 and FY2009 have had major effects on the budget deficit, including two major economic stimulus measures and a variety of programs in response to the financial turmoil. The impact of this legislation, along with health care reform and any additional legislation enacted, will affect deficit levels in FY2010 and beyond. The final costs of federal responses to the nation's economic turmoil will also depend on the pace of economic recovery, how well firms with federal credit guarantees weather future financial shocks, and government losses or gains on its asset purchases. Most budget analysts agree that deficit reduction is key over the long-term in order to stabilize the economy and establish sound fiscal policy. However, the question over the short- to medium-term is how to ensure the continuation of economic recovery, while, at the same time, providing indications that the Administration and Congress are committed to improving the long-term budget outlook. If a more sustainable fiscal path is not achieved, high budget deficits and the resulting high levels of federal debt could limit the government's flexibility in meeting its obligations or in responding to the emerging national needs. Ultimately, failing to take action to reduce the projected growth in the debt could potentially lead to future insolvency or government default. Traditional Microeconomic Issues in National Security Microeconomics deals with individuals, households, businesses, and industrial sectors within the macroeconomy. In addition to providing resources for the defense community needed to provide physical security, the economy, itself, provides the means for Americans to attain economic security. Such economic security in the context of national security has received stronger emphasis in recent years. Economic security is the condition of having stable income, employment, or entrepreneurial support to maintain what one considers to be an acceptable standard of living. As is the case with physical security, economic security can be an elusive concept. It is of most concern, perhaps, in its absence: during recessions, periods of high unemployment and bankruptcy, and when there is a gap between economic expectations and reality. When economic times are difficult, the tradeoff between physical and economic security comes into clearer focus. Economic security depends greatly upon (1) an economic growth rate sufficient to keep the rate of unemployment low and provide opportunities for entrepreneurs, (2) U.S. industries able to compete in international markets, and (3) U.S. leadership in science, technology, and innovation. Historically, three microeconomic issues related to defense spending have generated considerable political debate. The first is the sufficiency of the dedicated defense industry or what is often called the defense industrial and technological base. This includes whether sufficient civilian industrial capacity and relevant technology exists to support military procurement (particularly if there is a surge in needs or a shift in security-related technology that necessitates new capabilities such as in cyber warfare). The second deals with the Pentagon's procurement and contracting process and how to ensure the integrity of the defense supply chain. The third deals with how defense dollars are spent in local communities and the level of spending that supports jobs in specific areas—even if the expenditures are for products or roles deemed unnecessary by the Pentagon (e.g. bases identified for closure or continued procurement of certain big-ticket military hardware items). In the following section, these three microeconomic issues are addressed. This is followed by a section dealing with microeconomic factors that contribute to economic growth. The final section deals with soft power issues: the international economy and foreign economic assistance, their role in U.S. national security, and relevant policy issues. Each of these sections contain brief overviews and provide some context and analysis. They are intended to serve both as a guide to how the issues relate to national security and to the CRS analysts and CRS reports that deal with the issues in greater detail. The Dedicated Defense Industry in the United States35 General perceptions and presidential cautions notwithstanding, the "military-industrial complex" familiar to the casual reader of the Wall Street Journal is a relatively recent creation that took shape during the mid-20 th century. For the first three quarters of the nation's history, its defense industry was wholly owned by the federal government, embodied in a number of federal arsenals operated by the War Department and government shipyards within the Navy Department. In the preindustrial United States, with small standing militaries and rare threats to the national defense, the output of this "arsenal system," augmented when necessary by purchases from foreign suppliers and contracts with private gunsmiths and boat builders, proved adequate to meet the nation's defense needs. The advent of industrialization and mass mobilization for war, presaged by the nation's experience in the Civil War, initiated a gradual change in how the United States approached the task of providing itself with weapons of war. Throughout the latter half of the 19 th century, neither the Army's Ordnance Department nor the Navy's Bureau of Construction and Repair could reasonably be considered leaders in the introduction of innovative military technologies. Outside reformers, such as the President or congressional committees, often had to push both the military departments and private industry to create a significant domestic war production capacity. Even so, the United States entered the 20 th century with industrialization efforts focused on a rapidly expanding commercial market. World-class military hardware, when deemed necessary, was procured abroad from arms makers in the United Kingdom, France, and Germany. The American entry into World War I in 1917 saw unprecedented mobilization of the industry and manpower for the national defense. In many respects, though, the experience provided more lessons in how not to mobilize industry than how to do so well. The sudden upsurge of material needs in the Army and Navy overwhelmed the existing military procurement bureaucracies and the government's production facilities. Private industries pursuing suddenly lucrative production contracts flooded the nation's transportation system and led to a meltdown of the Army's distribution network. The popular image of the American doughboy using French and British weapons in the trenches and flying French, Italian, and British aircraft can be seen as much a result of the inadequacy of Army procurement and distribution practices than the technical superiority of European industries. The lessons of the First World War were not lost on those who had to plan for a potential American involvement in World War II twenty-three years later. For the nation's industry, the impact of the Great War had been mixed. Though military contracts had proven profitable, procurement had been overestimated and uncoordinated, the level of technology incorporated in weapon designs had been low relative to European arms, and type of contracts used had left liability for early cancellation largely with the companies. The abrupt declaration of the Armistice in November 1918 had caught many unawares, led to the abrupt termination of many contracts, and precipitated thousands of court claims against the government. Between the world wars, defense appropriations plummeted to relatively miniscule levels. Industry demobilized, turning again to satisfying civilian demand, and the needs of the Army and Navy could once again be satisfied largely by government arsenals and shipyards. Paradoxically, the Great Depression helped to set the stage for the creation of a dedicated defense industry. Military appropriations fell further—to the point that Congress authorized new Navy construction one ship at a time—and the funds that were made available went to basic procurement, not innovative technology development. The rapid rearmament of Europe in the mid-1930s and the large-scale Japanese assault on China provoked little response from the U.S. government until the end of the decade, when Congress began increasing defense appropriations and the War Department undertook to place as many procurement contracts with as wide a supplier base as possible. Even with a rapidly expanding domestic war materials market and major armed conflict raging in Europe and Asia, private enterprise proved reluctant to invest in the war-specific productive capacity needed to meet the potential demand. Instead, manufacturers remembered the industrial dislocations of 1918 and 1919 and preferred to focus on a slowly recovering, but more reliable, civilian market. Nevertheless, with both the Administration and Congress preparing for a potential military conflict of unprecedented scale, industry had little choice but to negotiate plans for potential war mobilization. The methods upon which the government agencies and corporations eventually settled minimized corporate risk while retaining flexibility to meet unanticipated demands: emphasis on subcontracting, temporary conversion of existing civilian production capacity to war manufacturing, expansion of existing private plants, and construction of government-financed, government-owned facilities that would be staffed and operated by private corporations. While the war effort followed all four paths, the government-financed expansion of private factories and the government construction of contractor-operated facilities (the GOCOs) endured to form the core of the post-war military-industrial complex. When the storm broke at the end of 1941 and the United States entered the conflict, the vastly expanded production needs of the war again overwhelmed the production capacity of the government's arsenal system. This opened war material development and production to a number of new, primarily civilian, players. Prominent among them, the Office of Scientific Research and Development, independent of both War and Navy Departments, contracted for military research and production of innovative weapons such as the proximity fuse, airborne radar, and the bazooka. Congress encouraged industrial development by liberalizing private corporate financing through accelerated asset depreciation and allowed the government to guarantee corporate debt. The Defense Plant Corporation, a government corporation, purchased or built production facilities operated by contractors. The Office of Production Management—later the War Production Board—prioritized war material deliveries and controlled nonessential (nondefense) production. As the war neared its conclusion, procurement wound down, contracts were terminated, temporary civilian agencies disbanded, and government controls on labor, finance, and industry were eased. At war's end, both armed services and industry demobilized. Defense appropriations plummeted, and privately owned manufacturing capacity shifted back to civilian production, straining to satisfy consumer demand held in check by a decade of depression and four years of war. But the U.S. could not return to its prewar posture. The nation's position in world politics and economics had changed fundamentally by 1945, having assumed worldwide responsibilities in defense—as demonstrated by the Berlin Crisis, the rise of Communist governments in Europe and Asia, and in an unexpected war in Korea. The problem, as seen by both the Truman and the Eisenhower administrations, was to create a global defense at a price that would not cripple the domestic economy. The solution that both presidents pursued was technology as a substitute for high-cost manpower. U.S., indeed Western, defense would rely on a strategy of containing the influence of the enemy, the Soviet Union, within a defined geographic area. The military component of this containment strategy would not take the form of large, expensive standing armies ringing the communist world. Rather, the threat of Soviet-inspired expansion would be met with the threat of immediate, devastating attack with atomic, later thermonuclear, weapons delivered by new aircraft, missiles, ships, and submarines. The ensuing competition among the various military services to establish claims on this unprecedented approach to high-technology warfare encouraged the rapid rise of something not seen before, a peacetime civilian sector of industry dedicated to providing the Army, Navy, Air Force, and Marine Corps with high-quality, cutting edge military systems. The focus on a nuclear first line of defense combined with strategic alliances prompted a spirited competition among the military services as each laid claim to some portion of the nuclear mission. The late 1940s and 1950s saw the creation of the Air Force's Strategic Air Command and development of the intercontinental bombers—later missiles—able to carry nuclear bombs and warheads to any point in the Soviet Union. Likewise, the Navy doubled the threat to Soviet targets, buying nuclear-capable aircraft and missiles and the large ships and submarines able to carry them close to the Soviet border. Even the Army staked a claim, creating a doctrine for fighting a contaminated ground war that would employ smaller nuclear weapons. Referred to as the Pentomic Army, these atomic soldiers needed both weapons and specialized equipment to operate on the nuclear battlefield. The desire to minimize manpower and cost and maximize the effectiveness of firepower helped to create an expectation that each new military system would perform significantly better than the one it succeeded. This expectation eventually came to be shared by the military that conceived of, managed, and used the systems, the legislators who paid for them, and the private corporations that actually built them. Two important factors reinforced that expectation—the enduring presence of the Soviet Union, a powerful, sophisticated peer adversary that could project its presence globally, and the continued strengthening and consolidation of budgeting and program control in the Office of the Secretary of Defense. For the next half-century, each military department would have a well-defined protagonist against whom it could plan a war, and each would be competing within a centralized budgeting process for the wherewithal to fight it. As a result, the military departments demanded ever more capable and sophisticated weapons and supporting systems, and private industry strove to meet the needs of "the customer." As the Cold War continued, some companies, such as Lockheed, General Dynamics, Raytheon, and others, devoted significant portions of their activities to defense projects. A number of corporations came to specialize in serving particular defense niches. Grumman Aircraft Engineering Corporation (later Grumman Aerospace Corporation), for example, became known as the premier builder of fixed wing aircraft for the Navy. Thus, President Dwight D. Eisenhower could be moved to devote a significant portion of his 10-minute farewell address to the nation on January 17, 1961 to this new phenomenon. Until the latest of our world conflicts, the United States had no armaments industry. American makers of plowshares could, with time and as required, make swords as well. But now we can no longer risk emergency improvisation of national defense; we have been compelled to create a permanent armaments industry of vast proportions. Added to this, three and a half million men and women are directly engaged in the defense establishment. We annually spend on military security more than the net income of all United States corporations. This conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence—economic, political, even spiritual—is felt in every city, every state house, every office of the Federal government. We recognize the imperative need for this development. Yet we must not fail to comprehend its grave implications. Our toil, resources and livelihood are all involved; so is the very structure of our society. In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist. We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together. Defense Acquisition and Contracting Processes40 As part of the 2010 National Security Strategy, the Obama Administration expressed concern over the perceived lack of management and oversight over Department of Defense procurement spending, an amount which "accounts for approximately 70% of all Federal procurement spending" and has stated its intention to reform "Federal contracting and strengthen contracting practices and management oversight with a goal of saving Federal agencies $40 billion dollars a year." The Secretary of Defense's Approach to DOD Business Operations Reform Facing two wars, a large defense budget, spiraling contracting costs, and a decline in the breadth and depth of the civilian, organic defense workforce, Secretary of Defense Robert M. Gates has made several announcements that are intended to fundamentally change DOD operations. In April 2009 the Secretary announced his intention to embark on a plan to rebalance the workforce by reducing the number of contractors and the percentage of contracted services, and, at the same time, increase the size of the organic defense workforce. On August 9, 2010, Secretary Gates unveiled a direct and significant push to change the strategic direction of the Department and improve the Department's performance, oversight, and control of critical services. To accomplish this, he has proposed a reorganization and restructuring of the Department's business operations by taking the following actions: (1) shifting overhead costs to force structure and future modernization accounts, (2) inviting outside experts to suggest ways the Department can be more efficient, (3) conducting front end assessments to inform the FY2012 budget request, and (4) reducing excess and duplication across the defense enterprise. To achieve his objectives, the Secretary has announced a series of targeted, budget-cutting initiatives designed to "reduce duplication, overhead and excess, and instill a culture of savings and restraint across DOD." The impact of these initiatives could be significant and include (but are not limited to) the following reductions. Reducing funding for service support contractors by 10% a year for each of the next three years, and no longer automatically replacing departing contractors with full-time personnel. Freezing the number of Office of the Secretary of Defense, Defense Agency and combatant command positions at the FY2010 levels for the next three years. Other than changes planned for FY2010, no more full-time positions in these organizations will be created after this fiscal year to replace contractors. Some exceptions can be made for critical areas such as the acquisition workforce. Freezing at FY2010 levels the number of senior positions—civilian senior executive and active General and Flag Officers. A senior task force is to assess the number and location of senior positions, as well as the overhead and accoutrements that go with them, with results due by November 1, 2010. Gates expected the task force to recommend cutting at least 50 General and Flag-officer positions and 150 senior civilian executive positions over the next two years. Authorizing each of the military departments to consider consolidation or closure of excess bases and other facilities where appropriate. Freezing the overall number of DoD-required oversight reports. Immediately cutting the dollars allocated to advisory studies by 25%, and henceforth, publishing the actual cost of preparing each report and study prepared by DoD. Conducting a comprehensive review of all oversight reports, and using the results to reduce the volume generated internally. Directing an immediate 10% reduction in funding for intelligence advisory and assistance contracts and freezing the number of senior executive positions in defense intelligence organizations. Conducting a zero-based review of the department's intelligence missions, organizations, relationships, and contracts. Eliminating organizations that perform duplicative functions or have outlived their original purpose, including the Office of the Assistant Secretary of Defense for Networks and Information Integration, also known as NII, and organization within the Joint Staff's J6 Command, Control, Communications and Computer Systems, the Business Transformation Agency, and the Joint Forces Command. Analysis48 The NSS objective for procurement reform reflects the view that the federal government has to become more fiscally accountable to its citizens, and that the policies of past Administrations—through outsourcing, privatization, competitive sourcing, and managed competitions through Office of Management and Budget (OMB) Circular A-76—have largely resulted in an increased presence and use of private sector contractors. In spite of the increased use of contractors, the federal government has not to date produced a complete and detailed analysis of the costs and footprint of the contractor workforce or the range of services that contractors perform for the federal government. This NSS objective also reflects the Obama Administration's stated view that DOD, like the rest of the federal government, should carefully identify ways to reduce its overhead, eliminate wasteful and duplicative programs, and pursue ways to economize and increase the efficiency of its business operations. The Secretary's planned budget reductions as described here represent a significant attempt to restructure and reduce DOD business operations. These reductions would affect every aspect of DOD operations and particularly highlight those contracted services that have been the subject of public scrutiny largely because the nature of the contracts make transparency difficult—such as the 25% reductions in funding for advisory studies, studies conducted by existing boards and commissions, and a 10% reduction in funding for intelligence advisory and assistance contractors. It is difficult to fully evaluate the efficacy of the Secretary's plan given that the plan was not accompanied with specifics on how DOD arrived at these budgeting and programmatic decisions. The impact of such reductions on the efficiency and effectiveness of DOD business operations remains uncertain. Whether these reductions will achieve real budget savings or improve DOD business operations is a question that will be raised by both proponents and opponents. Eliminating DOD agencies and components will, in all likelihood, result in a reduction of personnel as some positions and possibly functions will be eliminated. However, critical and inherently governmental functions will need to shift to other DOD agencies and components. The extent to which this happens will affect the size of the reductions in the defense budget. The 10% reduction for all service support contractors would reduce the size of the contractor workforce and might shed light on the breadth and scope of services actually rendered by the contractor workforce. Without a clear sense of the long-term costs of all DOD personnel—be they contractor, civilian, or uniformed military—as well as which personnel would be most affected by the proposed reductions—the question remains as to the impact of the Secretary's proposed reductions on the long-term personnel costs and on the future performance of the Department of Defense. Given the challenges facing the Department, these proposed reductions could (and may likely) serve as a starting point to consider deeper cuts and perhaps help the Department to prepare itself for additional restructuring and reshaping. Many of the initiatives proposed will take months, if not years, to develop and will likely take longer to begin to harvest the benefits and savings. Base Closures and the Local Impact of Defense Spending49 Even though the primary purpose of the U.S. defense establishment is to provide security from foreign threats, expenditures both for procurement and by service personnel, themselves, have a significant impact on many local communities. When bases are closed or procurement contracts or programs are cancelled, the employment and expenditure multiplier effects often can be large and usually generate considerable political pressures. In September 2005, a Base Realignment and Closure (BRAC) Commission submitted its final report to the Administration and implementation is proceeding. Congress can override the recommendations by disapproving the list of closures as a whole, but the President can veto the action. The issue with base closures and loss of defense contracts often has less to do with protecting the nation than with defending the economic security of those affected. What can be said is that the economic impact, in general, is proportional to the size of the facility or contract relative to the size and resources of the local economy, the types of workers involved (whether they have the skills to find jobs in other industries), and whether the loss is primarily of household expenditures by military personnel (groceries, gasoline, rents, etc.) or of contracts needed to maintain capital- and skill-intensive manufacturing facilities (e.g. shipbuilding or aircraft production). Economic impact studies of such actions often rely on multiplier effects. These are defined either as the number of jobs in the community generated by each job paid for by the military or by how much economic activity is generated in the local community by a dollar spent by the military. For the employment multiplier, the concept is that each direct job created generates indirect employment by those industries that support that job holder. For the income multiplier, the concept is that a dollar spent in the local community is then re-spent as purchases are made through the relevant supply chain. The more of each dollar that is spent (not saved) at each round and the less that is spent on imports the higher the multiplier effect. These multipliers can range from less than 1 to as much as 2.5 or 3.0 depending on the nature of the military expenditure, and the economic conditions in the community. When considering a base closure or loss of large procurement program, the multiplier also depends on the resiliency of the workforce and the length of the period of adjustment. The more quickly the bases are converted to civilian use, the higher the value of underlying real estate, the lower the clean-up costs, and the more vibrant the local and national economy, the lower the impact of the base closure on the local communities. For communities that are adversely affected by a base closure or loss of a large procurement contract or program, the adjustment period for securing new jobs can be difficult and is normally longer than four years, with some communities requiring up to 20 years. Base realignments or program cuts also have a fiscal effect on local governments as they deal with changes in their revenue base and issues such as a mismatch between existing infrastructure (particularly roads and schools) and the needs of the military. A Government Accountability Office study of 73 base closures over the 1988 to 2003 period found that the percent of jobs recovered by local communities ranged from 0% to more than 1,000%. The Office of Economic Adjustment serves as the Defense Department's primary source for assisting communities that are adversely affected by changes in Defense programs. The Office offers technical and financial assistance and coordinates the involvement of other federal agencies. Economic Growth and Broad Conceptions of Security A microeconomic issue that equally falls into the macroeconomic realm is the rate of economic growth of the whole economy. The rate of economic growth stems from both demand and supply. On the demand side are macroeconomic policies that affect total household consumption, business investment, government spending, and the balance of trade. The above discussion of the federal budget and total military expenditures is part of the demand side of the economic debate. On the supply side are microeconomic policies that affect labor productivity, innovation, and the efficient use of labor and capital. The government policies that affect the supply side of the economy range from taxes to education, to research and development, and to immigration. In the following analysis, we exclude discussion of tax policy, an important component of U.S. industrial competitiveness and entrepreneurship but beyond the purview of this report. Instead, we focus on those items that have been addressed in the 2010 National Security Strategy of the United States and tend to be more directly related to U.S. national security. On a global basis, the importance of economic growth to national security was demonstrated in the 2008-2009 global financial crisis. In February 2009, Director of National Intelligence Dennis C. Blair stated in a congressional hearing that instability in countries around the world caused by the current global economic crisis, rather than terrorism, was the primary near-term security threat to the United States. The slowdown in growth was causing instability in governments, and he feared that U.S. allies and friends would not be able to fully meet their defense and humanitarian obligations. He also saw the prospect of increased refugee flows and a questioning of American economic and financial leadership in the world. While this report focuses on the sources of U.S. economic growth, these factors operate to promote growth in other countries as well. Human Capital Economic growth is highly dependent on increasing the productivity of workers. In this era of a knowledge-based economy, this increase in productivity depends as much on education and training as in traditional investments in hardware and equipment. Knowledge is not only a product that can be bought and sold, but it is a tool that can be used to produce economic and security benefits. It depends greatly on the ability of workers to generate and use knowledge in the production process, which, in turn, depends on the skill and education of workers. Education also plays into national security concerns through the ability of Americans to understand foreign countries and cultures and to speak certain foreign languages, such as Arabic and Chinese. In addition, technical and engineering education provides the United States with workers who can provide direct security benefits, such as technological innovation that keeps the military at the forefront of technological capabilities and engineering skill that provides advanced weaponry as well as a secure infrastructure. College, K-12, and Early Childhood Education58 The 2010 National Security Strategy proposes that the United States would benefit from improving education at all levels so that American children can succeed in a global economy. The NSS supports a comprehensive, developmental approach to education, which includes early childhood education, elementary and secondary education, postsecondary education, and job training. The NSS states that one major goal of improving education is to restore U.S. leadership in higher education by having the highest proportion of college graduates in the world by 2020. Context The federal government supports early childhood care and general education programs from birth through adulthood. Major congressional efforts to enact legislation and support education at all levels took place in the 1960s. To date, Congress has enacted legislation that supports early childhood education, elementary and secondary education, career and technical education, postsecondary education, and adult education and job training. The remainder of this section outlines the legislative context of support for education from early childhood education to adult education and job training programs. Federal support for early childhood programs comes in many forms, ranging from grant programs to tax provisions. Some programs serve as specifically dedicated funding sources for child care services or education programs. For other programs, child care is just one of many purposes for which funds may be used. Until recently, support for early childhood care and education programs have been separate from general education programs for older children, youth, and adults. For example, the largest source of federal funding for comprehensive early childhood education is the Head Start program, which is administered by Health and Human Services. A recent congressional hearing, however, indicated some interest in incorporating early childhood education programs into traditional elementary schools. The primary legislation supporting elementary and secondary education is the Elementary and Secondary Education Act (ESEA), most recently amended by the No Child Left Behind Act of 2001 (NCLB; P.L. 107-110 ). Congress has employed a variety of strategies to support elementary and secondary education, including (1) compensatory education programs, in which federal funding is provided to support the education of disadvantaged students; (2) civil rights statutes, which prohibit discrimination among students according to criteria such as race, color, national origin, or sex, and which require that a free appropriate public education be made available to students with disabilities; (3) standards-based reforms, under which recipients of federal education funding are required to implement challenging educational standards and assessments; and (4) market-based reforms, which permit parents to signal their educational preferences by choosing their children's schools. The Carl D. Perkins Vocational and Technical Education Act of 1998 (Perkins Act; P.L. 105-332 ) is the main source of specific federal funding for vocational education. Vocational education programs provide occupational preparation mostly at the high school level and at less-than-four-year postsecondary institutions, such as community colleges. At the high school level, vocational courses can be classified into three groups: (1) consumer and homemaking education, (2) general labor market preparation providing general skills that are not related to a particular occupational field, and (3) specific labor market preparation in occupational fields. At the postsecondary level, community colleges provide vocational courses that are more broad and can cover areas such as computer programming and engineering technology. The largest federal postsecondary education programs are the federal student aid programs authorized under the Higher Education Act (HEA), federal tax benefits administered through the Internal Revenue Code (IRC), and veterans' education assistance programs. The federal government also supports postsecondary education through a number of targeted programs. For example, several HEA programs authorize the provision of direct assistance to institutions of higher education that serve large proportions of low-income individuals and individuals from minority populations. Other HEA programs support the provision of services and incentives to help disadvantaged students increase their secondary or postsecondary educational attainment. The HEA also provides some support for the education and training of workers in certain fields or occupations, such as teaching and science and engineering occupations. The Workforce Investment Act (WIA; P.L. 105-220 ) is the primary federal workforce development legislation that aims to increase coordination among federal workforce development and related programs. The majority of WIA funding provides support for job training programs, which provide a combination of education and training services to prepare individuals for work and to help them improve their prospects in the labor market. WIA also provides funding for the Adult Education and Family Literacy Act (AEFLA), which supports an array of literacy programs targeted to help adults obtain literacy and complete secondary education. Analysis In the 2010 NSS President Obama proposes to ensure national security by providing a "complete and competitive" education for all Americans, from early childhood through adulthood. The NSS provides limited detail on the legislative means by which education would be supported; it is unclear whether the NSS proposes to support existing programs, design new programs, or work to align current education programs from early childhood through adulthood. The primary, measureable education goal stated in this section of the NSS is "to restore U.S. leadership in higher education by seeking the goal of leading the world in the proportion of college graduates by 2020." At face value, this measureable goal seems to focus on supporting early childhood education, elementary and secondary education, and postsecondary education. It is not directly linked to promoting or supporting career and technical education or adult education and job training programs. While some career and technical education programs lead to college degrees from less-than-four-year postsecondary institutions, it is unclear whether these degrees are included in the stated NSS goal. If the primary goal is to increase the proportion of college graduates by 2020, the Administration may seek to focus on college-readiness in elementary and secondary education and promoting access to postsecondary education. One potential disadvantage of focusing on increasing the proportion of college graduates by 2020 is the possibility of losing focus on job training and worker retraining programs. With record unemployment rates and a changing economy, the workforce may require more job training and worker retraining programs in order to promote high-demand skills in emerging industries. The NSS recognizes that promoting job training programs and high-demand skills in emerging industries is an important factor in our national security; however, without a stated measureable objective, the extent to which these programs would be supported is unclear. Science, Technology, Engineering, and Mathematics Education69 The 2010 National Security Strategy includes several science, technology, engineering, and mathematics (STEM) education provisions. As a question of domestic policy, the STEM education provisions are relatively generic in nature, consistent with existing federal policy, and likely to reflect consensus opinion. Nevertheless, policymakers continue to debate how to assure a capable national scientific and technological workforce and the role of the U.S. STEM education system in that process. A number of CRS reports explore various aspects of these issues in greater detail. Context American innovations in science and technology played a central role in ensuring national prosperity and power over the last century. From the first mechanically propelled flight of the Wright brothers in 1903 to the development of Google in the 1990s, U.S. scientific and technological innovations have reshaped the global economy and provided economic mobility and security for generations of Americans. Many analysts believe a combination of internal weaknesses and external threats now call the nation's historic edge in science and technology into question. In an influential report, Rising A bove the Gathering Storm , the National Academies asserted that the United States is at risk of losing its comparative advantage in science and technology. In support of this claim, the Academies cited indications of weakness in the domestic STEM education system and of a growing threat from other nations in STEM education and achievement. A suite of data capturing trends in education outputs (e.g. graduation rates) and inputs (e.g. teacher training) drive concerns about the performance of the U.S. STEM education system. Among the data most frequently cited as worrisome are U.S. student achievement on science and mathematics tests and STEM degree attainment. On average, U.S. elementary and secondary students lag behind other nations on international STEM tests. The percentage of U.S. 24-year-olds with STEM degrees is lower than that of many other nations. Many analysts believe this data suggests challenges for the future scientific and technological workforce and the nation's capacity for innovation. Achievement gaps in mathematics and science between various demographic groups also raise concerns. For example, the average scores of white and Hispanic 17-year-olds on a 2008 nationwide mathematics test differed by 21 points. Many analysts believe that traditionally underrepresented groups must increase their STEM achievements in order to ensure a stable domestic supply of scientific and technological labor as the national demographic profile shifts over the next century. Analysis In the 2010 National Security Strategy President Obama proposes to ensure national security partly by investing in STEM education, improving the quality of mathematics and science teaching, and by expanding education and career opportunities for underrepresented groups. The President argues these provisions will strengthen human capital and contribute to national prosperity and security. As a matter of national security policy, the inclusion of STEM education in the President's 2010 National Security Strategy represents a change from similar statements produced by the George W. Bush Administration. This change may be significant to national security analysts, whose opinions on the inclusion of domestic concerns in national security policy differ. Considered through a domestic policy lens, the STEM education provisions of the President's 2010 National Security Strategy may have little practical effect on federal policy. Both the Obama and Bush Administrations have supported federal policies that seek to improve U.S. STEM education as a means to strengthen the economy. Congressional support for the 2007 America COMPETES Act ( P.L. 110-69 ), which in part sought to improve economic competitiveness through STEM education, reflects a similar position. In this sense, the STEM education provisions of the National Security Strategy are broadly consistent with existing federal policy. Nevertheless, many issues in federal STEM education policy remain contentious. While the STEM education provisions of the President's 2010 National Security Strategy reflect consensus positions by and large, generally speaking, opinions vary on how to implement these objectives. For example, observers disagree about whether the problem with the U.S. scientific and technological workforce is on the supply side or the demand side. The general consensus seems to be that the U.S. is not producing enough STEM graduates and scientifically literate citizens. As a result, policymakers have paid much attention to policies that seek to increase the supply of STEM-trained workers, such as reforms to improve STEM teaching or increase financial aid for STEM college students. Other analysts argue that the pursuit of supply side solutions fails to address demand side factors like the limited attractiveness of scientific careers and differential employment rates in certain STEM fields (for example, surpluses in the life sciences and shortages in engineering). These analysts argue that the U.S. STEM education system may actually produce too many scientists. They suggest more attention to policies addressing demand side factors, such as increasing the number of tenure-track jobs and providing grants for early-career scientists. Beyond the supply-demand debate are other questions about the relative value of STEM education data, the interpretation of that data, and implications for policymaking. Reformers sometimes argue that poor student performance on mathematics and science tests, among other things, indicates a need to overhaul the U.S. STEM education system. Other analysts dispute claims that poor performance on average should be interpreted as suggesting general reform of the U.S. STEM education system. The data, they argue, show that the U.S. is a top producer of the highest- and lowest-scoring students. This distinction, they claim, merits a subtler policy response targeting only low-performing students. Other issues in STEM education policy include debates about whether STEM education reform can or should be undertaken outside of general education reform. The scope and scale of federal STEM education programs is also an open question. Some studies have found a lack of coordination, or even of an accurate count of federal STEM education programs. STEM advocates have also advanced a variety of policy options—for example, hands-on learning, specialty schools, or teacher training—designed to address various perceived deficiencies. However, in some cases a dearth of definitive research establishing underlying assumptions adds a degree of uncertainty to these recommendations. International Education and Exchange84 According to the 2010 National Security Strategy , notwithstanding the "pervasiveness of the English language and American cultural influence," the United States must increase its efforts to promote international education and exchange in order to succeed in the global economy. To this end, the Administration proposes to "support programs that cultivate interest and scholarship in foreign languages and intercultural affairs, including international exchange programs … [and] welcome more foreign students to our shores." Policy recommendations beyond this general support for current programs are not specified in this section of the NSS. Context According to the Interagency Working Group (IAWG) of Government-Sponsored International Exchange and Training, the federal investment in this area was over $1.5 billion in FY2008. That year, 250 programs supporting international exchange and training were administered by 15 cabinet-level departments and 51 independent agencies and commissions. Over 2.4 million people participated in these programs worldwide in FY2008; roughly 55,000 were "U.S. participants." The IAWG found that programs administered by the State Department accounted for 45% of all FY2008 U.S. participants. The Bureau of Educational and Cultural Affairs Office administers the State Department's numerous exchange programs, most of which are authorized by the Mutual Education and Cultural Exchange Act of 1961 (also known as the Fulbright-Hayes Act). The two largest of these programs, the Citizen Exchange and Fulbright Programs, sent nearly 10,000 Americans abroad in FY2008. The number of Americans studying abroad through federally sponsored programs is dwarfed by the number that do so without federal support. During the 2007-2008 school year, a total of 262,416 U.S. students studied abroad. This is more than double the number studying abroad a decade earlier (113,959 in 1997-1998) and over five times the number (48,483) doing so during the 1985-1986 school year. The major federal programs supporting foreign language and area studies at U.S. colleges and universities originated in the National Defense Education Act of 1958. These programs were consolidated into Title VI of the Higher Education Act of 1965 (HEA) by the Education Amendments of 1980 and are administered by the U.S. Education Department (ED). The impact of federal assistance to post-secondary institutions may be evident in the growth of foreign language bachelor's degrees awarded since enactment. The number of such degrees increased from 4,527 at the end of the 1959-1960 school year to 19,457 in 1969-1970. Foreign language degree output began to dwindle by the late 1970s, falling to 11,550 in 1985-1986, and has since steadily increased to 20,977 in 2007-2008. Meanwhile, bachelor's degrees awarded in area studies increased from 2,492 in 1970-1971 to 7,202 in 2007-2008. Since the Immigration Act of 1924, the United States has expressly permitted foreign students to study in U.S. institutions. To do so, such students must be issued visas from one of three non-immigrant categories: F visas for academic study, M visas for vocational study, and J visas for cultural exchange. The number of non-immigrants admitted have more than doubled over the past two decades. In FY1989, the total number of F, M, and J visas issued by the State Department was 322,385, in FY1999 the number was 480,131, and in FY2009, 654,835 such visas were issued to non-immigrants. Analysis The proposals in this section of the NSS reflect long-held priorities in federal policy that encourage international education and exchange in recognition of "the benefits that can result from deeper ties with foreign publics and increased understanding of American society." However, the NSS does not provide specific policy recommendations beyond general support for, and perhaps expansion of, current federal programs for this purpose. In this sense, the current administration's strategy is not a major break with that of previous administrations, although some have claimed otherwise. Some concerns and questions that may be raised in response to the NSS are discussed below. The large number of federally sponsored programs raises concerns about program coordination and possible duplication of effort. To address such concerns, Congress amended the Fulbright-Hayes Act in 1998 to establish the IAWG and require that it conduct a "duplication assessment." The IAWG defines programmatic duplication as "activities sponsored by different organizations that direct resources toward the same target audiences, using similar methodologies to achieve the same goals, and which result in duplicative—as opposed to complementary—outcomes." The analysis concluded that federal international exchange and training programs are typically specific in their theme, geographic focus, and target audience and therefore involve a low risk of duplication. Though not specifically charged with assessing coordination, the IAWG also concluded that interagency funding transfers tend to promote transparency and enhance coordination. Such transfers account for roughly 19% ($278 million) of all ($1.5 billion) federal spending in this area. Although the volume of U.S. students studying abroad has grown substantially in recent years, the regional distribution has remained steady. In 2007-2008, over half (56.3%) of all students studying abroad went to countries in Europe; Latin America was the second largest destination (15.3%), followed by Asia (11.1%). Study in Europe dropped about six percentage points since 1988-89 (62.7%) and was replaced almost entirely by a five percentage point increase in travel to Asia; which stood at 6.0% in 1988-89. Meanwhile study in the Middle East (where security is often a concern) dropped from 2.8% of all students in 1988-1989 to 1.3% in 2007-2008; slightly up from its low of 0.4% in 2002-2003. Given the emerging role of non-European nations in U.S. security concerns, some may question whether the federal government should do more to influence students' destination of study and encourage them to choose regions of greatest relevance to national security. Similar concerns can be raised with regard to the languages U.S. students choose to learn. The number of foreign language degrees awarded at U.S. higher education institutions nearly doubled in the last two decades; however, two-thirds of this growth occurred in one language, Spanish. While degrees awarded in the two other major European languages (French and German) saw large declines during this period and non-European languages (e.g., Chinese and Arabic) achieved notable percentage gains, the absolute number of bachelor's degrees awarded in the three major European languages is many times greater than all other world languages combined; in 2007-2008, 12,895 and 2,210 respectively. Again, given that current security concerns are in regions largely composed of non-European language speakers, some may assert that more federal support should be directed at building the nation's capacity in languages other than those commonly spoken in Europe. Recent growth in the number of non-immigrant visas issued for academic/vocational study and cultural exchange indicates that the United States is welcoming more foreign students to the country following the downturn in numbers after the terrorist attacks on September 11, 2001. In 2008, the largest number of F-1 visas went to students from China (56,258), South Korea (50,078), and India (36,149). This suggests that students worldwide continue to see U.S. higher education institutions as attractive places to advance their education. Some feel that these institutions have a finite growth capacity and that foreign students prevent some Americans students from being accepted for entry. Moreover, there is a subsequent "brain drain" of talent as foreign students return to their home country after graduation (or perhaps a year or two of work in the United States). Others argue that K-12 schools have not been able to provide native-born talent to fill all slots in U.S. institutions, particularly in high-demand subjects, and that to maintain U.S. competitiveness, we must draw the best and brightest students the world has to offer. Immigration103 The 2010 NSS states: "Our ability to innovate, our ties to the world, and our economic prosperity depend on our nation's capacity to welcome and assimilate immigrants and a visa system which welcomes skilled professionals from around the world.... Ultimately, our national security depends on striking a balance between security and openness. To advance this goal, we must pursue comprehensive immigration reform that effectively secures our borders, while repairing a broken system that fails to serve the needs of our nation." There is a broad-based consensus that the U.S. immigration system is broken. This consensus erodes, however, as soon as the options to reform the U.S. immigration system are debated. Substantial efforts to reform immigration law have failed in the recent past, prompting some to characterize the issue as a "zero-sum game" or a "third rail." The challenge inherent in reforming legal immigration is balancing the hopes of employers to increase the supply of legally present foreign workers, longings of the families to re-unite and live together, and a widely shared wish among the various stakeholders to improve the policies governing legal immigration into the country. Context Four major principles underlie current U.S. policy on permanent immigration: the reunification of families, the admission of immigrants with needed skills , the protection of refugees, and the diversity of admissions by country of origin. The Immigration and Nationality Act (INA) specifies a complex set of numerical limits and preference categories that gives priorities for permanent immigration reflecting these principles. Legal permanent residents (LPRs) refer to foreign nationals who live lawfully and permanently in the United States. During FY2009, a total of 1.1 million aliens became LPRs of the United States. Of this total, employment-based LPRs (including spouses and children) accounted for 12.7%. Most LPRs (66.1%) entered on the basis of family ties. Currently, annual admission of employment-based preference immigrants is limited to 140,000 plus certain unused family preference numbers from the prior year. As Figure 4 displays, LPR admissions for the first (i.e., extraordinary persons), second (i.e., exceptional persons with advanced degrees) and third (i.e., professionals, skilled and shortage workers) employment-based preferences have exceeded the ceilings several times in recent years. Although there were almost the same number of first, second, and third preference employment-based LPRs in FY2007 and FY2008 (155,889 and 155,627, respectively), the number of employment-based LPRs in the extraordinary and exceptional categories rose in FY2008, particularly among those with advanced degrees. Despite the dip to 126,874 employment-based LPRs in FY2009, the first preference extraordinary category rose slightly. In FY2009, the number of skilled and unskilled LPRs was at its lowest level of admissions since FY1999. The INA provides for the temporary admission of various categories of foreign nationals, who are known as nonimmigrants. Nonimmigrants are admitted for a temporary period of time and a specific purpose. They include a wide range of visitors, including tourists, students, and temporary workers. Among the temporary worker provisions are the H-1B visa for professional specialty workers, the H-2A visa for agricultural workers, and the H-2B visa for nonagricultural workers. Persons with extraordinary ability in the sciences, arts, education, business, or athletics are admitted on O visas, whereas internationally recognized athletes or members of an internationally recognized entertainment group come on P visas. Foreign nationals working in religious vocations enter on R visas. Foreign nationals also may be temporarily admitted to the United States for employment-related purposes under other categories, including the B-1 visa for business visitors, the E visa for treaty traders and investors, J and Q visas for cultural exchange, and the L visa for intracompany transfers. The issuances of temporary employment-based visas rose steadily over the past decade, then dropped in FY2009 ( Figure 7 ). In FY2009, there were 1.1 million temporary employment-based visas issued, down from a high of 1.3 million in FY2007. The number of visas issued to H and NAFTA workers dropped by 33.4% from FY2007 to FY2009. The E and L visas fell by 18.7%, and the J and Q visas decreased by 8.1%. Only the numbers of O and P visas held steady, dipping only by 1.7%. Analysis The Congress is faced with strategic questions of whether to continue to build on incremental reforms of specific elements of immigration (among which is increasing skilled migration and reforming temporary worker visas) or whether to comprehensively reform the law. A variety of constituencies are advocating a significant reallocation from the family-based to the employment-based visa categories or a substantial increase in legal immigration to meet a growing demand from families and employers in the United States for visas. Against these competing priorities for increased immigration are those who offer options to scale back immigration levels, with options that would confine employment-based LPRs to exceptional, extraordinary, or outstanding individuals. Some business people express concern that a scarcity of labor in certain sectors may curtail the pace of economic growth at a time when encouraging economic growth is paramount. A leading legislative response to skills mismatches is to increase the supply of temporary foreign workers (rather than importing permanent workers). While the demand for more skilled and highly trained foreign workers garners much of the attention (e.g., lifting the ceiling on H-1B visas or set-asides of visas for foreign graduates of U.S. universities), pressure to increase unskilled temporary foreign workers, commonly referred to as guest workers, also remains. Those opposing increases in temporary workers assert that there is no compelling evidence of labor shortages and cite the growing rate of unemployment. Opponents argue that continuing temporary foreign workers programs during an economic recession has a deleterious effect on salaries, compensation, and working conditions of U.S. workers. More recently, some are suggesting that temporary foreign worker visas should be scaled back or placed in moratorium during periods of economic recession. As the United States rises out of an economic recession, attention is again focused on recruitment of the "best and the brightest" people to the United States. Once a debate limited to the H-1B visas, the global competition for foreign workers with advanced degrees and high-level skills has broadened to encompass more sweeping revisions to the permanent employment-based preferences. Some promote amending the INA to create expedited pathways for foreign students earning degrees at U.S. universities in the fields of the sciences, technology, engineering, or math (STEM) to become LPRs without an assessment of labor markets needs. However, Michael Teitelbaum, vice president of the Alfred P. Sloan Foundation (which funds basic scientific, economic and civic research) has said over the past few years that there are "substantially more scientists and engineers" graduating from U.S. universities than can find attractive jobs. A fundamental question is whether the current labor market tests to hire foreign workers offer an efficacious response to these competing perspectives on the international race for talent. Some observers, which notably includes a panel of international experts assembled by the Transatlantic Council on Migration, advocate what they refer to as more "flexible" and "forward-thinking" approaches to bringing foreign workers into the labor market. These options are typically based upon the human capital needs of the national economy rather than the hiring preferences of individual employers. Other policy research groups, such as the Directorate for Science, Technology, and Industry of the International Organization for Economic Cooperation and Development (OECD), maintain that immigration laws and labor market protections are not the most decisive factors for talented migrants. Various factors contribute to the flows of the highly skilled. In addition to economic incentives, such as opportunities for better pay and career advancement and access to better research funding, mobile talent also seeks higher quality research infrastructure, the opportunity to work with "star" scientists and more freedom to debate. The United States arguably fares quite well on these factors. Labor markets tests that employers must pass in order to hire foreign workers are arguably aimed at curbing employer abuses rather than influencing the migration decisions of foreign workers. Research, Innovation, Energy, and Space Even though a sufficient number of people might be educated and trained to meet the needs of the United States in the 21 st century, economic growth and progress depends on how those human resources actually are employed and whether the results contribute both to economic growth and to the defense industrial and technological base. In this section, we address policies related to investing in research, and expanding international science partnerships. We also examine two specific national security issues that rely on research, development, and innovation. These are energy independence and space capabilities. Investing in Research119 President Obama's National Security Strategy contends that research and development (R&D) is central to "our broader national capacity," and that investments in research will secure "substantial economic and national security advantage" for the United States. The document links U.S. strength in basic and applied sciences to addressing national challenges such as the H1N1 influenza outbreak and the development of renewable energy technologies. The President asserts that he seeks to reverse "the decades-long decline in federal funding for research," and claims credit for the single largest infusion to basic science research in American history. Additionally, the President asserts the importance of maintaining the historic strength of United States in transforming science and technology into engineering and products. Recognizing the limitations of government in this regard, the strategy is to support and create incentives to encourage private initiatives. Context It is widely believed among experts that U.S. industrial competitiveness, economic growth, and job creation depend heavily on the nation's scientific and technological prowess. There is general consensus among economists that advances in knowledge (largely, technological innovation) have been responsible for at least half of long-term economic growth among advanced economies, which in turn is responsible for employment growth and increases in standards of living. Recognizing this linkage, governments around the world have increased public funding for R&D and enacted policies to stimulate increased private sector R&D investment. Total R&D funding of Organization for Economic Cooperation and Development (OECD) member countries, largely advanced industrial nations, rose 79% between 1997 and 2007; among developing countries the growth has been markedly higher during the same period (e.g., roughly doubling in Argentina and Romania; tripling in Russia, Israel, Singapore, and Chinese Taipei (Taiwan); and rising more than sevenfold in China). The United States leads the world in both total national R&D and in government R&D funding. The U.S. federal government accounts for approximately one-third of the world's government-funded R&D and substantially more than any other nation—more than four times as much as either of the next two largest funders, Japan and China. In 2007, U.S. government funding for R&D was $105.6 billion in current purchasing power parity. And while industry provides the vast majority of funding for development, the federal government leads in the funding of basic research (57%) and plays a substantial role in funding applied research (32%). Funding for basic and applied research provides a fundamental knowledge base that supports technological innovation and the development of new and improved product and services. Through its investments, the federal government supports a broad range of scientific and engineering R&D. Its purposes include addressing specific concerns, such as national defense, health, safety, the environment, and energy security; advancing knowledge generally; developing the scientific and engineering workforce; and strengthening U.S. innovation and competitiveness in the global economy. Most of the R&D funded by the Federal government is performed in support of the unique missions of the funding agencies. Four mission agencies—the Department of Defense, National Institutes of Health, NASA, and Department of Energy—account for more than 90% of federal R&D funding. There has been broad, long-standing support across party lines for a strong federal role in providing funding for basic and applied research and creating a policy environment that facilitates innovation. Vannevar Bush's report, Science: The Endless Frontier , to President Harry S Truman is widely viewed as establishing the framework for federal research investment after World War II. At the time, federal R&D was focused largely on national defense (81% in 1949). The report responded to a letter from President Franklin D. Roosevelt seeking recommendations on how research and the research infrastructure established to support America's war effort could be "profitably employed in times of peace." In his response, Vannevar Bush laid out a framework that reaffirmed the essential role of scientific progress in meeting the nation's economic, national security, and social needs; the propriety of the federal role in supporting research; and the need to preserve freedom of inquiry among academic researchers. Specifically, the report asserted "The Federal Government should accept new responsibilities for promoting the creation of new scientific knowledge and the development of scientific talent in our youth." A key recommendation of the report led to the formation of the National Science Foundation in 1950 to undertake these responsibilities. While World War II drove the first major wave of federal R&D funding, subsequent national challenges—the Cold War, Space Race, environmental protection and stewardship, the energy crisis of the early 1970s, and improving health and defeating diseases—have driven increases in and changes to the composition of the federal R&D budget. In the late 1970s, U.S. industrial competitiveness and technological leadership rose to national prominence with the ascent of Japan as a formidable industrial competitor. More recently, concerns have risen over the rapid emergence of China and India, and their rising scientific and technological capabilities, as well as over competitive pressures from other industrialized nations, both those with broad capabilities and those with expertise in niche fields. Analysis "Investing in research" has been a long-standing federal policy that has enjoyed widespread support across the political spectrum, broadly speaking. A testament to this consensus is the growth in the federal R&D investment over the past 60 years: to wit, federal outlays for R&D were more than 20 times higher in 2009 than in 1949, in constant dollars. Nevertheless, there have been and continue to be contentious issues related to the federal R&D investment. With respect to the appropriate size of the investment, many have argued for substantial increases to address national economic and societal needs. Emblematic of the consensus for increased investment, President Obama, President George W. Bush, and Congress have all sought to double funding over 7 to 10 years for selected agencies that conduct physical sciences and engineering research. In addition, President Obama has set a national goal for R&D investment of 3% of the nation's gross domestic product which would likely require substantial increases in both government and industrial funding. However, even among those who are generally supportive of a strong federal role in research, some have opposed this accelerated growth due to current economic conditions and budget pressures. Others have expressed concerns about the rapid pace of development in emerging areas of science and technology that offer the potential for revolutionary advances, such as nanotechnology and biotechnology, due to the potential for unintended societal effects, including unknown environmental, health, and safety hazards and risks. Some holding this perspective have called for slowing the pace of research until such concerns have been addressed; others have called for a moratorium. Other areas of divergent views include how to allocate funds among: basic research, applied research, and development; scientific and engineering disciplines and multidisciplinary research; "Big Science" projects requiring substantial and sustained investments and smaller, investigator-driven research projects; universities, companies, non-academic research organizations, and federal laboratories; low-risk, incremental advances in knowledge and high risk, high reward transformational research; mission-related research and general advancement of knowledge; and well-established universities and less well-established ones. Still other areas of disagreement relate to whether to seek to achieve greater geographical balance in federal R&D funding, whether to pursue research focused on addressing problems whose existence is in dispute (e.g., climate change), and whether to coordinate research activities with other nations and under what conditions. An ongoing issue of great contention is the use of federal research funding to advance technology with commercial applications, especially with respect to the funding of for-profit companies. One set of arguments in opposition to such efforts, which generally characterize such activities as "industrial policy," includes the inability and/or inefficiency of the government in making such decisions; the supplanting of the judgment of the market and dampening of market signals; and the role of politics in the selection of technologies, companies, and/or industries for favored treatment. A second thrust in opposition to this type of funding, generally referred to as the "corporate welfare" argument, is that such an approach forces individual taxpayers to subsidize companies (including sometimes highly profitable, large, multinational corporations) for the benefit of shareholders. President Obama's R&D funding record with respect to regular annual appropriations has been one of small increases (and perhaps cuts when adjusted for current dollars). The President's FY2010 R&D request was 0.4% above the estimated FY2009 appropriation; his FY2011 request for R&D was 0.2% greater than the estimated FY2010 appropriation. However, analysis of President Obama's R&D funding record is complicated by the American Recovery and Reinvestment Act (ARRA, P.L. 111-5 ). ARRA provided billions of dollars of R&D funding to multiple agencies, some with the authority to spend it in FY2009 and beyond. Approximately $18.2 million of ARRA R&D funds were allocated for FY2009; the President's FY2011 budget provides no estimate of ARRA R&D funding for FY2010 or beyond. The President's National Security Strategy states that the Administration achieved "the single largest infusion to basic science research in American history," but provides no further details. This statement may refer to the $13.3 billion in FY2009 ARRA funding that the Administration has characterized as research (both basic and applied). The President's National Security Strategy also asserts the need to reverse "the decades-long decline in federal funding for research." However, data from the National Science Foundation and the Office of Management and Budget does not support the existence of such a trend. Table 1 shows compound annual growth rates for federal outlays for R&D and for federal research expenditures for the 10-year, 20-year, and 30-year periods preceding the election of President Obama. The figures are calculated for both current dollars and constant 2000 dollars. In each period, for both R&D and research alone, the compound annual growth rates are positive. Concerns about flat or declining federal funding for physical science and engineering research led to calls from leaders in industry and academia to substantially bolster funding. In 2006, President Bush initiated, as part of his American Competitiveness Initiative, an effort to double research funding for the National Science Foundation, the Department of Energy's Office of Science, and the National Institute of Standards and Technology laboratories. These agencies were chosen, in part, because a substantial portion of their research portfolios is focused on the physical science and engineering disciplines. President Obama, in his A Strategy for American Innovation, adopted the same objective and target agencies, proposing agency funding levels in FY2010 and FY2011 toward completing the doubling effort in 2017. The actual FY2010 funding increase for these agencies was 4.3%, below the 7.2% rate required annually to achieve a 10-year doubling. There are also issues related to how effective increases in federal research funding may be in stimulating U.S. economic growth and job creation. First, historically, the time required to conduct basic research and translate the knowledge into new products has been measured in decades. Thus, while these investments may be critical to long-term scientific, technological, and industrial leadership, investments in research are generally unlikely to produce near-term commercial results. Second, the conditions that facilitated the United States' ability to reap the benefits of federal research have changed significantly over time. After World War II, the United States dominated global R&D. As late as 1960, the United States accounted for more than 69% of global R&D; federal funding alone accounted for 45% of global R&D. Accordingly, the R&D investments of the Federal government could drive global technology development pathways, and American companies—as well as the U.S. economy and workers—were generally the first to benefit. Today, the Federal government accounts for about 10% of global R&D, not because the federal investment has declined in absolute terms, but because other public and private investors around the world have grown at a faster pace. As new competitors emerged around the globe, many have been aggressive in accessing the results of the U.S. federal research investment which is largely performed in the open and available to all. Digitization of this research has expanded its accessibility and may have further eroded its unique value to U.S. companies. Third, U.S. firms have more options than ever as to where to conduct work and locate production. Thus, even U.S. companies that are successful in translating the knowledge generated by federal research investments into products may opt to conduct related activities—such as design, engineering, manufacturing, and support—in locations outside of the United States. In the post-WWII era, these activities would have been more likely to occur within U.S. borders, creating economic growth and jobs in the U.S. economy. While federal investment in research may be required for retaining U.S. scientific, technological, and industrial leadership and for generating economic growth and jobs, it may be insufficient in this regard in the absence of other policies affecting the relative attractiveness of the United States for the conduct of innovation, production and related work. Transforming the Energy Economy132 The 2010 National Security Strategy characterizes a national reluctance to move away from fossil fuels as leading to energy dependence which is likely to undermine both our national security and economic prosperity. The NSS suggests that there is a "window of opportunity" available, which the United States could take to become the world leader in clean energy technologies and production. According to the Strategy , if the United States waits, and allows other nations to take the lead, the likely result is that the country will have to import these technologies and products later (possibly from China). The NSS sees multi-faceted benefits to be derived from the clean energy approach, including economic growth and job creation, cutting greenhouse gas emissions, reducing our vulnerability to energy supply disruptions and manipulation, as well as enhanced energy efficiency and other benefits. The NSS recognizes that this fundamental transformation of our energy portfolio will take time, and encourages the use of fuels considered to be "transitional" as investment in next-generation clean technologies proceeds. Context The economic infrastructure of the United States is currently structured to run on fossil fuels. Air and ground transportation depend largely on gasoline, diesel, and jet fuel, all derived from crude oil. Electricity generation is largely fueled by coal and natural gas. Home heating is largely dependent directly on natural gas and other fossil fuels, or indirectly through electricity. The industrial sector relies on fossil fuels as a raw material, and to fuel industrial processes. The infrastructure to produce, transport, and deliver these fuels to consumers represents a large capital investment. Because of the linkages between U.S. economic activity and fossil fuel use, volatility in either fuel prices or availability can have consequences for macroeconomic activity, including employment, inflation, growth and the international trade balance. In addition, use of these fuels has been associated with a variety of external costs, such as climate change. Crude oil prices have been volatile over the period 2008-2010. The price of oil reached a peak of over $142 per barrel in July 2008, and declined to less than $40 per barrel by January 2009. These price variations represent a more than 70% change in price during a seven-month period. In 2010, oil prices have varied between a low of approximately $70 per barrel and a high of approximately $85 per barrel. In 2010, the United States consumed more than 19 million barrels per day of crude oil-based products with about 30% of the crude oil produced domestically and the remainder imported. Although the United States has not been subject to supply disruptions over the 2008-2010 period, economic growth in China, India, and other emerging nations has resulted in tight market conditions with little available world excess capacity that in the past has tended to stabilize the market. High oil prices, in conjunction with a large import requirement have contributed to the U.S. international trade deficit, and represent an economic cost to the nation, even though supply disruptions have not recently been costly to the economy. Since the 1970s, oil markets have been subject to potential supply disruption because of international political problems. For example, Nigerian rebels periodically disrupt Niger delta oil shipments. The issue of Iran's possible development of nuclear weapons threatens to disrupt oil supplies from the Persian Gulf should military conflict develop. The uncertain security conditions in Iraq have impeded that nation from developing its full oil export capabilities. Coal production is almost entirely domestically sourced in the United States. Prices have been variable, but do not exhibit the same degree of volatility as crude oil prices. Coal has become associated with the problem of controlling carbon dioxide gas emissions and the issue of climate change. Natural gas is viewed by many analysts as the key transition fuel in the NSS's vision of a renewable energy future. The economic conditions in the natural gas market are favorable for consumers, but they are uncertain for producers. New discoveries of shale containing natural gas, and other non-conventional supply sources, along with economically viable technologies for recovery, have increased domestic production and reserves. Producers of natural gas have faced weakening prices as supply has increased without large observed increases in demand. Historically, the natural gas market has generated cycles, with periods of low prices and ample supplies followed by much higher prices and reduced availability. Analysis Transition of the U.S. energy economy to a clean energy, renewable fuels portfolio is likely to be a large project with economic gains and losses, requiring capital investments, a long lead time, and a fundamental reassessment of many products and infrastructure elements. Even with the availability of government-financed research and technology development and the environmental factors envisaged in the NSS, the transition will ultimately be subject to a market test appraising the economic viability of new investments and energy sources as they compete against fossil fuel alternatives. A key factor in assessing the likelihood of an energy transition as proposed in the NSS is the substitutability of energy sources in a wide variety of final uses. For clean energy technologies to be adapted, it would be beneficial if the transition could be accomplished maximizing the use of existing infrastructure and final consumption goods. Within any given energy sector, the less substitutable and less able to use existing infrastructure a new energy source is, the more costly and time consuming the transition is likely to be. For example, in the automobile and light truck transportation sector, which accounts for almost half of U.S. crude oil consumption, gasoline is the key fuel. A large infrastructure of refineries, pipelines, and service stations exist to supply product to the market. Recently, ethanol has been added to gasoline, requiring separate handling facilities, but still utilizing the same final consumer distribution system. Replacement of gasoline, either by a transition fuel, [natural gas based fuels are already being proposed to replace diesel fuel in trucks], would require a new, large-scale distribution system providing convenient access for consumers, and running parallel to the existing system. A later transition, to perhaps an electricity-based system, would make the existing oil-based infrastructure largely obsolete. On the consumer side, only limited possibilities for the conversion of the existing fleet of vehicles to alternative fuels exist. Due to the large automobile fleet and its relatively slow turn-over, it likely to take a number of years for the gasoline powered automobile/light truck fleet to be transformed to renewable energy based fuels. Electricity generation could use the existing infrastructure as long as energy transition implies simply burning different fuels at the existing centralized generating plants. The barriers in that case are largely a national policy choice: should the United States draw on its large coal reserves, or cut back on domestic mining with the attendant implications for employment in the that sector? A more decentralized electric generating system, perhaps based on solar energy, would, as in the case of the oil industry, make capital investments in generating facilities largely redundant. Jobs will very likely be created in both the transition to, and the achievement of a clean, renewable energy future. However, it is also likely that jobs will be lost in the traditional energy industries. Whether these gains and losses will offset each other, or favor one side or the other is unknown. Also unknown is whether the new jobs created will be higher or lower paying jobs than the ones they supplant. In addition, the skill requirements and locations of the new and old energy industry jobs will likely differ, making it less likely that actual individuals who lose a job will be able to find a job in the clean energy industry. To the extent that clean, renewable energy sources also implies domestic sourcing, key cost elements may decline. The cost of imported oil and petroleum products attained a yearly historic peak of over $400 billion in 2008, and is projected to reach approximately $181 billion in 2010. Reducing gasoline usage will decrease these totals. In addition, some analysts tie a share of the U.S. defense budget to securing oil supplies. To the extent that reducing, or doing away with, this responsibility scales back the required military force, the actual savings may exceed the reduced cost of oil imports. A key benefit from the transformation of the energy economy to cleaner fuels is likely to be the reduction in carbon emissions. Fossil fuels, to one degree or another, all necessarily emit carbon. The carbon can be captured, and other pollutants can be treated, but all at a cost. Using fuels that do not emit significant amounts of carbon while achieving similar levels of performance is a more direct way to confront climate change issues. Past experience with government leadership in energy transition has not resulted in the desired level of success. Subsidies for shale oil, solar energy, and other alternatives have so far generally not resulted in products that met the market test. Perhaps the consumer outlook concerning the broad scope of costs associated with petroleum use, beyond the high out-of-pocket costs will create an environment in which a transition might be more feasible. Space Capabilities142 The 2010 NSS states that U.S. space capabilities underpin global commerce and scientific achievements and bolster our national security strengths and those of our allies and partners. These points were detailed earlier in the Obama Administration's National Space Policy (NSP), issued in June 2010. To maintain these benefits to global commerce and scientific achievement, the NSS calls for investments in space technology R&D, strengthening the space industrial base, and collaboration with universities to encourage students to pursue space-related careers. For the first two of these goals related to space technology R&D and the space industrial base, the NSP directs federal departments and agencies to strengthen U.S. leadership in space-related science, technology, and industry by conducting basic and applied research, encouraging the commercial space sector, and ensuring the availability of space-related industrial capabilities. Specifically, it directs the Secretary of Defense, the Director of National Intelligence, and others to "reinvigorate U.S. leadership by promoting technology development, improving industrial capacity, and maintaining a robust supplier base." The goals of investing in technology R&D and strengthening the industrial base are also consistent with proposals in the Administration's FY2010 budget for the National Aeronautics and Space Administration (NASA), such as increased NASA funding for space technology development rather than specific flight missions, and a new initiative to help industry develop commercial crew launch services. Because significant national security capabilities are provided by commercial space assets, some national security analysts have expressed concern over the state of the U.S. space launch industry and other factors affecting access to space for commercial satellites. The NSS does not specifically mention commercial access to space, other than its general references to space capabilities and the space industrial base. Although the NSP mentions this issue, analysts have criticized that policy document for lacking an "executable strategy" to address the problem. This is not a new concern, however. The same analysts note that the NSP's commercial space guidelines are "almost verbatim" those of the previous Administration's policy. The third space goal articulated by the NSS, encouraging students to pursue space-related careers, is less clearly aligned with the new NSP. The National Space Policy directs departments and agencies to "develop and retain space professionals," but its discussion of this point focuses mostly on the current space workforce. Although it mentions public-private partnerships to foster education in science, technology, engineering, and mathematics (STEM), it makes no reference to universities. At present, congressional attention to space workforce policy is focused primarily on the end of the space shuttle program, the proposed termination of NASA's Constellation program, and the impact of these changes on the existing workforce. An Administration budget amendment in June 2010 proposed transferring $100 million from NASA to the Departments of Commerce and Labor "to spur regional economic growth and job creation along the Florida Space Coast and other affected regions." In light of these concerns about the future of the existing space workforce, some analysts might question the focus in the NSS on encouraging additional university students to choose space-related careers. The NSS additionally identifies U.S. space capabilities as critical to U.S. national security interests. In order to promote security and stability in space, the NSS also states that the United States will pursue activities consistent with the inherent right of self-defense, deepen cooperation with allies and friends, and work with all nations toward the responsible and peaceful uses of space. These objectives were largely in place from the George W. Bush and even earlier Bill Clinton era space policies, although most analysts argue that the tone of the Obama NSP stresses greater international cooperation on all these issues. The Obama Administration reaffirmed long-standing policy that the United States would employ a variety of measures to assure the use of space for all responsible parties and, consistent with the right of self-defense, continue to protect U.S. assets and interests in space as essential to U.S. national security interests. Some of the activities identified in the new NSP designed to strengthen stability in space include pursuing domestic and international measures to promote safe and responsible operations in space, improving information collection and sharing to avoid collisions with objects in space, seeking ways to enhance the protection of critical space and information systems, and strengthening measures to mitigate orbital debris. Many of these efforts are in place or underway throughout the U.S. national security space environment. In particular, the Administration is looking to lead continued development and adoption of international and industry standards designed to minimize orbital debris, such as through the UN Space Debris Mitigation Guidelines. Additionally, the NSP states the United States will continue its own efforts to conduct research, and develop technologies and techniques to deal with the challenges and threats to U.S. national security assets posed by orbital debris. Finally, the Administration is looking to enhance collaboration even further between the Department of Defense, the intelligence community, NASA and other U.S. agencies, as well as industry and foreign nations to improve global understanding of the threat to all in space posed by orbital debris and to seek ways to deal with that problem. Another emphasis is the Obama Administration's stated interest in space-related arms control measures that it argues would be equitable, effectively verifiable, and enhance the national security of the United States and its allies. Arguably, this differs from the Bush Administration approach that stated the United States would not accept limitations on U.S. freedom of action in space. Beyond some potential arms control measures such as those mentioned above regarding orbital debris, there does not appear to be any broad or overarching arms control measure being seriously considered by the Administration. In fact, despite some stated Administration support for a proposed UN Prevention of an Arms Race in Space agreement, for example, the Obama Administration has refrained from voting for such resolutions when the opportunity has presented itself. Neither has the Administration indicated specifically whether it will support the space arms control treaty introduced by Russia and China at the 2008 Conference on Disarmament. Some have suggested instead that various 'codes of conduct' or 'rules of the road' type agreements might be worth pursuing and possible in the current environment. Globalization, Trade, Finance, and the G-20 The U.S. economy and national security depends greatly on what happens in countries and economies in the world at large and on the financial impact of trillions of dollars that flow through international foreign exchange markets each day. The Global Financial Crisis demonstrated strongly how interconnected the economies of the world have become and how quickly conditions in one market can be transmitted across the U.S. economy and across the oceans to Europe, Asia, and Latin America. Imbalances in trade and capital flows, undervalued exchange rates, and government intervention into markets all can affect wealth accumulation, economic strength, and military power. U.S. national security also is affected by perceptions of the United States in other countries and by ideas and philosophies that drive policy in nations around the world. Some analysts have identified the clash of civilizations as a key source of conflict, while threats posed by non-state, militant Islam terrorists command more and more military, diplomatic, and law enforcement resources. U.S. security may be enhanced by targeting causes of unrest abroad, particularly poverty, human rights abuses, and dictatorial governments. Improving human rights, especially the status of women, has been shown to go hand-in-hand with the development of democracy. The nexus between democracy and peace, though frayed, still seems to exist, even though experience has shown that democracy cannot simply be parachuted into a country without supporting cultural and political institutions. In these respects, U.S. economic assistance and diplomatic outreach come into play. In this section of this report, we address the international economic side of national security by focusing on six large issues. They are instability in the global economy, savings and exports, opening markets abroad, increasing domestic demand in China, building cooperative arrangements with international partners, deterring threats to the international financial system, and human rights and democracy. Instability in the Global Economy156 The global financial crisis of 2008-2009 left such a path of destruction that the leading nations of the world have vowed to take measures to preclude a repeat of the disaster. The financial crisis also demonstrated the close connections and interdependence among world financial markets, national economic activity, the well being of people, and the balance sheets of governments, businesses, and households. It also highlighted the systemic failures that can occur when regulations do not account for new financial instruments or practices and oversight becomes lax. It also exposed the dangers existent when financial firms package and trade risky assets and provide insurance against those risks without adequate capital reserves. The costs of the financial crisis have been enormous. These include a synchronous global recession that spread from the United States to Europe and Asia, a global increase in unemployment of an estimated 34 million persons between 2007 and 2009 (including more than 7 million in the United States), a loss of nearly one-third of global wealth (with some recovery in securities markets since 2008), and widespread disruption caused by home foreclosures, bankruptcies, and budgets in deficit at both state and central government levels. In 2009, Dennis Blair, the Director of U.S. National Intelligence, stated that the global financial crisis and its geopolitical implications pose, "the primary near-term security concern of the United States." In addition, he said, "The longer it takes for the recovery to begin, the greater the likelihood of serious damage to U.S. strategic interests." The United States and other leading countries of the world have taken many measures, and are considering additional ones, aimed at reforming their respective financial sectors and strengthening international financial institutions. Although the recession officially has ended, the industrialized economies still are faced with growth rates too low to generate a sufficient number of jobs to lower the rate of unemployment and must contend with severe constraints on their ability to pursue stimulative monetary and fiscal policies. The debt crisis in Greece in the spring of 2010 followed by a similar crisis in Ireland in the fall of 2010 again roiled financial markets. They exposed the fragility of the economic recovery in the northern industrialized countries and demonstrated how quickly instability can be transmitted from one country to another. The contagion and simultaneous downturn in major economies of the world can be seen in Figure 7 . Even China experienced a slowdown in growth, although it did not fall into recession. This financial crisis was caused primarily by a bubble in housing prices, excess borrowing and leveraging by almost all sectors of the economy, and arguably insufficient regulation and oversight of new financial instruments and practices. The process for coping with the crisis by countries across the globe has been manifest in four basic phases. The first has been intervention to contain the contagion and restore confidence in the system. The second has been coping with the secondary effects of the crisis, particularly the global recession and flight of capital from countries in emerging markets and elsewhere that have been affected by the crisis. The third phase has been to make changes in the financial system to reduce risk and prevent future crises. The fourth is dealing with political, social, and national security effects of the financial turmoil. For Europe, the fear is that the sovereign debt crises in Greece and Ireland may put those countries back into phase one. The role for Congress in response to this financial crisis is multifaceted. While the initial focus was on combating the recession and on regulatory reform, the ultimate issue seems to be how to ensure the smooth and efficient functioning of financial markets to promote the general well-being of the country while protecting taxpayer interests and facilitating business operations without creating a moral hazard. In addition to preventing future crises through legislative, oversight, and domestic regulatory functions, Congress also provides funds and ground rules for economic stabilization and rescue packages and informs the public through hearings and other means. Congress also plays a role in measures to reform the international financial system, in recapitalizing international financial institutions, such as the International Monetary Fund, in replenishing funds for poverty reduction arms of the international development banks, and in providing economic and humanitarian assistance to countries in need. In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act and several other measures dealing with financial reform and amelioration of the impact of the recession. These measures sought to address issues such systemic risk; Federal Reserve emergency authority; resolution (bankruptcy) regime for failing firms; securitization and shadow banking (banking functions being done by non-banks); consolidation of bank supervision; consumer financial protection; derivatives; credit rating agencies; investor protection; hedge funds; executive compensation and corporate governance; insurance; extension of unemployment benefits; cash for clunkers (automobiles); mortgages; and international financial institutions. At the international level, the G-20 (Group of Twenty) and the Financial Stability Board have been both coordinating reforms and providing an opportunity for heads of state to show their support for actions. The International Monetary Fund also has increased its focus on global systemic stability, while the World Bank has worked to alleviate poverty around the world, provide trade and microfinance, and reform its governance to increase representation for emerging market economies. Some of the issues to watch that are related to traditional national security include political turmoil as unemployment rates remain high and anti-incumbency sentiments intensify; attempts by countries to shift the burden of recession to trading partners by protecting domestic markets from imports or manipulating exchange rates to favor their exports; and severe fiscal restraints on central governments that cause them to reduce support for multinational counter-insurgency or peace keeping efforts. An issue that increasingly is likely to impinge on U.S. national security is the enhanced presence of China in the global economy. China emerged from the financial crisis even stronger relative to countries in neighboring Asia, North America, and in Europe. With over $2 trillion in foreign exchange reserves, a growth rate of around 9%, a banking system relatively unharmed by the bursting of the mortgage bubble, virtually no national debt, a currency still tied primarily to the dollar, and confident that its hybrid, state-led model of development is superior to that of the West, China has become more self-assured in international affairs and more aggressive in its military activities. Savings and Exports162 The 2010 NSS makes a direct connection between the rate of saving in the U.S. economy as a whole and the growth of exports as a key component in job creation and economic security. The NSS states that reducing the imbalance between U.S. consumers buying and borrowing and other countries exporting and accumulating U.S. claims means "saving more and spending less, reforming our financial system, and reducing our long-term budget deficit." As a result of these changes, the NSS concludes that the nation will experience, "a greater emphasis on exports that we can build, produce, and sell all over the world, with the goal of doubling U.S. exports by 2014." The goal of this renewed emphasis on exports, according to the NSS, is that of an employment strategy, "because higher exports will support millions of well-paying American jobs…." Context The financial crisis of 2008-2009 spurred most advanced economies to adopt fiscal stimulus measures to shore up their economies and prevent a sharp rise in the rate of unemployment. While these efforts averted an economic free-fall, the large increase in government debts has rattled international capital markets and sparked calls for a major rebalancing in saving and consumption among the major economies. Financial turmoil in Greece, Ireland, and in other European countries has placed increased pressure on national governments to adopt austerity measures to satisfy credit markets. At the same time, most advanced economies are navigating a fine line between fiscal austerity, on one hand, and maintaining public support to forestall a slip back into recession, on the other. Given this clash of policies, some governments are promoting exports to spur their economies instead of relying on fiscal stimulus measures to boost domestic consumption. It is impossible, however, for all governments to increase their exports in order to raise their rate of economic growth, since exports imply that some countries must import. Also, the determination to increase exports has increased pressure on exchange rates and raised concerns over the prospects that nations will engage in competitive devaluations of their currency to make their exports more price competitive in international markets. Analysis The relationship between exports, employment, and national savings is complicated. Trade and its impact on labor and wages in the economy generates much debate. On one hand, there are those who extol the benefits of free trade and argue in favor of a free and open trading system. On the other hand, some argue that foreign trade, principally imports, destroys jobs, undermines communities, and reduces the standard of living for many Americans. Basically, trade represents an exchange of goods or services between two or more willing parties. Economic theory holds that such trade allows nations to use their resources in the most efficient way possible in order to maximize the total amount of goods and services that are available to their citizens, a common definition of a nation's standard of living. As a result of this maximization process, it is thought that nations trade because it serves their national interests. In the same way that individuals gain by specializing in activities that use their strongest skills and then trade with others, nations specialize in the production of certain goods and then trade with other nations for the goods they do not produce. Essentially, nations export in order to import goods and services they do not produce, or cannot produce efficiently. Most economists maintain that trade increases total welfare by spurring changes in the productive processes of the economy that make production more efficient and it increases the amount and variety of goods and services that are available to consumers. Economic theory argues, however, that the total number of jobs in the economy and the level of wages are determined primarily by the macroeconomic environment and not through trade, although trade can add to the rewards for labor, if that is a nation's abundant factor of production. This means, though, that for an economy such as the United States, trade alone is not seen as determining the level of wages, the level of output, or the level of employment and, therefore, does not serve well as a jobs creation program. In the current highly globalized economy, trade has come to represent a complex set of transactions. Nations not only trade goods and services, but they also trade a broad range of financial products. In addition, liberalized capital flows and floating exchange rates have greatly expanded the amount of capital that flows between countries. As a result of these financial transactions, nations that have a surplus of saving can lend that excess saving to nations with deficient saving, closely linking national economies. In the U.S. economy, foreign capital inflows play an important role by bridging the gap between domestic supplies of and demand for capital. Capital inflows help keep U.S. interest rates below the level they would reach without them, and they allow the nation to spend beyond its current output, including financing its trade deficit. Another aspect of capital mobility and capital inflows is the impact such capital flows have on the international exchange value of the dollar. Demand for U.S. assets, such as financial securities, translates into demand for the dollar, since U.S. securities are denominated in dollars. As demand for the dollar rises or falls according to overall demand for dollar-denominated assets, the value of the dollar changes. These exchange rate changes, in turn, have secondary effects on the prices of U.S. and foreign goods, which tend to alter the U.S. trade balance. The prominent role of the dollar means that the exchange value of the dollar often reacts to economic and political news and events across national borders. While the global role of the dollar helps facilitate a broad range of international economic and financial activities, it also means that the dollar's exchange value can vary greatly on a daily or weekly basis as it is buffeted by international events. A triennial survey of the world's leading central banks conducted by the Bank for International Settlements in April 2010 indicates that the daily trading of foreign currencies through traditional foreign exchange markets totals $4.0 trillion, up from the $3.3 trillion a day reported in the previous survey conducted in 2007. In addition to the traditional foreign exchange market, the over-the-counter (OTC) foreign exchange derivatives market reported that daily turnover of interest rate and non-traditional foreign exchange derivatives contracts reached $2.5 trillion in April 2010. The combined amount of $6.5 trillion for daily foreign exchange trading in the traditional and OTC markets is nearly half the size of the annual U.S. gross domestic product (GDP) and more than three times the annual amount of U.S. exports of goods and services. The data also indicate that 85% of the global foreign exchange turnover is in U.S. dollars. Increasing the rate of saving in the U.S. economy can be supported by any number of policy objectives, but it is not necessarily a path to a higher level of employment. By increasing the amount of domestic saving in the U.S. economy relative to the level of demand for those funds, the economy would be less reliant on foreign capital inflows. In turn, a lower level of demand for foreign capital would lower demand for the dollar, thereby reducing pressure on the international exchange value of the dollar. As the dollar would weaken in international markets, U.S. exports would become more price competitive, which would tend to shift production and employment in the economy towards the production of export goods. Such a shift in employment most likely would not add to the total number of jobs in the economy, but would represent a shifting of the existing jobs toward the export goods sectors. Increasing saving in the economy and reducing the inflow of foreign funds may also ease the concerns of those who argue that the exposure to foreign holdings of U.S. assets increases the overall risks to the economy should foreign investors decide to withdraw from the U.S. financial markets for political or economic reasons. Boosting Domestic Demand Abroad167 The 2010 National Security Strategy states the need for greater domestic demand abroad, especially in some emerging and developing countries, in order to help achieve the goal of more balanced global economic growth and to generate new opportunities for U.S. producers of goods and services. Such rebalancing is also considered critical to preventing a repeat of the global economic crisis that was largely sparked by global imbalances in savings, investment, and trade flows. In particular, nations with high savings rates (which are especially concentrated in Asia) are seen as needing to lessen their reliance on exporting for GDP growth and instead rely more on domestic consumption. The Role of China The largest key to generating greater domestic demand abroad lies in China. As the world's most populous nation, second largest economy, biggest holder of foreign exchange reserves, and largest merchandise exporter, China plays a central role in the goal of achieving more balanced economic growth and creating new sources of external demand for the U.S. economy and for U.S. goods and services. Chinese economic policies are viewed by many as a significant cause of the global imbalances. To illustrate: Gross savings are the total level of domestic savings, including private, corporate, and government. Savings represents income that is not consumed or spent by businesses. Over the past several years, the United States has maintained one of the world's lowest gross savings rates (i.e., total national savings as a percent of GDP), while China has maintained one of the world's highest national savings rates. From 1990 to 2009, U.S. gross national savings as a percent of GDP declined from 13.5% to 8.7%, while China's rose from 37.8% to 50.5%. The United States does not save enough to fund its investment needs and must borrow from abroad, while China has excess savings relative to its investment needs. In 2008, the ratio of U.S. gross domestic savings to gross investment was 66.9%, the lowest among the world's major economies. On the other hand, the ratio for China was 122.2%, one of highest among major economies. Nations that do not save enough to meet domestic investment run current account deficits and those that save more than they need for domestic investment run current account surpluses. In nominal dollar terms, the United States had the world's largest current account deficit at $706 billion in 2008, while China had the world's largest current account surplus at $426 billion. These balances were also significant as a share of GDP: 9.6% for China and -4.9% for the United States. Until very recently, domestic private consumption has been the dominant contributor to U.S. GDP growth. In 2008, private consumption as a percent of GDP was 70%, the highest among the major world economies. Private consumption as a percent of GDP for China was 35.3%, among the world's lowest. Analysis by the International Monetary Fund estimated that fixed investment related to tradable goods plus net exports together accounted for over 60% of China's GDP growth from 2001 to 2008, (up from 40% from 1990 to 2000). This was significantly higher than that in the G-7 countries (16%), the euro area (30%) and the rest of Asia (35%). Many economists contend that China's economic policies have favored sectors producing tradable goods at the expense of other domestic sectors, which led to over-investment in many industries and suppressed domestic consumption. For example, China's central bank heavily intervenes in foreign exchange markets to limit the appreciation of its currency, the renminbi (RMB) or yuan against the dollar and other major currencies. This policy makes Chinese exports cheaper, and foreign imports into China more expensive than they would be if market forces determined the exchange rate of the RMB. Such policies have led China to become the world's largest holder of foreign exchange reserves at $2.5 trillion through June 2010, a large share of which (some estimate around 70%) is in U.S. dollar assets. Rather than just hold onto dollars that earn no interest, China has invested a large share of these holdings in U.S. securities, especially U.S. Treasury securities which are used to fund U.S. budget deficits. China is the largest holder of U.S. Treasury securities, estimated at $844 billion as of June 2010. Many analysts contend that Chinese large-scale investment in the United States contributed to artificially low real U.S. interest rates that in turn led to the U.S. housing bubble and subsequent global financial crisis and economic slowdown. Will China Change its Economic Growth Model? China's economy was hit hard by the global economic slowdown, especially its export sector where over 20 million people were estimated by the government to have been laid off. The Chinese government responded with a $586 billion economic stimulus program that was largely focused on infrastructure development as well as loose monetary policies to boost bank lending in order to boost domestic demand. These policies appear to have been successful in the short-run. While many of the world's largest economies fell into recession in 2009, China's was able to maintain fairly healthy economic growth, with real GDP growth at 9.1% in 2009 (although down from 13% in 2007) and an estimated 10.1% in 2010. Chinese officials have stated that these measures represent a long-term commitment by the government to rely more on domestic consumption as a source of GDP growth and less on exporting. It has stated plans to further improve infrastructure, boost education spending, improve energy efficiency and reduce pollution, and develop a comprehensive social safety net, For example, in April 2009, the government pledged to implement a three-year, $124.4 billion, plan to begin the establishment of universal health care plan to be in place by 2020. However, some remain skeptical of China's willingness to eliminate its export-oriented economic policies. For example, in June 2010, the Chinese government announced it would allow its currency to gradually appreciate against the dollar and other currencies, a policy that was implemented from July 2005 to July 2008 (when the RMB was allowed to rise by 21% against the dollar) but was halted when the global economic slowdown began in mid-2008. Yet, the RMB has appreciated by only 0.6% from June though August 21, 2010. Some U.S. economists have charged that China's currency policy has forced other Asian economies to try to hold down the value of their currency against the dollar in order to compete against Chinese exports. This in turn, some contend, has diminished U.S. exports and has undermined global economic recovery. China, on the other hand, counters that its imports have risen faster than its exports during the first half of 2010 (year-on-year) and thus contends that Chinese demand is contributing to global economic economy. Chinese officials insist that their current trade policy is not meant to favor exports over imports but, instead, to foster domestic economic stability. They have expressed concern that abandoning their current policies, especially their effort to keep their currency from appreciating too rapidly, could further weaken their export industries and cause wide-scale layoffs. Chinese officials view economic stability as critical to sustaining political stability. China is currently the third largest U.S. export market. If China were to implement major economic reforms (such as to the banking system, its currency policy, and in terms of lowering trade barriers), it would likely stimulate domestic demand and produce healthy economic growth. Such growth would likely sharply increase Chinese domestic demand for goods and services related to consumption (as opposed to imports that are largely used by the export sector to make finished products), and thus would increase demand for foreign imports. Such policies could lead to significant improvements in Chinese living standards as well as those in the United States (because of increased exports). Open Foreign Markets to U.S. Products and Services171 According to the 2010 National Security Strategy , the Obama Administration aims to open foreign markets for U.S. goods and services by negotiating and enforcing multilateral agreements, in the form of "an ambitious and balanced Doha multilateral trade agreement," together with bilateral trade agreements that "reflect our values and interests," and regional arrangements with countries in the Trans-Pacific area. At the same time, according to the statement, the Administration will maintain open U.S. markets to foreign goods and services because they "force [U.S.] companies and workers to compete and innovate" and "at the same time, [have] offered market access crucial to the success of so many countries around the world." Open markets will be crucial to U.S. companies and workers, according to the NSS statement, as they strive to compete in an increasingly globalized world. While underscoring the benefits of open markets both abroad and in the United States, the Obama Administration's NSS acknowledges that some workers and firms confront adjustment costs in the face of increased foreign competition and that has undermined confidence in the benefits of trade agreements. In the NSS, the Administration argues that its domestic agenda to promote innovation, infrastructure development, healthcare reform, and education reform would assist workers and firms with the adjustments and help restore public confidence in open markets. The goal to "open markets to U.S. products and services" is closely related to the objectives "to achieve balanced and sustainable growth," including the one to "save more and export more," that are discussed elsewhere in this report. Analysis This NSS objective reflects mainstream economic theory—that open markets promote economic welfare—"prosperity"—through more efficient allocation of resources. It also acknowledges that the benefits from more open markets are not distributed evenly—some workers and firms may benefit while others "lose." The objective re-affirms basic U.S. trade policy employed by both Democratic and Republican Administrations since the 1930s. Over the years, this policy has contributed to building a multilateral framework under the aegis of the World Trade Organization (WTO), to liberalize and establish rules to govern trade in manufactured and agricultural goods and in services as well as some trade-related activities, among 153 economies. The policy has also led to the United States forming 11 free trade agreements (FTAs) with 17 trading partner countries. According to academic research, parties to trade liberalizing blocs and FTAs are less prone to disputes than other states, and hostilities between members are less likely to occur as trade flows rise between them. One study found that heightened commerce is more likely to inhibit conflict between states that belong to the same preferential grouping than between states that do not. The George W. Bush 2006 National Security Strategy stated that free trade agreements encourage countries to enhance the rule of law, fight corruption, and further democratic accountability. The Obama Administration's strategy in gaining market access for U.S. goods and services appears to be three-pronged: (1) to encourage/demand that trading partners fulfill commitments made under the WTO and FTAs to open their markets to U.S. exports; (2) to address outstanding concerns in agreements and negotiations pending from the Bush Administration and move them forward; and (3) to pursue new initiatives. Trade Enforcement During its first year, the Obama Administration's trade policy largely consisted of using U.S. trade laws to secure trading partners' adherence to commitments in multilateral trade agreements and in regional and bilateral trade agreements as a way to open foreign markets for U.S. goods and services and to protect U.S. firms and workers from foreign unfair trade practices. One of the most prominent examples concerned U.S. imports of tires from China. On September 11, 2009, President Obama made a determination under section 421 of the Trade Act of 1974, as amended, that passenger vehicle and truck tires from China were causing or threatening to cause market disruption for U.S. tire producers and ordered additional duties to be imposed on those imports for three years. It was the first time since the enactment of section 421 in 2002, as part of legislation to grant China permanent normal trade relations (PNTR) status, that a President has made such a determination. However, some U.S. trading partners have charged that the United States has not been fulfilling its WTO obligations because it has not complied with some adverse decisions in the WTO. These include WTO determinations that the U.S. practice of "zeroing" in calculating antidumping duties and U.S. subsidies on cotton violate WTO rules and agreements. The WTO has approved the right of trading partners to impose countermeasures, such as increased tariffs, in retaliation for U.S. noncompliance in those cases. Each countermeasure and retaliatory action further distorts international trade and adds to tensions that could spill over into political and security areas. Pending FTAs and Negotiations The Bush Administration completed negotiations on three FTAs—with Colombia, Panama, and South Korea—which had not received congressional consideration before the end of the Bush Administration. Each of the three FTAs were completed under the terms of the Trade Promotion Authority (TPA) before it expired on June 30, 2007, and therefore would be eligible for expedited (fast-track) congressional consideration. Concerns of some Members about violence against labor union leaders in Colombia, about Panamanian laws that encourage use of that country as a tax haven, and about market access in South Korea for U.S.-made cars and U.S. beef, among other issues, have held up congressional action on these agreements; and, therefore, they remained pending as the Obama Administration began its term. During its first year, the Obama Administration kept consideration of the pending trade agreements largely on the backburner, as recovery from the effects of the global financial crisis and economic downturn, health care reform and other issues dominated its economic agenda. In an apparent shift in strategy, President Obama, during his January 27, 2010, State of the Union address, expressed the need for the United States to strengthen its trade ties in Asia "with partners like South Korea" and also called for doubling of U.S. exports within five years. On June 26, 2010, President Obama announced that he would direct the U.S. Trade Representative, Ambassador Robert Kirk, to work with the South Korean trade minister to resolve outstanding issues on the KORUS FTA by the time President Obama and South Korean President Lee met again in Seoul in November 2010 for the G-20 summit. The President said that he intends "in the few months" after the November meeting to present Congress with the implementing legislation for the agreement. The President made the announcement at a joint press conference following his meeting with President Lee prior to the G-20 summit in Toronto. It was the Administration's first public indication of a timeline for consideration of any of the pending FTAs. On December 4, 2010, President Obama announced that U.S. and South Korean negotiators had reached agreement on modifications to the KORUS FTA and that he looked forward to working with Congress and leaders in both parties to approve the pact. The Administration has also expressed intentions to move on the Colombia and Panama FTAs, as outstanding issues are resolved. New Initiatives The Trans-Pacific Partnership Agreement (TPP) is a free trade agreement that includes nations on both sides of the Pacific. It currently consists of Brunei, Chile, New Zealand, and Singapore, but the United States, Australia, Peru, and Vietnam have committed to joining and expanding this group. President Bush had formally notified the 110 th Congress towards the end of his second term of his intention to begin negotiations with current and potential TPP member countries. However, U.S. participation did not seriously begin until November 2009 when President Obama committed the United States to engage with the TPP countries in order to construct a comprehensive free trade framework as a model for the 21 st century. The Administration aims to use the TPP to build ties with the Asian-Pacific region but also to create a comprehensive FTA template that would service U.S. economic interests in the 21 st century. Alternative Views Views on the value of trade liberalization and trade agreements sharply diverge In general those views reflect the fact that the benefits of trade liberalization are generally diffused throughout the economy, while the costs are concentrated on specific segments of the economy. Some recent opinion surveys suggest ambivalence, and perhaps a growing skepticism, among the American public regarding the impact of trade liberalization on U.S. economic welfare especially as they deal with the effects of the economic downturn. According to these surveys, a shrinking plurality regards trade liberalization in general as good for U.S. economic interests, but a majority believe that trade agreements per se cost American jobs. Views on trade liberalization vary among the major U.S. stakeholders in trade policy. In general, the U.S. business community has supported trade agreements, although some import-sensitive industries, such as textiles and apparel, have largely opposed them. The agriculture community largely supports them. U.S. labor in general has been skeptical on trade and has opposed most free trade agreements. Some non-governmental organizations, particularly those that serve poor countries, have opposed trade liberalization, while others view trade liberalization as an avenue to economic growth and development. Congress appears to reflect the public's ambivalence on trade policy much of the time. Ambivalence on trade appears to be especially evident in the House of Representatives. Over the years, support in Congress for trade liberalization, by some measures, seems to have declined. Skepticism on trade, especially among Democratic House Members is reflected in H.R. 3012 , the Trade Reform, Accountability, Development, and Employment Act of 2009 (TRADE Act of 2009), introduced in the House on June 24, 2009 and has 147 co-sponsors. The bill calls for a major review of some current FTAs and a halt to future negotiations pending a review of U.S. trade policy. Build Cooperation with International Partners180 The 2010 National Security Strategy views cooperation with international partners as a key component of achieving balanced and sustainable growth. In particular, the NSS emphasizes two areas of cooperation. The first is U.S. support for increased representation of emerging-market countries in the international financial architecture. The second is using U.S. leadership to promote specific goals within the G-20. Generally, cooperation brings benefits but can also be difficult to achieve. Ad hoc planning, voluntary (i.e., non-binding) adoption of policies, and little enforcement and follow-up can pose challenges to cooperating with international partners. Emerging-Market Representation in the International Financial Architecture In recent decades, emerging-market countries have begun to play a larger role in the international economy. They have grown in size, developed rapidly, become active participants in international trade and finance, and increased their holdings of foreign exchange reserves. The international financial architecture, however, has been slow to reflect their increased importance and role in the global economy. Since the global financial crisis began in the fall of 2008, however, this has started to change. The NSS's commitment to increase the representation of emerging markets in the international financial architecture largely reiterates changes that are already underway or are being discussed in other forums. G-20: The NSS emphasizes U.S. support for the G-20 process, whose prominence has increased with the global financial crisis. Before the crisis, economic discussions at the leader level had been held by the G-7/G-8, a small group of advanced countries. When the global financial crisis hit, leaders decided that emerging-markets were too important to exclude from these discussions. The G-7/G-8 leaders convened, for the first time, leaders from a more diverse set of countries that included advanced and emerging-market countries (the G-20). It is reported that this decision was supported by the Bush Administration. The G-20 met in Washington, DC in November 2008, and since then the G-20 has held five summits with the fifth in Seoul, Korea in November 2010. In the third G-20 summit (September 2009 in Pittsburgh), which was hosted by President Obama, the participants decided that the G-20 would henceforth be the premier forum for international economic cooperation, effectively displacing the G-7/G-8's role as such. While many have applauded the expansion of the G-7/G-8 to the G-20, others have expressed reservations. Some argue that G-20 membership is arbitrary and does not include some important emerging-market countries (such as Poland, Thailand, Egypt, and Pakistan), under-represents sub-Saharan Africa, and has a disproportionate number of European members. Others have expressed concern that expanding economic discussions to such a heterogeneous group undermines efforts at international economic cooperation. Reforms at the World Bank and the IMF: The NSS also supports efforts to increase the representation of emerging markets at the World Bank and the International Monetary Fund (IMF). This references commitments made by the G-20 leaders to shift voting power to emerging-market countries. The World Bank shareholders agreed to voting reform in April 2010. In this agreement, U.S. voting power is not expected to be affected and the United States will retain veto power over major decisions at the Bank. IMF quota reform is proving more controversial. Many experts argue that IMF quotas should broadly reflect a country's relative size in the world economy, and that some European countries are over-represented at the IMF, while some emerging-market countries, like China, are under-represented. However, no agreement has been reached on exactly which countries will see their quota share, and thus voting power, change, and if so, by how much. The United States is considered an underrepresented country at the IMF, because its IMF quota share is smaller than its share in the world economy. Over the decades, the United States has given up IMF quotas to lower its financial commitment to the institution and allow new members to join, while still retaining its veto power over major decisions at the IMF. The United States is not expected to lose substantial quota share in the IMF reform. The G-20 leaders also pledged that the heads of international financial institutions should be appointed through an "open, transparent, and merit-based selection process." This may affect the 60-year-old unwritten convention that the Managing Director of the IMF is selected by Western European countries and the President of the World Bank is selected by the United States. However, the wording in the G-20 declarations on this point is vague. To date there is no consensus on how this would be implemented in practice. U.S. Leadership in the G-20 The 2010 NSS states that U.S. leadership in the G-20 will be "focused on securing sustainable and balanced growth, coordinating reform of financial sector regulation, fostering global economic development, and promoting energy security." These are the main issues that have been discussed in recent G-20 summits and were on the agenda for the Seoul Summit. Securing sustainable and balanced growth: The G-20's "Framework for Strong, Sustainable and Balanced Growth" aims to correct the global imbalances that many believe contributed to the global financial crisis. Through this framework, the G-20 members agree on shared policy objectives, assess (with the IMF's assistance) the collective implications of national policy frameworks for the global economy, and consider and agree to actions that are necessary to meet common objectives. In this process, the G-20 and the IMF can only make policy recommendations; they cannot impose policies on members. The assessment process is underway, but some have raised questions about how effective it will be without rigorous enforcement mechanisms. Coordinating reform of financial sector regulation: Some argue that a major cause of the global financial crisis was the failure of policymakers to adequately regulate financial markets both domestically and globally. Consequently, proposals for regulatory reform have been central components of each of the G-20 summits. Within the G-20, the United States is generally viewed as a leader in regulatory reform, having passed a major regulatory reform bill in July 2010 ( P.L. 111-203 ). The Administration is now expected to focus on making sure that other countries adopt consistent and harmonized regulatory reforms to ensure a "level playing field," and that capital does not flow out of the United States to countries with looser banking standards. Assessing the implementation and consistency of national level regulations is expected to be a major G-20 priority. Fostering global economic development: For the Seoul Summit, Korean officials also proposed an ambitious set of new initiatives that focus on the needs of the emerging and developing world. These initiatives include (1) creating safety nets to help countries handle volatile capital flows; (2) refocusing the G-20's discussions on narrowing the development gap and reducing poverty; and (3) engaging the private sector in development initiatives. Promoting energy security: At the Pittsburgh summit, the G-20 leaders committed to eliminating fossil fuel subsidies over the medium-term. The Obama Administration supports the ban on fossil fuel subsidies and reportedly pushed for it at the G-20 summit in Pittsburgh. Eliminating fossil fuel subsidies may prove difficult. Governments in low-and middle-income countries, who spend $310 billion a year on fossil fuel subsidies compared to the $20 billion-$30 billion spent annually by developed countries, may be reluctant for political reasons to eliminate these subsidies. In 2008, cuts in subsidies in Egypt, India, and Indonesia resulted in street protests and political upheaval. Eliminating fossil fuel subsidies in rich countries may also face obstacles. In the United States, it would require congressional approval, and it is expected that the oil industry would strongly oppose such legislation. Deterring Threats to the International Financial System191 The 2010 NSS identifies as a national security priority the goal of denying illicit actors and their affiliated support networks access to the international financial system and targeting illicit resources stored within the international financial system. Abuse of the international financial system by illicit actors includes a variety of often transnational financial crimes. Such crimes include but are not limited to money laundering, international trade and customs fraud, financing for nuclear proliferation and terrorism, and the kleptocratic looting of government funds by public officials for self-aggrandizement. Illicit actors may seek to store criminal proceeds within the international financial system or use legitimately-sourced funding stored in the international financial system with the intent to use it for the financing of illicit activities. Although there are no reliable and precise estimates for either the amount of such dirty money, experts widely agree that the combined total volume circulating in the international financial system is likely vast. For at least more than a decade, successive Administrations have identified threats to the international financial system—and emphasized efforts to deter and combat such threats—as a national security goal. Policies to combat financial crimes can be described as evolutionary, building and refining upon prior efforts as new financial threats emerge, while remaining roughly consistent with the goals of prior administrations. With such evolutionary progress, U.S. efforts to protect the international financial system from illicit threats appear to have also grown in terms of the scope and number of programs in place, as well as in the amount of resources and number of personnel involved. One of the most significant changes over time, however, is the strategic context in which financial threats are framed and identified. NSS documents under President Bill Clinton, for example, emphasized money laundering and other "threats to the integrity and reliability of the international financial system" as manifestations of post-Cold War, non-state transnational security problems, primarily drug trafficking, which was identified for the first time as a national security threat in 1986 (National Security Decision Directive 221) and remained a major U.S. policy concern throughout the 1990s. Other non-state transnational threats included terrorism and other international organized crimes such as arms trafficking and migrant smuggling. According to the Clinton Administration's 1999 NSS, for example, transnational threats were among the top five "most serious threats to U.S. security." Key identified means to confront such threats in the Clinton Administration's NSS included standardizing laws and regulations governing financial institutions, improving international law enforcement cooperation in the financial sector, and extending the reach of financial sanctions to international terrorists support networks. President George W. Bush's 2002 and 2006 NSS documents were influenced by and responded primarily to the Al Qaeda terrorist attacks of September 11, 2001. As a result, threats to the international financial system became largely framed, particularly in the 2002 NSS, in the context of terrorist financing. Yet, the primary mechanism through which new counter-terrorist financing programs were established centered on modifications to existing anti-money laundering programs. Goals included identifying and blocking the sources of funding for terrorism, freezing the assets of terrorists and those who support them, denying terrorists access to the international financial system, protecting legitimate charities from being abused by terrorists, and preventing the movement of terrorists' assets through alternative financial networks. By 2006, however, the Bush Administration had expanded its emphasis on terrorist financing to include other threats to the international financial system, such as proliferation finance by WMD (weapons of mass destruction)-smuggling networks, money laundering by international criminals, and the illicit appropriation of government assets by corrupt political leaders. Unlike the Clinton Administration's NSS, discussion of threats to the international financial system were not limited to non-state actors, particularly with the additional emphasis in the 2006 NSS of illicit financial activity by corrupt foreign politicians and foreign countries seeking nuclear technologies through illicit smuggling networks. President Barack Obama's 2010 NSS not only builds upon prior NSS documents to identify combating threats to the international financial system as a national security priority, but also includes other U.S. government strategy documents that seek to target and block illicit international financial activity, several of which were issued during the Bush Administration. In reverse chronological order, these include the 2010 National Drug Control Strategy, the 2008 U.S. Law Enforcement Strategy to Combat International Organized Crime, the 2007 National Money Laundering Strategy, the 2006 U.S. Strategy to Internationalize Efforts Against Kleptocracy, and the 2006 National Strategy to Combat Terrorism. Common policy threads across the Clinton, Bush, and Obama Administrations center around three key goals: (1) applying financial measures to freeze and block assets of specially designated criminal entities and their associates; (2) expanding financial regulatory and enforcement tools to monitor and combat money laundering, both domestically and through multilateral venues; and (3) encouraging international financial intelligence and law enforcement information sharing. Notable developments in U.S. policy to combat international financial crimes have included the: Enhanced financial regulatory authorities. For example, section 311 of the USA PATRIOT Act of 2001, which amended the Bank Secrecy Act of 1970, allows the Treasury Department to apply enhanced banking regulatory requirements, called "special measures," against designated jurisdictions, financial institutions, and international transactions that are found to be involved in criminal or terrorist financing activities. Development of further financial regulatory standards internationally. This has included enhanced emphasis on developing international regulatory standards and procedures for mutual evaluation of financial regulatory practices through the Financial Action Task Force (FATF) and FATF-style regional bodies; Expansion of international law enforcement cooperation. Such initiatives have included: 1. creation of the Egmont Group, an international consortium of national Financial Intelligence Units (FIUs) through which financial intelligence data can be shared internationally through secure servers; 2. establishment of Trade Transparency Units (TTUs) in several countries in Latin America to facilitate bilateral law enforcement cooperation in trade and customs irregularities that could be indicative of trade-based money laundering; 3. establishment of a foreign political corruption task force to facilitate law enforcement cooperation on kleptocracy cases and support for the World Bank's Stolen Asset Recovery (StAR) Initiative to repatriate assets stolen by corrupt political leaders, and 4. enhancement of international cooperation on combating bulk cash smuggling, such as with Mexico to combat bulk cash movements of drug proceeds from the United States to Mexico; Application of targeted financial sanctions. For example, the Treasury Department's Office of Foreign Asset Control (OFAC) has gained increased authority to freeze assets and block transactions within U.S. jurisdiction of specially designated individuals involved in drug trafficking, terrorism and terrorist financing, WMD proliferation and other illicit activities. Provision of targeted foreign assistance to combat financial crimes. For example, such assistance has included U.S. support for the institutional development of foreign countries' financial legal framework, regulatory bodies, law enforcement capacity, and intelligence functions; and Introduction of foreign-deployed threat finance cells in Iraq and Afghanistan. Such threat finance cells are intended to track and target the financial flows and transactions associated with insurgent, terrorist, and other illicit actors that are of national security priority. Reorganization of offices and missions within the Department of Treasury. This has included a heightened emphasis on countering the financing of terrorism and other financial crimes through, in 2005, the creation of the Office of Terrorism and Financial Intelligence (TFI). With the exception of the imposition of additional economic sanctions against North Korea and Iran related to WMD proliferation concerns, most of these policy initiatives had begun before the Obama Administration. There are no apparent public indications that the current Administration plans to update the 2005 money laundering threat assessment or revise the 2007 U.S. money laundering strategy. A question for policymakers is whether the absence of more recent strategic guidance to combat financial crimes is indicative of an inherent embrace of prior Administrations' strategic direction for combating financial crime and strengthening the international financial system. Some observers might question whether the current balance of priorities—among counterterrorism financing, anti-proliferation financing, and traditional anti-money laundering goals—remains the same as they had been under prior Administrations. Further, policymakers may also question how existing strategic guidance for combating financial crimes can respond to emerging threats and novel alternate financing and laundering methods for which an effective government response may not exist. Another question for policymakers is how to coordinate U.S. government resources, programs, and data related to combating financial crime. More than a dozen federal agencies are involved in U.S. efforts to protect the international financial system from financial crime threats, including the Departments of Treasury, Justice, State, Defense, and Homeland Security, as well as the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation. In recent years, the U.S. Government Accountability Office has issued several reports on U.S. efforts to combat international financial crimes, variously recommending improved interagency and international coordination, as well as improved efforts to align U.S. resources with strategic mission priorities. Democracy, Human Rights, and Development Aid Many argue that a key long-term factor in ensuring U.S. national security is to help create a world in which citizens in all countries are afforded basic human rights and have a voice in their governments through democratic means. Realpolitik , however, often requires that the United States deal with certain dictatorial governments for the lack of better alternatives. U.S. economic assistance and cooperation in areas such as science and technology are intended to achieve a number of U.S. goals related to political and human conditions in foreign countries that affect U.S. national security. Democracy and Human Rights198 The 2010 National Security Strategy asserts that the United States must support democracy and human rights abroad because governments that respect these values are more just, peaceful, and legitimate, contributing to an atmosphere that supports America's national security interests. The report states that the first steps begin at home with policies that promote a strong U.S. economy and that living these values at home helps to promote them overseas. Furthermore, the NSS says that both the U.S. government and private sector have roles to play in advancing our democratic values. The report goes on to say that democracy, human rights, and development are mutually reinforcing values and coordinated support of all three creates a synergy that contributes to achieving greater progress toward America's national interests. The NSS states that the U.S. must forge more effective partnerships with democracies and non-democracies, allies and "key centers of influence," including China, India, and Russia. The report goes on to say that this Administration will pursue engagement with hostile nations and give them an opportunity to change course, and will reach out to individuals, as well as governments. Seven categories in which the Administration is advancing these universal values include: Ensuring that New and Fragile Democracies Deliver Tangible Improvements for Their Citizens . The report states that the Obama Administration is working on a bilateral and multilateral basis with countries at all levels, from individual citizens to local communities to political and civil society leaders in order to strengthen institutions that provide democratic accountability. Practicing Principled Engagement with Non-democratic Regimes . The Administration will work with non-democratic regimes to advance U.S. interests on counterterrorism, nonproliferation, economic issues, among many other things, but will simultaneously seek ways to advance individual rights and opportunities in those countries. The Administration's dual-track approach to reach out to governments, encouraging gains in human rights while also encouraging peaceful political opposition, is a model it hopes NGOs will follow. If governments react negatively to this approach, however, the United States must openly lead the international community to use diplomatic tools, incentives, and disincentives in an effort to reverse repressive behavior, according to the NSS. Recognizing the Legitimacy of All Peaceful Democratic Movements . The National Security Strategy says America believes all peaceful, law-abiding, and nonviolent voices around the world should be heard, even if it disagrees with them; the United States should not promote certain candidates or movements in other countries, but it will support legitimately-elected peaceful governments that treat its citizens with respect and provide their rights. If elected officials rule ruthlessly, they will forfeit U.S. support, the report says. Supporting the Rights of Women and Girls . The NSS states that women and girls bear a greater burden than males in crises or conflicts and that countries are more peaceful and prosperous when women enjoy equal rights and opportunities. Therefore, the Obama Administration is promoting democracy by working with regional and international organizations to prevent violence against women and girls; to promote equal access for justice and participation in the political process; to combat human trafficking especially with women and girls, and to support education, employment, and micro-finance for women around the world. Strengthening International Norms Against Corruption . The Administration is working with multilateral and bilateral organizations to promote the idea that pervasive corruption is a violation of basic human rights that impedes development and security worldwide. The Administration pledges to work with governments and civil society organizations to establish greater transparency and accountability in their budgets, expenditures, and assets of public officials. The Administration pledges to institutionalize transparency in international aid flows, international banking and tax policy, and private sector natural resources to strengthen citizen efforts to hold their governments accountable. Building a Broader Coalition of Actors to Advance Universal Values . The Administration is working with other governments, nongovernmental and multilateral organizations to build broad support for democracy, rule of law, and human rights. It seeks to strengthen existing institutions, such as the United Nations Human Rights Council, that are not working up to their potential, and strengthening human rights monitoring and enforcement mechanisms so that any violators of international human rights norms will be held accountable. Marshalling New Technologies and Promoting the Right to Access Information . The NSS identifies new opportunities to advance democracy and human rights through the emergence of new technologies such as the Internet, wireless networks, smart-phones, satellite and aerial imagery, and supports the use of new technologies to facilitate freedom of expression, expand access to information, increase government transparency and accountability, and counter restrictions on their use. The Administration will also use such technologies to effectively communicate American messages to the world. Analysis The Obama Administration appears to have distanced itself from the high profile and controversial democracy promotion activities of the Bush Administration (i.e., conflating democracy promotion with the Iraq War, cultivating close ties with autocratic regimes, and condoning abuses of the rule of law and human rights in its counterterrorism agenda) that some believe have tarnished the concept of democracy promotion. At the same time, however, President Obama has continued many country programs, many that were conducted by previous administrations. According to the State Department's Advancing Freedom and Democracy Report , May 2010, the Obama Administration is continuing to assist with: elections; development of institutions such as courts that will support a democracy; training media on independent reporting; promoting citizen participation in, and access to, government; gender equality; and government transparency. Specific country programs include financial and technical support for fair, free, and competitive elections for Georgia's municipal elections in 2010 and national elections in 2013, Lebanon's municipal elections in 2010, helping Uganda with a Web-based voter registry before its 2011 elections, and support for electoral reform and voter awareness for Jordan's expected 2010 parliamentary elections. Other activities include assisting with Kenya's Trafficking in Persons Task Force to develop a national action plan, as well as in-country training of police, prosecutors, and medical personnel to handle gender-based violence; providing media training in Somalia; and guest speaker programs that promote citizen participation in the political process in Malaysia. Critics of the muted Obama democracy promotion and human rights agenda have pointed out that his inaugural address is the first since former President Ronald Reagan's to not mention the word democracy. Some view the Obama approach as too subtle; others express disappointment that "setting an example" is not strong enough to influence authoritarian regimes. These critics contend that the Obama Administration has not made democracy promotion and human rights foreign policy priorities. Another concern is that the Obama Administration seems to support a philosophy of "country-ownership" where the "partner" governments can weigh in on what activities the United States conducts within their country. Critics say, this would give authoritarian governments the ability to influence how U.S. tax dollars are spent, and they wonder if effective democracy and human rights programs would ever be allowed to flourish by those governments. The foreign policy community is mixed on the benefits of a whole of government approach to democracy and human rights activities. Some believe that this approach could be confusing on the ground, having different agencies (Departments of Defense, State and USAID, for example) working at cross purposes, at times. Others believe that having multiple, coordinated voices would reinforce the image of democracy and signal the importance America places on democracy promotion activities. Supporters of the 2010 National Security Strategy on democracy and human rights believe that the Obama Administration is intentionally breaking from the pre-emptive and go-it-alone style of the previous Administration to repair any damage overseas that may have resulted. Obama takes a quieter, more humble stance on democracy promotion, mentioning it several times, but not highlighting it as the previous administration did in its National Security Strategy, 2002. For example, the NSS states that this Administration "is promoting universal values abroad by living them at home and will not impose these values through force." Supporters believe Obama's is a more realistic approach that may be more likely to succeed than the aggressive style of the George W. Bush Administration. A concern expressed by both proponents and opponents is a lack of discussion about cost. The NSS does not mention the cost of democracy promotion and human rights programs or from where the money will come. As the 112 th Congress seeks to reduce the budget deficit, foreign affairs funding is being eyed by some as a place to cut expenditures. Measuring democracy promotion and human rights progress can be done with specific projects that seek, for example, to create a voter data base, increase voter turnout, establish free media, or reduce political arrests. In the long-term, however, it is very difficult to measure overall progress and declare success in achieving democracy and respect for human rights because of its abstract nature and because backsliding is always a possibility. Sustainable Development199 Development has been slow and uneven, according to the 2010 NSS. The Obama Administration is pursuing a range of specific and targeted initiatives, such as food security and global health that the President believes are essential to security and prosperity for all people worldwide. Like the Bush Administration before it, the Obama Administration supports the elevation of development alongside defense and diplomacy (sometimes called the 3 Ds) as key to achieving U.S. national security and promoting U.S. national interests abroad. The NSS presents a whole-of-government approach for applying the three D tools. For development that requires improved coordination to implement assistance programs, pursuit of a development that reflects U.S. policies and strategies, and certainty that U.S. policy tools are aligned to support development objectives. The report also suggests that development is a way to support existing partnerships and assist other countries in becoming capable, democratic future partners. To do that, the Administration is expanding civilian development capability, engaging with international financial institutions that leverage U.S. resources and advance U.S. objectives, working toward a development budget that reflects U.S. policies and strategies, and aligning foreign policy tools that support U.S. development objectives. The Administration's sustainable development goals are to: Increase Investments in Development by providing a deliberate and focused global development agenda across U.S. government agencies, increasing foreign assistance funding, expanding investments in effective multilateral development institutions, and leveraging the engagement of other countries to share the burden. Invest in the Foundations of Long-term Development by initiating long-term investments that reward other governments which demonstrate the willingness and capability to pursue sustainable development strategies, providing support by assisting other countries and communities to better manage challenges, and by investing in strong institutions that foster democratic accountability to help sustain development. This will help expand the number of countries, particularly in Africa, that are able to reap benefits of the global economy while contributing to global security and prosperity, according to the NSS. Exercise Leadership in the Provision of Global Public Goods by shaping and leading global partners on challenges (i.e., how to control epidemic disease, how to adapt to global warming, and how to make advances in agricultural output) that stifle development progress but cannot be resolved by the individual countries alone and are not being fully addressed with bilateral efforts. The Administration supports overseas partners with increased investments and technologies to assist them with low-carbon productivity, advances in food security, and resilience against impacts of climate change. The report specifically mentions pursuit of new vaccines, weather-resistant seed varieties, and green energy technologies that would significantly benefit sustainable development. The budget request seeks an increase in environment accounts and has put food security top priority. Analysis The Obama Administration has continued a number of Bush Administration foreign aid changes such as the President's Emergency Plan for AIDS Relief (PEPFAR) and the Millennium Challenge Corporation (MCC). It has also continued the Office of the Director of Foreign Assistance (referred to as the F Bureau) which President Bush created and placed in the Department of State to coordinate State/USAID budget information and activities. Some say creation of the F Bureau has weakened USAID. Whether the Obama Administration will continue this office or make some other organizational change that would strengthen USAID or expand the Department of State's development assistance responsibilities is currently unclear. The Administration's Quadrennial Diplomacy and Development Review (QDDR) released on December 15, 2010 states that this Administration will be focused on sustainable development outcomes with a premium placed on broad-based economic growth, democratic governance, game-changing innovations, and sustainable systems for meeting basic human needs. It does not address the issue of continuation of the F Bureau. Clearly identifying which agency will take the lead on development assistance budgets and program implementation, as well as how the Department of Defense aid activities will be integrated, is of critical interest. Some think that will signal how serious President Obama is in achieving long-term development goals versus using development tools to achieve short-term foreign policy and national security objectives. Many foreign aid experts applaud the Obama Administration's goal of doubling foreign aid funding (continuing the foreign aid increases of the Bush Administration) and promoting long-term sustainable development. Some in Congress, however, are working to cut foreign affairs spending in the FY2011 budget, arguing in favor of domestic spending and deficit reduction. While this works against the Administration's goal to double foreign aid spending, President Obama's National Security Strategy acknowledges that "the United States must be strong at home in order to be strong abroad." To ensure the best use of tax dollars spent on foreign aid, transparency, monitoring, and measuring development program results are key. The Administration's NSS, as well as legislation introduced by both the House Foreign Affairs Committee and the Senate Foreign Relations Committee have included language in legislation to require increased transparency and monitoring of development programs. Measuring success in development, particularly long-term, sustainable development is difficult. It may take years before sustainable development programs can be identified as successes or failures. Furthermore, whether development is sustainable may be influenced by government and regional instability, resources, trade potential, corruption in the country, and activities of other donor countries. In its report on the Millennium Development Goals, the Administration stated, "Our commitment to sustainability and innovation will be underpinned by a relentless commitment to measuring results." To measure results, the Administration has stated it will look at MCC's rigorous impact evaluation approach; collect baseline data and improve indicators, providing technical assistance to recipient countries to develop their own monitoring capacity; strengthen USAID's capacity to monitor and evaluate with the new Office of Learning, Evaluation, and Research; and promote strong monitoring and evaluation functions in multilateral organizations that we support. Beyond measuring progress toward sustainable development, is whether long-term development always results in countries becoming stronger partners with the United States. With numerous other influences in the world and other donor countries competing, whether that translates to greater U.S. national security and promoting America's interests seems unlikely in every case. Reaction to President Obama's first NSS regarding sustainable development is mixed. Some praise its multilateral tone, compared with the unilateral tone in President Bush's first NSS of 2002. Foreign aid experts note favorably the concepts of working with former allies and new partners, strengthening international institutions, and integrating government agencies, as well as acknowledging challenges of an interconnected world. Criticism, however, includes how to lead abroad in solving trans-boundary problems such as climate change when there is no consensus at home, the lack of specifics on how to increase burden-sharing abroad during a worldwide recession, and where to find the willingness in Congress to invest in long-term development projects in these tight economic times. Adding the cost to adequately monitor progress toward sustainable development, some note, would either raise the cost of development or detract from the amount spent on actual development aid, critics say. International Science Partnerships as a Tool for Development205 The 2010 National Security Strategy calls for enhancing U.S. science, technology, and innovation: "America's scientific leadership has always been widely admired around the world, and we must continue to expand cooperation and partnership in science and technology. We have launched a number of Science Envoys around the globe and are promoting stronger relationships between American scientists, universities, and researchers and their counter- parts abroad. We will establish a commitment to science and technology in our foreign assistance efforts and develop a strategy for international science and national security." In his June 4, 2009 speech in Cairo Egypt, President Obama declared his intention to "appoint new science envoys to collaborate on programs that develop new sources of energy, create green jobs, digitize records, clean water and grow new crops." Subsequently Secretary of State Clinton announced in a November 2009 speech in Marrakesh, Morocco the formation of the U.S. Science Envoy Program. Secretary Clinton stated that the U.S. government seeks to engage in meaningful partnerships on science and technology to serve as a global engine of progress and growth, and that engagement by highly respected American scientists has the potential to build bridges and help identify opportunities for sustained cooperation. To date, three such envoys have been named. Context Scientists, engineers, and health professionals frequently communicate and cooperate with one another without regard to national boundaries. Since the end of World War II and the emergence of many new countries, the United States government has served a role in providing research and scientific support for other countries that are in the early stages of development or at a major point of transition. Many policymakers view American leadership in science and technology (S&T) as a diplomatic tool to enhance other countries' growth and to improve understanding by other nations of U.S. values and ways of doing business. These efforts have focused on both providing S&T resources, as well as addressing developmental challenges where S&T could play a role. Title V of the Foreign Relations Authorization Act, Fiscal Year 1979 ( P.L. 95-426 , 22 U.S.C. 2656a - 22 U.S.C. 2656d, as amended) provides the current legislative guidance for U.S. international S&T policy, and makes the Department of State the lead federal agency in developing S&T agreements. In that act, Congress found that the impact of modern S&T advances are of major significance in U.S. foreign policy and that its diplomatic workforce should have an appropriate level of knowledge of these topics. Further, it indicated that this workforce should conduct long-range planning to make effective use of S&T in international relations, and seek out and consult with public and private industrial, academic, and research institutions in the formulation, implementation, and evaluation of U.S. foreign policy. The National Science and Technology Policy, Organization, and Priorities Act of 1976 ( P.L. 94-282 ) states that the White House's Office of Science and Technology Policy (OSTP) director is to advise the President on S&T considerations in foreign relations. Further, the OSTP director is to "assess and advise [the President] on policies for international cooperation in S&T which will advance the national and international objectives of the United States." The OSTP, an office within the Executive Office of the President (EOP), does not fund domestic or international programs. Within OSTP, the National Science and Technology Council (NSTC) currently established by Executive Order 12881, coordinates S&T policy across the federal government. Also, a number of federal agencies that sponsor research and use S&T in developing policy are involved in U.S. international S&T policy. These include the National Science Foundation (NSF), National Institutes of Health, Department of Energy, National Aeronautics and Space Administration, Department of Agriculture, Environmental Protection Agency, Department of Interior, and others. Federal R&D activities may be efforts focused on the agencies' mission, or may come as initiatives from proposals the science community submits in response to specific requests in an R&D field or from a more general solicitation for research in the field. In addition, the National Academies of Science (NAS) and the American Association for the Advancement of Science (AAAS) are nationwide scientific organizations that directly represent the U.S. scientific community; both are private, not-for-profit organizations. The 111 th Congress examined both the nature of international science and technology cooperation as well as addressing the effectiveness of these international science and technology (S&T) policy activities. On April 21, 2009, Senator Richard Lugar introduced S. 838 , a bill to provide for the appointment of the United States Science Envoys. While pre-dating the President's speech in Cairo, it would have provided the same general guidelines that the Administration had proposed then and in the National Security Strategy report. This bill was read and reported out of the Senate Foreign Relations committee on May 7, 2009 and was put on the Senate Legislative Calendar. On March 26, 2009, Representative Brian Baird introduced H.R. 1736 , the International Science and Technology Cooperation Act of 2009. This bill would "provide for the establishment of a committee to identify and coordinate international science and technology cooperation that can strengthen the domestic science and technology enterprise and support United States foreign policy goals." This effort would come from the Office of Science and Technology Policy and be coordinated by the National Science and Technology Council. H.R. 1736 was referred to the House Science and Technology Committee, where it was reported favorably out of committee and referred to the House floor. On June 8, 2009, it passed the House in a voice vote and was referred to the Senate Commerce, Science, and Transportation Committee. It was not taken up in the Senate. Analysis Interested observers may ask whether the Obama statement on expanding international science partnerships represents a new policy initiative or a continuation of existing federal programs and activities. Some may contend that the Obama Administration's Science Envoys are similar, if not identical, to existing diplomatic efforts in organizations such as the NAS, AAAS, NSF, the State Department and other federal agencies. Other may argue that creating Science Envoys brings a higher profile and attention to U.S. efforts to create scientific partnerships, a welcome elevation of the S&T policy profile. Significant issues are at the core of any discussions regarding U.S. international science and technology partnerships. The Obama Administration has focused on "green" S&T as part of its overall national and international S&T policy. Does this approach provide the most targeted and effective use of U.S. S&T resources? Will other parts of the U.S. science research establishment be represented by global outreach and science partnerships—such as biomedical, nanoscience, computer science, or human capital, among others? How does the encouragement of international science partnerships affect U.S. national security goals—can policymakers assume that all science partnerships will protect U.S. interests? While it is clear that the United States has much to offer other countries and that science can be an important part of U.S. diplomacy, many of these and other questions are still unanswered. Conclusion As is evident from the topics covered above, economics enters into national security considerations through a variety of ways. The economy plays a dual role of providing the resources to help ensure the physical security of Americans and of generating employment and income to help ensure the economic security of households. The economy also provides a model, culture, and other elements of soft power helpful in winning the hearts and minds of people around the world. There is scarcely an economic policy issue before the Congress that does not affect U.S. national security. Likewise, there is scarcely a national security policy issue that does not affect the economy.

As the world begins the second decade of the twenty-first century, the United States holds what should be a winning hand of a preeminent military, large economy, strong alliances, and democratic values. The nation's security should be secure. Yet the debate over national security seems to be both intensifying and broadening. The problem appears not only in the difficulty of finding a winning strategy in the long war against acts of terrorism but having to face economic constraints that loom large in the public debate. In addition, the global financial crisis and recession have highlighted the trade-off between spending to protect against external threats and spending to provide jobs and income for citizens at home. The United States has long been accustomed to pursuing a "rich man's" approach to national security. The country could field an overwhelming fighting force and combine it with economic power and leadership in global affairs to bring to bear far greater resources than any other country against any threat to the nation's security. The economy has always been there both to provide the funds and materiel for defense and to provide economic security for most households. Policies for economic growth and issues such as unemployment have been viewed as domestic problems largely separate from considerations of national security. The world, however, has changed. Globalization, the rise of China, the prospect of an unsustainable debt burden, unprecedented federal budget deficits, the success of mixed economies with both state-owned and private businesses, huge imbalances in international trade and capital flows, and high unemployment have brought economics more into play in considerations of national security. Traditionally the economy has entered into the national security debate through its impact on the nation's hard power: the funding of defense, the efficacy of the defense industrial base, and the use of economic sanctions and other instruments as non-kinetic tools of warfare. The long-term efficacy of hard power, however, depends greatly on the ability of a country to provide for it through an ever growing and innovative economy. National security depends also on soft power, the ability of a country to generate and use its economic power and to project its national values. This, in turn, depends on long-term factors that contribute to economic growth and increase the total resource base available not only for defense but to provide economic security in the form of income and business opportunities for individuals. Economic growth depends on building human capital. It also depends on science, technology, and innovation. In addition, the increased integration of the U.S. economy into global markets means that U.S. security also depends on global economic stability, on a balanced international economy, the ability to coordinate key economic policies with other leading nations, and deterring threats to the international financial system. Soft power also enables the country to project American values through diplomacy, economic assistance, fostering democracy and human rights, and promoting sustainable development abroad. Congress plays a major role in each of these elements of national security. This analysis illustrates how disparate parts of the U.S. economy affect the security of the nation. Security is achieved not only by military means but by the whole of the American economy. In national security, the economy is both the enabler and the constraint. This report briefly addresses each of the above issues and provides a context and some possible alternatives to current policy. The purpose of this report is not to provide an exhaustive analysis but to survey the landscape, show how each issue relates to national security, examine possible Congressional actions, and refer the reader to relevant CRS products and analysts.

Agricultural Marketing Infrastructure Issues Overview and Current Status Hurricane Katrina damaged much of the nation's grain marketing infrastructure located in theNew Orleans region including port facilities, river traffic infrastructure (buoys, moorings, channels,etc.), and grain elevators, as well as those barges and ships in the region at the time of landfall. Agricultural traffic on the Mississippi River came to a temporary standstill. The sharp decline inbarge availability shifted transport demand to rail and truck systems that were already operating nearcapacity, thus driving alternate transport prices higher and contributing to substantial congestionwithin the Mississippi River grain transportation system centered on the Mississippi River and itstributaries -- the Missouri, Illinois, Ohio, and Arkansas Rivers ( Figure 2 ). Grain elevators withinthe Mississippi River inland waterway system have reported disruptions in train service as rail carswere being diverted to handle grain previously destined for barges according to the Kansas Grain andFeed Association. (1) Farmers' transportation options also have been hurt by rising fuel prices which have sharplyincreased the cost of moving grain by truck. Economists are reporting the shortage of rail cars andstorage space could last into 2006. (2) Figure 2. Most U.S. Inland Waterways are Centered on the MississippiRiver In a competitive market, the price that producers receive for their agricultural commoditiesis derived from the price established in major markets such as Gulf port export terminals, less thetransportation and handling costs required to move grain from the farm to those markets. Whenmarketing costs rise -- as they have in the wake of Katrina -- farm-gate prices usually fall and alongwith them so do farm and rural incomes. This is exactly what has happened following Katrina'sdamage to the inland barge-based Mississippi River system. The news media reported sharp dropsin commodity prices in interior producing regions that depend on the Mississippi River as an outletfor their surplus production. When weather services and news media forecast a second hurricane -- Rita -- approachingthe central Gulf coast, authorities shut down those transport services that were still operable or hadalready been restored. Fortunately, Hurricane Rita dissipated in intensity prior to landfall and dealtonly a glancing blow to most Gulf coast transport infrastructure. As a result, MississippiRiver-based agricultural transportation has again resumed its post-Katrina recovery; however, graintraffic flows are still well below last year's pace. Mississippi Gulf grain inspections during each ofthe first two weeks of September were 81% and 79% below levels of a year earlier. (3) Gulf vessel loading activitywas also significantly below levels of a year earlier. Agricultural producers remain concerned about the rapid resumption of barge traffic on theMississippi in advance of the peak harvest-time period, about repair of the marketing infrastructure,and about rising energy prices in part related to hurricane damage. It is still unclear how much timewill be required before barge and ship traffic resumes its normal flow. In mid-September, USDA announced that it was undertaking several activities to alleviatethe grain transport congestion. (See final section of this report, Government Response, for moredetails on USDA's response.) Port of New Orleans New Orleans is among the world's busiest ports. It is served by 6 major railroads, 50 oceancarriers, 16 barge lines, and over 75 motor carriers. (4) More than 6,000 ocean vessels annually move through NewOrleans on the Mississippi River. The port of New Orleans and its surrounding Gulf ports are theprimary outlet that links a vast barge-based inland waterway system to international markets ( Figure2 ). Every year a substantial share of the U.S. corn, soybean, and wheat crops are trucked fromfarms in interior states to grain elevators located along the Mississippi River and its major tributaries,then loaded onto barges for the trip down river to a Gulf port facility where grain shipments areaggregated before being loaded onto ocean-going vessels for the trip to foreign markets. The Portof New Orleans reportedly handles 2 billion bushels of grain each year. (5) Corn, soybeans, wheat, andrice are the primary agricultural products exported via the Mississippi River. During the 2002-2004period, nearly 64% and 67% of U.S. corn and soybean exports (by value), respectively, passedthrough Louisiana ports on their way to foreign markets. In addition, about 23% of wheat and 41%of rice exports passed through the mouth of the Mississippi during that same period ( Table 1 ). The Port of New Orleans provides a major destination for international containers, rubber,steel, plywood and coffee, and is an important link to the inward movement of fertilizers, fuel, andother vital farm inputs. The Port of New Orleans is the nation's top port for imported natural rubber. In addition, New Orleans is the nation's premier coffee-handling port, with 14 warehouses, more than5.5 million feet of storage space and six roasting facilities in a 20 mile radius. Two of the mostmodern bulk processing operations are located in New Orleans: Dupuy Storage and ForwardingCorp. (largest in the United States) and Silocaf of New Orleans, Inc. (the world's largest). (6) Table 1. Exports of Major Agricultural Commodities, U.S. Totalversus District of New Orleans, Average for 2002-2004 na = not available. Sources: U.S. Total from World Trade Atlas ; District of New Orleans data are from U.S. CensusBureau, Foreign Trade Division. When Hurricane Katrina struck the Gulf Coast region, the storm brought a halt to the flowof agricultural trade entering and exiting the United States through the Mississippi River Systemcentered on New Orleans and surrounding Mississippi-River-based Gulf ports. Flooding and poweroutages stopped operations at most of the port facilities within the affected region. Concerns for theUnited States' ability to export its surplus agricultural production were immediate. Figure 3. Status of Major Gulf Ports as of Sept. 6, 2005. In addition to affecting Mississippi River traffic and operations at the Port of New Orleans,several other important central and eastern Gulf ports -- Gulfport, Biloxi, and Pascagoula,Mississippi; Mobile, Alabama; and Pensacola and Panama City Florida -- were completely orpartially shut down due to hurricane damage ( Figure 3 ). However, a significant share of shippingactivity was redistributed to alternate western Gulf ports to facilitate the resumption of trade andeconomic activity in the region. During the first week in September, most of the 86 ships that werereportedly queued at the Mississippi River's entrance just prior to Katrina's arrival were diverted toports in Texas and elsewhere to deliver their cargoes. (7) Most export facilities did not sustain major structural damage; however, the bigger problemwas getting power restored, the channel cleared, and work crews back into the region. The principalconcerns regarding the Port of New Orleans were: first, how quickly could the channel be reopenedfor river traffic, and second, how quickly could port facilities for loading and unloading bulk grainresume operation? Within two weeks both the Mississippi River channel and the Port of NewOrleans were engaged in commercial shipping, albeit at substantially reduced levels relative to thepace of trade from a year earlier. Timeline. Following is a brief timelinesurrounding major events at the Port of New Orleans. August 29, 2005. Hurricane Katrina made landfallas a category 4 hurricane just east of New Orleans temporarily closing all transportation and shippingactivities between the Gulf of Mexico and the Mississippi River. An estimated 400 barges (out ofover 11,000 barges that ply the Mississippi River) were destroyed or damaged. Of the ten majorgrain elevators located within the New Orleans region, only one -- Myrtle Grove -- sustained anysubstantial damage. August 31, 2005. The U.S. Coast Guard re-openedthe Mississippi River to tug and barge navigation. Ocean vessels were still barred pending CoastGuard investigation of the status of channel depths and navigation aids. The U.S. Coast Guardreported that about 70% of the navigation aids (such as buoys marking the river channel) along theMississippi River were damaged or missing. (8) The river channel itself had to be surveyed to guard againstpossible shoals or other obstructions that might have been left in the hurricane's wake. In the earlyperiod following the hurricane, the U.S. Coast Guard focused its full resources on search and rescueoperations in the areas affected by the hurricane. September 4, 2005. The communications managerfor the Port of New Orleans announced that the Mississippi River was open in one direction to shipswith a draft of 35 feet during daylight hours. That same day, the Port President and CEO, GaryLaGrange announced that the Port of New Orleans' river front terminals had survived HurricaneKatrina in relatively good shape and, although slightly damaged, they would be workable onceelectrical power and manpower were available. (9) Although the channel was usable, most of the port facilities wereto be dedicated to military relief vessels through mid-September. Commercial vessels would not beallowed to return to the Port of New Orleans until electrical power and manpower werere-established. The U.S. Dept. of Transportation's Maritime Administration announced that it wasproviding several ships to the Port of New Orleans with the capacity to temporarily house 1,000people who will operate the port. September 7, 2005. Secretary of Agriculture MikeJohanns reported that substantial existing infrastructure was available on the Mississippi River inthe New Orleans area for facilitating port activities. (10) In particular, he mentioned three floating rigs with a loadingcapability of 30,000 to 60,000 bushels per hour from river barges directly on to ocean-going vesselsor barges, and 10 export elevators with a storage capacity of 526 million bushels and a loadingcapability of 970,000 bushels per hour when fully operational ( Figure 4 and Table 2 ). SecretaryJohanns estimated that (as of September 7, 2005) the operational capacity of the 3 rigs and 10elevators was a combined 63% of normal and that slower barge movements and limited staffprevented full utilization of their loading capacity. Gradually the U.S. Coast Guard began to shift its operational focus from search and rescueto the process of damage assessment and repair of the navigation infrastructure. September 21, 2005. The U.S. Army Corps ofEngineers (USACE) reported in its weekly navigation update, that all of the ports listed as closedor opened with restrictions in Figure 3 were now fully open to daylight traffic with Gulf Port,Mobile, and Panama City open to 24-hour transit. (11) September 22, 2005. Most major ports located alongthe Texas and Louisiana Gulf coast were temporarily closed in advance of Hurricane Rita. September 24, 2005. Hurricane Rita makes landfallas a category 3 hurricane at the Texas-Louisiana border near the Sabine-Neches Waterway (PortArthur and Port of Beaumont) and Calcasieu Lock and River System connecting Lake Charles withthe Gulf of Mexico. Preliminary reports suggest that export grain elevators located along the TexasGulf coast sustained only minimal physical damage from Hurricane Rita. (12) Resumption of operationshinged on how quickly power was restored and personnel were allowed to return to the regionfollowing a mandatory evacuation. September 27, 2005. Myrtle Grove grain elevator,the last of the 10 grain elevators in the New Orleans region, was fully restored for operations. September 29, 3005. The USACE lifted all remainingrestrictions on the Lower Mississippi River through the Southwest Passage (the principal channelout of the Mississippi River system to the Gulf). The Southwest Passage was now open for both dayand nighttime traffic. Figure 4. Mississippi River-Gulf Export Grain Elevators Table 2. Mississippi River-Gulf Elevator Location, Storage andLoad Capacity Source: USDA, Agricultural Marketing Service (AMS) materials provided in briefing to staff ofHouse Committee on Agriculture, September 22, 2005. October 2, 2005. All major Texas Gulf ports wereopen to vessels with restricted depths of 40 to 45 feet at most harbor channels. (13) The Calcasieu River toLake Charles remained restricted to shallow draft tows and light tug traffic, but with 24-hourallowance. Deep draft vessels were restricted to 35 feet in daylight hours. Barge-based Inland Waterway Transportation Overview of Barge Transportation. Bargetransportation represents the lowest-cost transport mode for moving a high volume of bulkcommodities long distances ( Table 3 ). Because barge rates are generally significantly lower thaneither rail or truck, the Mississippi River navigation system provides considerable transportation costsavings to the regional and national economy. (14) Most economists and market analysts agree that inexpensivebarge transportation helps check rates charged by the rail and truck transportation industries. Inaddition, low internal transport costs relative to export competitors such as Argentina and Brazilhave helped U.S. products compete in international corn and soybean markets. (15) Table 3. Barge Transport Moves Large Volumes Relative toTruck or Rail Source: U.S. Tugboat & Towboat Industry. a. Assumes a 9-foot channel as is maintained on the Upper Mississippi River by the U.S. ArmyCorps of Engineers. Barge capacity increases with channel depth. b. Panamax vessels are restricted to 60,000 metric tons due to maximum draft requirements. c. Bushels are corn-equivalent (1 metric ton = 39.3679 bushels). A complex web of local supply and demand conditions determines how and when grainmoves through the U.S. grain-handling network comprised of on-farm storage, trucks, railroads,barges, and grain elevators (including county, sub-terminal, and export elevators). Price changes atany point along the chain can result in shifts to alternate transport modes or routes as grain marketerssearch for the lowest-cost method of moving grain between buyer and seller. A hurricane such as Katrina or any similar weather or catastrophic event that dramaticallyslows or severely limits barge traffic will usually have the effect of raising barge freight rates as thedemand for barge services exceeds their supply. Higher barge freight rates for corn and soybeanswill in turn shift these commodities to alternate uses (feed, food, industrial, or storage), to alternatetransport modes (rail or truck), or to alternate trade routes (e.g., to the Atlantic via the St. LawrenceSeaway, or overland to Canada, Mexico, or alternate ports along the Gulf coast or as far away as thePacific Northwest). The degree of shifting depends, in part, on the perceived permanency of theprice change. Because truck and rail are significantly more costly than barge transport, shifting bulkcommodities to truck- or rail-based routes can substantially raise the cost of moving grain. Hurricane Damage to Barge Transportation. When Hurricane Katrina struck the Gulf coast region, an estimated 400 barges (out of over 11,000barges that ply the Mississippi River) were destroyed or damaged, and a substantial number of bargesand vessels in the area surrounding New Orleans were displaced. Although this physical damagewas costly, it is not the major factor limiting the quick reprise of barge transportation. The primary problem for barge-based agricultural transportation on the Mississippi Riversystem is the problem of restoring the entire transportation system encompassing trains, trucks,barges, ports, and ocean-going boats to a synchronized schedule of deliveries and arrivals. As ofSeptember 30, 2005, the entire transportation network remained somewhat out of sync. Waterwaysand rail lines are backed up and congested with barges and trains arriving to deliver their goods toboats that are berthed in port slots awaiting delivery for goods other than those being delivered. In addition to an "out-of-sync" transportation network, approximately 140 barges containinghurricane-damaged corn (primarily water damage) were left in the New Orleans region. Thesebarges needed to be off-loaded and the barges moved back up-river to elevators eagerly awaitingbarge transport to ship their grain down river. However, because of the water damage, the corn wasno longer acceptable for contract delivery and could not be off-loaded at any of the export-servicinggrain elevators in the New Orleans vicinity. Because of the poor condition of their cargo, thesebarges must be towed to special locations (primarily back up river) for off-loading and removalbefore they can re-enter the normal barge traffic. Commodity Prices The immediate effect of the slowdown of barge traffic on the Mississippi River was areported sharp decline in grain elevator bid prices for corn and soybeans in interior grain markets. Many grain elevators serving barge traffic were already near their maximum storage capacity, andfelt compelled to reduce their bid prices to avoid buying grain that they could not store. The problemhas been made more acute by the approaching harvest when producers will likely need all of theiron-farm storage capacity to store their new crop harvests. As a result, many producers have beenlooking to sell the remaining supplies from last year's harvest to clear space. It is expected that this situation will be remedied and elevator bids will strengthen whenbarge traffic returns to more normal levels. However, USDA officials have expressed concern thatthe price decline resulting from the temporary delay in the Mississippi barge-based export flow ofagricultural products could persist for at least three months and possibly into the spring dependingon several factors including how quickly barge traffic resumes; how early the winter freeze andshut-down of the upper Mississippi River occurs; and whether the low water levels of the Missouriand Upper Mississippi Rivers are replenished by rainfall. Harvest-time Concerns. Harvest time generallysignals the busiest period of export movement for agricultural products for several reasons. First,supplies are generally most abundant at harvest time and can often exceed on-farm or local storagecapacity. As a result, both producers and marketers are eager to move surplus production throughthe marketing channels. Second, the more northerly inland waterways -- the Upper Mississippi Riverwaterway and the St. Lawrence Seaway -- shut down during the winter months due to freezingconditions. This limits export opportunities and increases the urgency for moving excess productioninto marketing channels ahead of the winter. Third, the arrival of surplus agricultural production intomarketing channels at harvest time tends to pressure commodity market prices to their season lowsand frequently offers the best purchasing opportunities for foreign buyers. Table 4. Harvest Period for Major U.S.Crops Source: Major World Crop Areas and Climatic Profiles , Agr Handbook No. 664, WorldAgricultural Outlook Board and Joint Agricultural Weather Facility, USDA, Sept. 1994. USDA has initiated several activities designed to alleviate weak commodity prices by easingthe grain transport congestion that has raised transport costs and lowered farm prices. (See the finalsection of this report, Government Response, for details of USDA's activities.) Farm Production Losses From a national perspective, the region's agriculture is dominated by Louisiana's sugar canecrop which accounts for nearly one-third of the value of U.S. annual sugar cane production ( Table5 ). Poultry in Alabama and Mississippi, rice in Louisiana, and cotton in Mississippi also havenational significance. However, several crops play a much bigger role at the state level. Broilersand eggs accounted for over 62% of Alabama's agricultural output value in 2003, while broilersrepresented a 42% share of Mississippi's agricultural economy. Cotton's share of state agriculturaloutput value in 2003 was 15% in Mississippi, 12% in Louisiana, and 5% in Alabama. Preliminary estimates by USDA economists are that Hurricane Katrina contributed to $882million in total crop, livestock, and aquaculture (16) losses in the Southeast. (17) (Estimates for HurricaneRita are not yet available, but are expected to be significantly less than for Katrina.) USDA reportsthat the greatest agricultural losses caused by Katrina, in terms of value of production, were toaquaculture ($151 million), sugarcane ($50 million), and cotton ($40 million). Other crops such assoybeans and rice were also prone to some wind damage. The $882 million loss estimate does notinclude Gulf state losses of timber (which USDA says could be in the billions of dollars dependingon its salvage value -- see the following section for more details), or losses of nursery andgreenhouse products and facilities in Florida, for which a Florida trade association projects $370million in structural damage and plant losses. (18) Also, the loss of electricity, the shortage of fuel, andinfrastructure damage temporarily interrupted the flow of poultry, milk and other agriculturalproducts to markets. For some crops, particularly sugarcane, the extent of losses will not be known until harvest.Damage to the region's sugarcane crop initially appeared to be extensive because the high windsflattened the crop. Some analysts report that much of the crop that was downed by the storm wasnot destroyed and can still be harvested. USDA estimates that Louisiana's sugarcane production willbe 9% below pre-hurricane estimates, which translates into an estimated processed value loss of $50million. Katrina also caused two Louisiana sugar refineries to temporarily halt operations, whichexacerbated what was already a tight supply of sugar. In response, USDA increased available sugarsupplies by increasing the quantity of domestic sugar that may enter the market under the sugar pricesupport program. (19) According to USDA, the largest cotton production areas (east and west of the storm track)were spared significant crop losses. Mississippi and Alabama, which account for 10% and 3% ofexpected U.S. cotton production, respectively, experienced some damage. Cotton production isestimated by USDA to be down 2.4% in Alabama and 4.3% in Mississippi following HurricaneKatrina. Total cotton losses in the Gulf region are expected to be about $40 million. Some of thedamage to the crop might be quality losses rather than production losses. Similarly, minor rice losseswere experienced, since the storm track was east of the major rice growing areas and most of theLouisiana rice acreage already had been harvested before Katrina struck. The corn and soybean crops were also affected by the hurricane, but the region normally accounts for less than 3% of national production of these two crops. The most serious market effectsattributable to corn and soybeans are more transportation related (as discussed above). Accordingto USDA, estimated regional losses are $14 million for corn and $17 million for soybeans. Industry analysts also report that the Gulf region's dairy industry experienced production andprocessing losses. USDA reports that 60,000 dairy cows were located in counties that experiencedhurricane-strength winds. Some of these cows were lost, but no estimates are available. The region'sdairy industry was hampered by the loss of production caused by power outages in milking facilities,and the inability to transport milk because of damaged roads and bridges, as well as the loss ofrefrigeration and metropolitan retail dairy markets. Alabama, Louisiana, and Mississippi combinedaccount for less than 1% of U.S. milk production; hence, market effects are expected to be limitedto the region. USDA also reports losses to cattle operations and broiler production in the three-state region.The region accounts for about 4% of national beef production, so national market effects areexpected to be minimal. Poultry is a significant enterprise in the region: Alabama and Mississippirank third and fifth, respectively, among all states in broiler production. Most of the broiler losseswere concentrated in Mississippi where facilities were either damaged or without power for anextended period. According to USDA, an estimated 6 million chickens were killed and 2,400poultry barns were damaged in Mississippi alone, and another 200,000 chickens were lost inAlabama. The broiler losses are valued by USDA at approximately $15 million. Some analystsestimate that large area broiler losses could cause an increase in market broiler prices in the shortterm (1-2 months). However, increased production elsewhere would eventually fill the gap so thatmarket effects would be minimized by the end of the year. (20) Table 5. Top 5 Agricultural Commodities: Alabama, Louisiana,and Mississippi, 2003 Source: U.S. Department of Agriculture's Economic Research Service. Damage to Forestry and Wood Products. TheGulf Coast states are significantly forested and are major producers of lumber and plywood. Information on the effects of Hurricane Katrina on Gulf Coast forests is sketchy. The MississippiForestry Commission issued a news release estimating that 1.3 million acres of forest land in thestate had been damaged, with commercial timber valued at about $1.3 billion; urban tree damage inMississippi was estimated at $1.1 billion. (21) The USDA Forest Service estimated 19 billion board feet oftimber damaged on over 5 million acres in Mississippi, Alabama, and Louisiana. (22) In addition to the damagesto wildlife habitat and other environmental services from the loss of forest cover, the dead anddamaged trees can become hazardous fuels for wildfires as well as a haven for forest insects anddiseases. Forestry assistance programs exist to help landowners, and can be used to help in therecovery of forest lands. One particular program, Emergency Reforestation Assistance, was enactedin the 1990 farm bill ( P.L. 101-624 ) to assist private landowners, primarily in South Carolina, withreforestation following Hurricane Hugo that hit in 1989. The program has not been funded sinceFY1993, following Hurricanes Andrew (FL and LA) and Iniki (HI). (23) Other forestry assistanceprograms are generally available to help landowners and states with forestry activities and forestprotection, such as reducing wildfire and insect threats from trees damaged by the hurricane. The impact of the hurricanes on wood products is less certain. Damages to structures hasprompted an urgent demand for plywood, for temporary repairs; if plywood prices follow the patternthat ensued from Hurricane Andrew in 1993, prices might have peaked at about the time of the eventin anticipation of the damage, and will fall back to more normal levels within a few weeks. Longer-term impacts are less clear. Rebuilding will increase the demand for additional woodproducts, although demand depends greatly on interest rates. The dead and damaged trees mightprovide a significant boost to wood product supplies, as salvage and mill operations convert the treesto usable products. However, salvage operations are hampered by the increasingly fragmentedownership of forest land and by rising fuel costs, and some mills may have been damaged by thehurricane. The effect over the coming weeks and months is thus likely to be both greater woodproducts demand and greater wood products supply, and the net effect on wood product prices (afterthe current urgent demand for plywood has passed) is indeterminate. Energy Costs and Agriculture Following the damage inflicted by Hurricanes Katrina and Rita on the Gulf region's oil andnatural gas production, refining, and importing capability, energy prices -- gasoline, diesel fuel, andnatural gas -- rose sharply. (24) Considerable uncertainty surrounds the longevity of recentenergy price rises, and the implications for U.S. agriculture hinge on their permanency. Fuel priceshave been trending higher over each of the past three years, and farmers were already likely to seerecord high fuel costs before the post-Katrina runup in prices struck ( Figure 5 ). In the near-term,it is likely that such strong energy price rises will significantly increase energy's share of totalproduction expenses and could significantly alter the farm income outlook for affected farmhouseholds and rural economies. Figure 5. Monthly Average U.S. Fuel Prices Energy Prices Already Trending Higher, Jump After Katrina The national average annual retail price for No. 2 diesel fuel has been rising steadily from$1.32 per gallon in 2002 to $1.51 per gallon in 2003, and $1.81 per gallon in 2004. In August 2005,it hit a then-record $2.50 per gallon. Gasoline prices followed a very similar pattern. In September2005, post-Katrina concerns have spiked both gasoline and diesel prices to record monthly averagelevels at $3.04 and $2.82 per gallon, respectively. Natural gas prices also have experienced substantial demand-driven price rises over the past3½ years. After hovering just below $2.00 per 1,000 cubic feet (mcf) through most of the 1990s,natural gas (wholesale or wellhead) prices moved upwards to average $2.95 per mcf in 2002, thensurged to a $4.98 per mcf average in 2003. Wellhead prices continued rising in 2004, averaging$5.49 per mcf. Since April 2005, natural gas prices have been above $6.00. During the final weekof August (August 24-31), Henry Hub spot market prices (Henry Hub is a primary wholesale marketlocation for natural gas) sky rocketed in anticipation of Katrina's disruption to an average of $12.70per mcf. During September, after Katrina had moved through the Gulf Coast region and analysts hada chance to better assess the damage to production facilities, natural gas prices retreated to averagearound $11 per mcf. Natural gas spot prices spiked again, jumping to over $14 per mcf in advance of the arrivalof Hurricane Rita. However, natural gas prices declined following Hurricane Rita's actual landfallas a weaker hurricane than expected, even while causing massive evacuations of rigs and platformsin the Gulf of Mexico and inflicting damage to both offshore and onshore energy-relatedinfrastructure. As of September 28, price quotes were still unavailable at the Henry Hub, which wasshut down owing to Hurricane Rita. (25) However, trading at other market locations in Louisiana saw anaverage decrease of $1.35 per MMBtu on the week (Wednesday-Wednesday, September 21-28). Theaverage price among Louisiana trading locations on September 28, 2005, was $13.45 per mcf. Evaluating the potential effect of such volatile energy price movements on U.S. agriculturehinges greatly on their permanency. (26) The relative importance of energy costs as a share of totalagricultural production expenses varies greatly by both activity and region. Although there are manykinds of operations performed by the different farm types, nearly all mechanized field work, as wellas marketing and management activities involve machinery, trucks, and cars that are dependent onpetroleum fuels. Dryers and irrigation equipment are often more versatile in that they can bepowered by petroleum fuels, natural gas, or electricity, while electricity is the primary source ofpower for lighting, heating, and cooling in homes, barns, and other farm buildings. Some activitiessuch as dairy and poultry production, that require a constant supply of energy for refrigeration orcooling are particularly vulnerable to a cut-off of energy supply as evidenced by the damagesustained in the hurricane-affected region. In the immediate term, higher diesel fuel and gasoline prices will raise the cost of harvestingand post-harvest treatment (e.g., drying, moving, and storing) of crops still in the field. For thosefarms that have been indirectly impacted by Katrina's damage to the region's marketinginfrastructure, higher fuel prices will make the overall cost of marketing products more expensive,while making rail and truck more costly options relative to barge transport. Such higher marketingcosts inevitably result in a widening farm-to-market basis and lower prices received at the farm gate. This, in turn, will alter the farm income outlook for affected farm households and rural economies. In the longer term, sustained high energy prices through the winter could lead to significantregional shifts in agricultural activities as early as 2006. High natural gas prices are particularlytroublesome because of their relationship with nitrogenous fertilizer production. Natural gasaccounts for a substantial portion (75% to 90%) of nitrogen fertilizer production costs, either directlyas a feedstock or indirectly as a fuel to generate the electricity needed in production. Because U.S.fertilizer manufacturers are at a competitive disadvantage with foreign producers when U.S. naturalgas prices rise, the high prices of recent years have contributed to a substantial reduction in its U.S.nitrogen fertilizer production capacity -- over a 25% decline since 1999. In addition, higher naturalgas prices have contributed to significantly higher nitrogen fertilizer prices ( Figure 6 ). Figure 6. Anhydrous Ammonia and Natural Gas Prices The post-Katrina jump in U.S. natural gas prices casts a cloud of uncertainty over the futureof the U.S. nitrogen fertilizer industry as well as raising concerns about the potential supply and priceof nitrogen fertilizer for crops in 2006. Producers are undoubtedly eyeing fuel and fertilizer pricedevelopments and will consider shifting away from crops that rely heavily on fuel-dependent fieldwork or fertilizer applications and towards those crops and activities that are less energy dependent. Corn is perhaps the most vulnerable crop due to its high per-acre energy usage rates. (27) In the longer term, a sustained rise in energy prices may have serious consequences onenergy-intensive industries like agriculture by reducing profitability and driving resources away fromthe sector. Government Response USDA Initiatives Targeting Export Traffic Congestion During September 2005, USDA announced that it was initiating several activities to helpalleviate the grain transport congestion described below. On September 7, 2005, USDA announcedchanges to its Marketing Assistance Loan Program to help alleviate the urgency of marketing grainat distress-level prices. (28) USDA's Commodity Credit Corporation (CCC) is implementingchanges to allow producers to obtain loans for "on-farm" storage on grain stored on the ground inaddition to grain bins and other normally approved structures. This action was designed to alleviateshort-term logistical problems and support local cash prices above the distressed levels that haveresulted from the slowdown of barge traffic on the Mississippi River. On September 20, 2005, Secretary of Agriculture, Mike Johanns, announced that USDA wastaking four additional steps to alleviate the grain transport congestion. (29) First, USDA, actingthrough the CCC, was providing temporary incentives to facilitate the immediate movement of 140barges of damaged corn (over 7 million bushels) from New Orleans to up-river locations foroff-loading. Once unloaded, the barges can return to duty moving new-crop commodities. Second,USDA was providing incentives for alternative grain storage. (30) Under this activity, theCCC would provide special, one-time assistance to operators to help with the costs associated withstoring corn and wheat in alternative storage facilities. Up to 50 million bushels of corn or wheatcould be eligible for this activity. Third, USDA was encouraging alternative shipping patternsthrough regions other than the central Gulf by providing for a transportation differential incentiveon the movement of up to 200,000 metric tons of corn, wheat or soybeans. Fourth, for thoseproducers with farm-stored commodities under loan to USDA whose loans mature at the end ofSeptember and October and who would otherwise forfeit those commodities to USDA, USDA wouldallow such producers to buy back the grain at the posted county price. Normally, these producerswould be required to move the forfeited grain to commercial warehouses. This offer is being madeon a state-by-state basis. Current USDA Disaster Authorities and Programs USDA has at its disposal three major ongoing programs designed to help crop producersrecover from the financial effects of any natural disaster: federal crop insurance, non-insured assistance program (NAP) payments, and emergency disaster loans. All three of these programs have permanent authorization and available funding. Forbackground information on these and other farm disaster programs, see CRS Report RS21212 , Agricultural Disaster Assistance , by [author name scrubbed]. For the 2005 crop year, Alabama, Mississippi, and Louisiana crop producers purchased justover $1 billion in crop insurance coverage, with nearly 70% of the value of coverage being forcotton, soybeans, and rice. According to preliminary reports from USDA, the three-state region hasrelatively high participation rates in the crop insurance program. However, much of that coverageis at the catastrophic level, which provides an indemnity payment only on losses in excess of 50%of normal production. For example, 90 to 95 percent of the cotton acreage in the three Gulf statesis enrolled in the federal crop insurance program. However, in Louisiana and Mississippi, just overone-half of that acreage is enrolled only at the catastrophic level. For those producers who growa crop that is not eligible for crop insurance coverage, USDA makes NAP payments available forcatastrophic losses, as long as the producer signed up for coverage and paid an administrative feein advance. Agricultural producers in a county that has been declared a disaster area may be eligible forlow-interest emergency disaster (EM) loans available through USDA's Farm Service Agency. USDAcurrently has authority to provide just over $150 million in EM loans. An eligible producer must bea family-sized farmer who suffered a minimum crop loss of 30%, and is unable to qualify for a loanfrom a commercial lender. EM loan funds may be used to help eligible farmers, ranchers, andaquaculture producers recover from production losses (when the producer suffers a significant lossof an annual crop) or from physical losses (such as repairing or replacing damaged or destroyedstructures or equipment, or for the replanting of permanent crops such as orchards). A qualifiedapplicant can then borrow up to 100% of actual production or physical losses (not to exceed$500,000) at a below-market interest rate. USDA announced on September 8, 2005, that $20 million in Emergency ConservationProgram funding will be given to Louisiana ($12.45 million), Mississippi ($7.1 million), Alabama($855,0000) and Tennessee ($25,000) to help these states clean up debris, and restore fences andconservation structures. Eligible participants can receive cost-share assistance of up to 75% of thecost to implement these practices. Congressional Response Since 1988, Congress frequently has supplemented the regularly funded disaster assistanceprograms with additional emergency aid. Funding for these programs generally are provided inemergency supplemental appropriations bills. Among these major ad-hoc farm disaster programsare (1) direct disaster payments, (2) livestock assistance, (3) tree assistance, and (4) emergencyconservation assistance. Most recently, the FY2005 Military Construction Appropriations Act ( P.L.108-324 ) contained supplemental funding to provide an estimated $3.5 billion in assistance for 2003and 2004 crop, livestock, and tree losses, primarily in response to ongoing drought in the West anda series of 2004 hurricanes that damaged or destroyed agricultural production in the Southeast. (Formore information on the ad-hoc agricultural assistance that was provided in response to the 2004hurricanes, see CRS Report RS21212 , Agricultural Disaster Assistance .) Prior to Hurricanes Katrina and Rita, portions of the Midwest were experiencing significant2005 crop losses caused by a prolonged drought. The combination of the Midwest drought andlosses caused by the two hurricanes is expected to provide momentum for Congress to consideremergency crop and livestock assistance for 2005 production losses some time this year. Severalbills have been introduced in the 109th Congress that would provide supplemental agriculturalassistance, primarily in the form of crop disaster payments and livestock assistance. To date, theseinclude bills ( H.R. 3809 , H.R. 3754 / S. 1692 , H.R. 3702 , S. 1636 ) that would provide disaster assistance to all regionsof the country that meet certain loss requirements, using similar payment formulas as in past years. Other bills ( H.R. 3958 and S. 1766 ) have been introduced that includeagricultural assistance as a part of a much larger package of assistance for recovery and relief fromthe effects of Hurricane Katrina in Louisiana. Congressional leadership has not yet determined the specifics of any agricultural disasterassistance package, or what legislative vehicle might be used to authorize this assistance. (31) The most likely vehiclefor agricultural assistance is in the context of a third supplemental appropriations bill for HurricaneKatrina recovery, which many expect will provide billions of dollars of assistance for rebuilding theinfrastructure of the affected region. Other possibilities include agricultural assistance being attachedto the pending FY2006 agriculture appropriations bill ( H.R. 2744 ) which is currentlyin conference committee, or the agriculture committees potentially could report emergencyagricultural legislation to the floor for consideration.

On August 29, 2005, Hurricane Katrina struck the Gulf Coast region coming ashore just eastof New Orleans. On September 24, 2005, Hurricane Rita hit the Gulf Coast region making land fallnear the border of Texas and Louisiana. Both hurricanes left behind widespread devastation. Ritaappears to have done most of its damage to energy infrastructure off-shore in contrast to Katrinawhich devastated large swaths of Louisiana, Mississippi, and Alabama. This report examines theimpact of these hurricanes on three important factors affecting the U.S. agricultural sector: marketinginfrastructure based on the Mississippi River waterway and Gulf ports; production losses for majorcrop and livestock producers in the affected region; and potential consequences for agriculturalproduction as a result of high energy costs. It also discusses the federal government response toagricultural concerns. Agricultural producers from the states directly impacted by Katrina have suffered economiclosses, although this varies greatly by crop and locality. Preliminary estimates by USDA is thatHurricane Katrina contributed to $882 million in total crop, livestock, and aquaculture losses. Thoseactivities most affected were aquaculture ($151 million), sugar cane ($50 million), and cotton ($40million). The damage estimate does not include losses in timber and nursery and greenhouseproducts. No preliminary estimate has been released by USDA concerning agricultural damage fromHurricane Rita. Hurricane Katrina temporarily halted the flow of agricultural trade through New Orleans --a major gateway for U.S. oil imports and agricultural exports -- causing commodity prices to declinein interior markets along the Mississippi River waterway. Although partial recovery of marketinginfrastructure occurred soon following Katrina's passage (with a brief shutdown in late Septemberdue to Hurricane Rita), substantial congestion and high costs continue to plague the MississippiRiver grain transport network. This traffic bottleneck and its depressive effect on farm commodityprices could persist into the spring of 2006. Energy prices jumped substantially in early September 2005, as a significant portion of U.S.petroleum and natural gas production, import, and refining facilities were damaged and shut down. There is considerable uncertainty surrounding the permanency of energy price rises and theirpotential impact on the U.S. economy in general, and U.S. agriculture in particular. By raising theoverall price structure of production agriculture, sustained high energy prices could result insignificantly lower farm and rural incomes in 2006. Certain ongoing federal programs, primarily crop insurance and disaster loans, are availableto eligible producers. The combination of Hurricanes Katrina and Rita with a Midwestern droughtmight also cause Congress to consider supplemental crop and livestock disaster assistance. Thisreport is intended as an overview of how the hurricanes have affected and are likely to continue toaffect the agricultural sectors of both the impacted regions and the United States. It is not intendedto provide a day-to-day update of events. It will, however, be updated as events warrant.

Introduction The central policy objective of a national infrastructure bank is to increase investment in infrastructure. Greater investment is desired because high-quality, well maintained infrastructure is believed to increase private-sector productivity and improve public health and welfare. The magnitude of the increased productivity, however, is not settled, as empirical analysis does not always support the conjecture that greater infrastructure investment uniformly generates productivity gains. The type of infrastructure and the type of investment are critical elements in such an assessment. National infrastructure bank proposals would support infrastructure development by providing relatively low-interest loans and other types of credit assistance in such a way as to stimulate investment by state and local governments and private funding sources. A national infrastructure bank, moreover, could be complementary to direct federal investment in infrastructure. Although no consensus definition exists, infrastructure is generally conceived of as the capital-intensive assets needed for the delivery of basic services. Both public and private entities own and operate infrastructure. Some infrastructure is provided by public-private partnerships which mix, in a myriad of different ways, public and private rights and responsibilities. Funding for these expensive and long-lived assets most often comes from money borrowed on the capital markets. In some cases, however, capital asset purchases are financed with current revenues, government grants, loans, and private equity. For debt-financed assets, investors seek a rate of return commensurate with the associated risk. Debt incurred on wholly owned government projects may be repaid with taxes, user fees, or a combination of the two. For privately owned infrastructure, user fees are the main option, although debt may be repaid in other ways such as property rents. Although the idea for a national infrastructure bank is not new, legislative proposals for creating a bank have drawn increased attention in the past few years. Proponents argue that an infrastructure bank offers three main advantages over traditional methods of federal support for infrastructure: A federal infrastructure bank could increase the total amount of investment in infrastructure by leveraging state, local, and private resources. It could accelerate construction of projects that may be slowed by the current need to await annual allocations of federal funds. It could promote the distribution of federal spending on the basis of anticipated returns to investment, rather than according to traditional allocation methods such as formulas, discretionary programs, and earmarking. This report begins with a discussion of the infrastructure bank concept and some examples of existing infrastructure financing mechanisms. The report then describes and analyzes selected legislative proposals for infrastructure banks, and concludes with an analysis of some advantages and disadvantages of creating a national infrastructure bank and alternative institutional structures. Appendix A describes the current federal role in financing infrastructure as context for the possible creation of a national infrastructure bank. What Is an Infrastructure Bank? Conceptually, an infrastructure bank is a government-established entity that provides credit assistance to sponsors of infrastructure projects. An infrastructure bank can take many different forms, such as an independent federal agency, a federal corporation, a government-sponsored enterprise, a state government entity, or a private-sector, nonprofit corporation, but is distinguished from a commercial bank or private-sector infrastructure fund by being government-established. Unlike government departments that mainly fund infrastructure through grants, an infrastructure bank would be expected mainly to provide credit assistance, typically loans, loan guarantees, and lines of credit. As with a traditional commercial bank, infrastructure bank borrowers would be expected to repay their loans with interest, and may have to pay other fees associated with the bank's credit instruments. But unlike a commercial bank, an infrastructure bank takes no deposits and conducts no other "over-the-counter" transactions. Examples of existing infrastructure banks are the European Investment Bank (EIB) and, in the United States, state infrastructure banks, and possibly the Export-Import Bank. The EIB was created by the European Union (EU) in 1957 to help finance infrastructure and other economic development projects. The bank is capitalized by funds from its 27 member countries, but most of its capital comes from issuing bonds. Member countries also agree to provide extra funds, known as "callable capital," if needed to cover loan defaults. The bank is overseen by a board of governors, comprised of the finance ministers of the member countries, and a board of directors that has a representative from each member country. Project appraisal reports, conducted by staff engineers, economists, and financial analysts, are provided to the board of directors for a financing decision. Most of the EIB's work involves low-interest, long-term loans to public and private entities within the EU, although it has provided support for projects outside the EU. According to the Congressional Budget Office (CBO), the EIB can offer low-interest loans because it is large, is nonprofit, has a AAA rating, and is backed by member governments. In addition to supporting transportation, energy, telecommunications, health and education, and environmental projects, the EIB has provided support to private industry, particularly small and medium-sized enterprises, and for research and development. Initially, the EIB aided projects which governments or private lenders could not or would not finance. However, today the EIB is "only one of a variety of providers" of funding for infrastructure in Europe. In 2010, the EIB loaned €72 billion (87.5% in EU countries and 12.5% outside the EU) or approximately $100 billion. As of the close of 2010, the EIB has total assets (mostly loans outstanding) of €420 billion ($583 billion). In 2010, the EIB financed 460 "large projects" in 72 countries. Many state governments have established infrastructure banks to support projects in surface transportation. Most of these were created in response to a federal state infrastructure bank (SIB) program originally established in surface transportation law in 1995 ( P.L. 104-59 ). According to the Federal Highway Administration (FHWA), 32 states and Puerto Rico had established federally authorized SIBs by December 2008. No more recent data are available. At least four states, Florida, Georgia, Kansas, and Ohio, also have SIBs that are unconnected to the federal program. As part of the federal transportation program, a state can use its allocation of federal surface transportation funds to capitalize an SIB. There are some requirements in federal law for SIBs connected with the federal program (23 U.S.C. 610), but for the most part their structure and administration are determined at the state level. Most SIBs are housed within a state department of transportation, but at least one (Missouri) was set up as a nonprofit corporation and another (South Carolina) is a separate state entity. A number of SIBs also provide assistance to non-transportation projects. Most SIBs function as revolving loan funds, in which money is directly loaned to project sponsors and its repayment with interest provides funds to make more loans. Some SIBs, such as those in Florida and South Carolina, have the authority to use their initial capital as security for issuing bonds to raise further capital as a source of loans. This is known as a leveraged SIB, and repayment of its loans is used to repay bondholders. SIBs also typically offer project sponsors other types of credit assistance, such as letters of credit, lines of credit, and loan guarantees. A third example is the Export-Import (Ex-Im) Bank. This mostly self-sustaining government agency uses direct loans, loan guarantees, working capital guarantees, and export credit insurance to assist overseas purchasers of U.S. goods, often in cooperation with domestic or foreign financing firms. Some Ex-Im transactions involve infrastructure-related technologies, such as power generating equipment (e.g., solar panels and wind turbines); passenger aircraft; and machinery used in the construction of roads, dams, and airports. Although the purpose of the Ex-Im Bank is to provide financing to support U.S. exports of manufactured goods and services with the objective of creating domestic jobs, it has the general authority to lend money and perform other banking functions. However, Congress may need to amend the bank's charter and would likely need to expand the bank's resources if it wants Ex-Im Bank to support public and private entities wishing to invest in domestic infrastructure. National Infrastructure Bank Bills In keeping with recent history, several infrastructure bank bills are pending before the 112 th Congress. The three primary infrastructure bank bills discussed here are S. 652 , S. 936 , and H.R. 402 . Two, S. 652 and H.R. 402 , would create a wholly owned federal government corporation. In contrast, S. 936 would create a "fund" within the Department of Transportation (see Table 1 for a brief summary of the legislation). There are several additional infrastructure bank bills pending that are not separately addressed in this report as they are all very similar to the three analyzed. The discussion of S. 652 can generally be applied to S. 1549 and S. 1769 . And S. 1550 (and its House companion, H.R. 3259 ) would create an "independent establishment" called the "National Infrastructure Bank." The remainder of this section provides more detail on each of the infrastructure bank bills listed in Table 1 . Each bill is described focusing on the following topics: structure, eligible projects, project selection criteria, financing packages, and congressional funding (appropriations). Table B -1 lists the various infrastructure project types identified in S. 652 , S. 936 , and H.R. 402 . S. 652 "Building and Upgrading Infrastructure for Long-Term Development" Introduced on March 17, 2011, by Senators Kerry, Hutchison, Warner, and Graham, S. 652 would create a relatively independent infrastructure bank. This legislation may have provided the foundation for the infrastructure bank component of the President's "American Jobs Act," which was introduced in the Senate as S. 1549 by Senator Reid. However, the front matter from S. 652 reproduced here is not in S. 1549 . Otherwise, the infrastructure bank proposal in S. 1549 is virtually identical to S. 652 . Structure The legislation would establish the American Infrastructure Financing Authority (AIFA), a wholly owned government corporation with a seven-member board of directors appointed by the President with the advice and consent of the Senate. The President would select the board's chairperson, and the board would appoint AIFA's chief executive officer, who would be a non-voting member of the board. The board could not have more than four members from the same political party. AIFA would not be required to submit a budget to the President, and the chief executive officer would be compensated without regard to the general schedule applicable to other government employees (5 U.S.C. 51 and 53). Eligible Projects Entities eligible for AIFA financing would include private individuals, corporations, partnerships, or nonfederal government. AIFA would help finance, through direct loans and loan guarantees, the following types of infrastructure projects: (1) transportation, (2) water, (3) energy, or (4) an aggregation of such projects. The estimated cost of individual projects would have to be at least $100 million or, for rural infrastructure projects, $25 million. The legislation identifies specific types of projects within each broad category, which are listed in Table B -1 . States are defined to include Puerto Rico, the District of Columbia, and all of the territories (American Samoa, Guam, Commonwealth of the Northern Marianas, and the U.S. Virgin Islands). Project Selection Criteria The legislation does not include specific instructions for the selection of projects. Instead, the AIFA chief executive officer is required to submit to the board policies for the loan application and approval process, including guidelines for selection and specific criteria for determining eligibility. Section 201 provides that the bank's selection criteria must require that (1) only projects with a clear public benefit are eligible, (2) financial aid may not be used to refinance existing projects, and (3) projects must be infrastructure as defined by the bill. Financing Packages AIFA would provide loans and loan guarantees. During the first two years, the aggregate amount of direct loans and guarantees made by AIFA could not exceed $10 billion in each year. For years three through nine, AIFA could not provide more than $20 billion in new loans or guarantees each year. Thereafter, the annual new loan and guarantee limit would be $50 billion. AIFA loans would be repaid from (1) tolls, (2) user fees, or (3) other dedicated state and/or local government revenue sources. The legislation also would require additional security such as a "rate covenant" or similar security feature that would back the project obligations. The loan repayments would be required to begin not later than five years after the date of substantial completion of the project. The rate on loan guarantees would have to be consistent with direct loans and is subject to the Federal Credit Reform Act of 1990 (FCRA). The interest rate on the loans could not be less than the yield on U.S. Treasury securities of similar maturity. AIFA would charge a "credit fee" in addition to the base interest rate. The term of the loans cannot exceed 35 years. Funding of AIFA The chief executive officer would be tasked with setting fees sufficient to cover all the federal government's administrative costs to operate AIFA. The options would include an application fee, a transaction fee, and an interest rate adjustment. Congress would provide AIFA with a $10 billion startup appropriation. Administrative costs would be limited to $25 million in 2012 and 2013 and $50 million in 2014. Not more than 5% of the total appropriation ($500 million) could be used to offset the subsidy costs associated with rural infrastructure projects. The subsidy cost is "the estimated long-term cost to the government of a direct loan or a loan guarantee, calculated on a net present value basis, excluding administrative costs." The intent of this provision may be to limit the federal exposure to potential losses from rural infrastructure projects. S. 936 "American Infrastructure Investment Fund Act of 2011" Introduced on May 10, 2011, by Senator Rockefeller and cosponsored by Senator Lautenberg, S. 936 would create a special fund housed and managed as part of the Department of Transportation. A fund within the Department of Transportation would not be a typical infrastructure bank as described previously. Structure The legislation would establish the American Infrastructure Investment Fund (AIIF) as a part of the Department of Transportation. This contrasts with S. 652 , which would organize a mostly independent government corporation. Thus, the structure proposed in S. 936 is intended to be an augmentation of existing transportation financing programs rather than a stand-alone "infrastructure bank." AIIF's primary objective would be to invest in transportation infrastructure projects. A secondary objective would be funding for projects that have been difficult to finance because of their multijurisdictional nature or the existence of multiple transportation modes. As with AIFA, the AIIF portfolio must maintain an investment grade rating. Within one year of creation, AIIF is to publish a detailed explanation of the factors and formula used to determine an eligible project qualification score. The President would appoint, with the advice and consent of the Senate, an executive director who would also serve as the chief executive officer. The term of the executive director is five years. The fund also would have a board composed of seven individuals, including three permanent members (the Secretaries of Treasury, Commerce, and Energy) and four executives from the Department of Transportation appointed by the Secretary of Transportation. These latter four executives could not serve for more than two years. The President also would establish a "Fund Advisory Committee" (FAC) composed of five to seven members who would serve three-year terms. The FAC would be bipartisan and geographically balanced. The FAC would advise the board and Secretary of Transportation on the prospects for the extension of AIIF's activities to non-transportation infrastructure sectors such as renewable energy generation, energy transmission and storage, energy efficiency, drinking water and wastewater systems, and telecommunications systems. The FAC would be subject to the requirements of the Federal Advisory Committee Act, including public access to meetings (5 U.S.C. Appendix). In addition to establishing AIIF, the legislation would specify that passenger and freight transportation projects and port infrastructure projects are eligible for funding from money apportioned under the federal surface transportation program. Eligible Projects and Types of Financing The legislation would offer loans, loan guarantees, and grants. Eligible recipients would include sub-national governmental entities and nongovernmental entities such as corporations, partnerships, and joint ventures. The nongovernmental recipients would be eligible only if there were a sub-federal governmental cosponsor of the eligible project. An eligible project would be "comprised of activities included in a regional, State, or national plan" and "transportation related." In addition to loans and loan guarantees, the legislation would also establish a competitive investment grant program for a wide swath of transportation-related projects (see Table B -1 ). As proposed, this "National Infrastructure Investment Grant (NIIG)" program would (1) leverage federal investment by encouraging nonfederal contributions to the project, including contributions from public-private partnerships; (2) improve the mobility of people, goods, and commodities; (3) incorporate new and innovative technologies, including intelligent transportation systems; (4) improve energy efficiency or reduce greenhouse gas emissions; (5) help maintain or protect the environment, including reducing air and water pollution; (6) reduce congestion; (7) improve the condition of transportation infrastructure, including bringing it into a state of good repair; (8) improve safety, including reducing transportation accidents, injuries, and fatalities; (9) demonstrate that the proposed project cannot be readily and efficiently realized without federal support and participation; and (10) enhance national or regional economic development, growth, and competitiveness. A grant for the federal share of the NIIG project could not exceed 80% of the net project cost. Sub-national governments and government-sponsored corporations would be eligible for this program. Appropriations of $600 million in each of 2012 and 2013 would be made available to carry out the NIIG program. A project seeking a loan or loan guarantee would need to be at least $50 million in total cost, or $10 million if located entirely in a rural area. The legislation defines a "rural area" as all population and territory not within an urbanized area. AIIF Project Selection Criteria AIIF would be required to consider the following when evaluating projects: (1) federal budgetary resources included, (2) percentage of federal grants included in the investment plan, (3) the level of uncertainty in the project benefits, and (4) the percentage of eligible project cost to be funded through nonfederal resources pledged by the applicant. A qualification score would be required to equal the ratio between the present value of benefits to the present value of costs reasonably expected to result from the funding of the project or projects proposed in the application. The ratio should include probabilistic bands of both benefits and costs when determining the qualification score. Projects would be subject to the Davis-Bacon Act (40 U.S.C. 3141). The Davis-Bacon Act requires that projects pay the prevailing local area wage. The DOT would lead the environmental review process for each proposed project. Financing Packages The applicants for assistance also would have to submit an "investment plan" that provides and outlines the financial commitment of AIIF to the eligible project. AIIF financial assistance may include loan guarantees and lines of credit (i.e., direct loans). A direct loan could be made by AIIF only if necessary "to alleviate a credit market imperfection," or "necessary to achieve specified Federal objectives by providing credit assistance" and "is the most efficient way to meet such objectives." In addition, loans could not be subordinated (meaning that in the event of financial stress, these loans would be part of the first tier of creditors to be repaid) and the rates must be set "by reference to a benchmark interest rate on marketable Treasury securities" of similar maturity. The loans and guarantees must include appropriations of budget authority as required under Section 504 of the Federal Credit Reform Act of 1990. The FCRA requires that the subsidy cost of a credit program be accounted for in the fiscal year of the commitment. The subsidy cost is "the estimated long-term cost to the government of a direct loan or a loan guarantee, calculated on a net present value basis, excluding administrative costs." Loans may be up to 70% of the eligible cost less any other spending supported by federal assistance. Repayment terms should be based on the projected cash flows or other repayment sources. The term of the loans may not exceed 90% of the estimated useful economic life of the asset being financed. A loan guarantee may not exceed 80% of the loss of the loan. Less risky borrowers would receive a lower guarantee percentage. Funding of AIIF AIIF would be allowed to establish and collect fees from funding participants. Additionally, the legislation would authorize the appropriation of $5 billion in each of FY2012 and FY2013. Administrative expenses could not exceed $50 million in 2012 and $51 million in 2013. H.R. 402 ''National Infrastructure Development Bank Act of 2011'' On January 24, 2011, Representative DeLauro, along with many other cosponsors, introduced H.R. 402 . The legislation would create a wholly owned government corporation that would issue public benefit bonds (PBBs) to help finance infrastructure through grants, loans, and loan guarantees. Structure The legislation would establish the National Infrastructure Development Bank (NIDB), which would be subject to the Government Corporation Control Act (GCCA; 31 U.S.C. 9101-9110). The bank would issue PBBs, subject to the approval of the Secretary of the Treasury. These bonds would not be subject to any nonfederal governmental taxation. The PBBs would not be guaranteed by the full faith and credit of the U.S government. The PBBs, however, could be bought and sold by the Federal Reserve (the Fed) as if they were U.S. obligations. The bank would have a board consisting of five members appointed by the President. Two of the members would be required to have public sector experience and three would need to have private sector experience. All would serve six-year terms. The board would have authority to (1) issue public benefit bonds and to provide financing to infrastructure projects from the proceeds; (2) make loan guarantees; (3) borrow on the global capital market and lend to regional, state, and local entities, and commercial banks for the purpose of funding infrastructure projects; (4) purchase in the open market any of the bank's outstanding obligations; and (5) monitor and oversee infrastructure projects financed, in whole or in part, by the bank. The NIDB also would have a nine-member executive committee composed of professionals with experience in a range of disciplines including economic development and finance (both private and public). The bank would include a five-member risk management committee composed of risk managers within the bank and also would have a five-member audit committee. Eligible Projects The NIDB would help finance the construction, reconstruction, rehabilitation, replacement, or expansion of infrastructure. An infrastructure project would be defined as "any energy, environmental, telecommunications, or transportation infrastructure project" (see Table B -1 ). Assistance could be provided to states. States are defined to include Puerto Rico, the District of Columbia and all of the territories (American Samoa, Guam, Commonwealth of the Northern Marianas, and the U.S. Virgin Islands). All projects would be subject to the Davis-Bacon Act wage requirements. Project Selection Criteria The board would be tasked with creating project selection criteria. In general, the "Bank shall conduct an analysis that takes into account the economic, environmental, social benefits, and costs of each project under consideration for financial assistance under this Act, prioritizing projects that contribute to economic growth, lead to job creation, and are of regional or national significance." The criteria should provide for the consideration of the following: (1) the financial terms and conditions including the maximization of outside revenue sources and (2) the likelihood a project would advance more promptly than would have been the case absent assistance. Notably, the legislation does not include a minimum project size requirement. The legislation also would provide additional considerations for specific types of infrastructure. For example, for transportation infrastructure, the criteria should consider the potential for job growth, reducing congestion, alleviating poverty, and reductions in carbon emissions. Other types of infrastructure, such as environmental, energy, and telecommunication projects, have similar suggested criteria. Financing Packages The legislation does not provide descriptions of specific financing packages. Funding of NIDB The NIDB would be capitalized with $5 billion in each of FY2012 through FY2016. The total would be 10% of the total subscribed capital of the bank. Up to 90% of the subscribed capital is callable by the Treasury Secretary. The total loans outstanding may not exceed 250% of the subscribed capital, and the bank shall cease to exist 15 years after creation. Issues for Congress As Congress debates the various infrastructure bank proposals, it will face a number of issues with respect to the scale, powers, organization, and potential impact of the proposed institution Will a bank increase infrastructure investment? One of the main arguments for creating a national infrastructure bank is to encourage investment that would otherwise not take place. This investment is especially thought to be lacking for large, expensive projects whose costs are borne locally but whose benefits are regional or national in scope. A national infrastructure bank might help facilitate such projects by providing large amounts of financing on advantageous terms. For instance, an infrastructure bank could provide loans with very long maturities and allow repayment to be deferred until a facility is up and running. Whether this would lead to an increase in the total amount of capital devoted to infrastructure investment is unclear. One purported advantage of certain types of infrastructure banks is access to private capital, such as pension funds and international investors. These entities, which are generally not subject to U.S. taxes, may be uninterested in purchasing the tax-exempt bonds that are traditionally a major source of project finance, but might be willing to make equity or debt investments in infrastructure in cooperation with a national infrastructure bank. If this shift were to occur, however, it could be to the detriment of existing investment, as the additional investment in infrastructure may be drawn from a relatively fixed amount of available investment funds. Even if it were to increase the total amount of infrastructure investment, an infrastructure bank may not be the lowest-cost means of achieving that goal. The Congressional Budget Office has pointed out that a special entity that issues its own debt would not be able to match the lower interest and issuance costs of the U.S. Treasury. Will an infrastructure bank duplicate existing programs? The federal government already has a number of programs to support infrastructure projects (see Appendix A for a discussion of these). Drinking water and wastewater infrastructure projects, for instance, can receive low-interest loans for up to 20 years from the state revolving loan fund program, and repayment does not begin until the facility is operating, although these loans tend to be relatively small. The Transportation Infrastructure Finance and Innovation Act (TIFIA) program provides large low-interest loans of up to 35 years from the substantial completion of a project (see the box below). For these and other reasons, some argue that TIFIA already functions as an infrastructure bank for transportation projects. Only transportation projects are eligible for TIFIA assistance, which has generated interest in creating similar programs in other infrastructure areas. For example, there have been proposals for the creation of a WIFIA, a Water Infrastructure Financing and Innovations Authority, to support infrastructure for drinking water and wastewater systems. If it were to create a national infrastructure bank, Congress would need to consider the fate of these other programs. One option would be abolish the programs that appear to have the same objectives as the infrastructure bank, such as TIFIA, but keep the programs that are primarily aimed at providing assistance to smaller projects, such as the Wastewater and Drinking Water SRFs and the State Infrastructure Bank program. Another option would be to create the national infrastructure bank as an added mechanism for credit assistance, with the possible duplication of effort this entails. All existing national infrastructure bank proposals take this latter approach. Will a national infrastructure bank accelerate investment? Once established, a national infrastructure bank might help accelerate worthwhile infrastructure projects, particularly large projects that can be slowed by funding and financing problems due to the degree of risk. These large projects might also be too large for financing from a state infrastructure bank or from a state revolving loan fund. Moreover, even with a combination of grants, municipal bonds, and private equity, mega-projects often need another source of funding to complete a financial package. Financing is also sometimes needed to bridge the gap between when funding is needed for construction and when the project generates revenues. Although a national infrastructure bank might help accelerate projects over the long term, it is unlikely to be able to provide financial assistance immediately upon enactment. In several infrastructure bank proposals (e.g., S. 652 and S. 936 ), officials must be nominated by the President and approved by the Senate. The bank will also need time to hire staff, write regulations, send out requests for financing proposals, and complete the necessary tasks that a new organization must accomplish. This period is likely to be measured in years, not months. The example of the TIFIA program may be instructive. TIFIA was enacted in June 1998. TIFIA regulations were published June 2000, and the first TIFIA loans were made the same month. However, according to DOT, it was not until FY2010 that demand for TIFIA assistance exceeded its budgetary authority. What are the federal budgetary implications? One attraction of the national infrastructure bank proposals is the potential to encourage significant nonfederal infrastructure investment over the long term for a relatively small amount of federal budget authority. Ignoring administrative costs, an appropriation of $10 billion for the infrastructure bank could encourage $100 billion of infrastructure investment if the subsidy cost were similar to that of the TIFIA program. The critical assumption, however, centers on the estimated risk of each project. The current methods used to budget for federal credit programs generally underestimate the potential risk and thus the federal commitment (as measured by the "subsidy cost"). Increasing the estimated subsidy cost would result in a significant reduction in the amount available for investment. For example, doubling the average subsidy cost from 5% to 10% would reduce available loan capacity by half, as the loans are expected to cost the government twice as much. The budgetary implications of H.R. 402 are somewhat different from those of the other pending infrastructure bank proposals. This bill proposes to capitalize an infrastructure bank with appropriations of $25 billion and to provide another $225 billion in "callable capital," which would be made available from the Treasury only if it is needed by the bank to meet its obligations. Under this proposal, the bank would be permitted to issue bonds up to 250% of the bank's total capital (capital plus callable capital). This means the bank could support up to $625 billion of bonds, which would be backed by the full faith and credit of the U.S. Treasury. In addition to the $25 billion, the callable funding of $225 billion would likely be scored as an appropriation. Can a national infrastructure bank be financially self-sustaining? All pending infrastructure bank proposals have the objective of increasing investment in infrastructure while maintaining financial self-sustainability. These two objectives may not be compatible. Traditional banks are self-sustaining because they borrow from depositors at a low rate (and typically short term) and lend at a higher rate (and typically long term). In addition, they impose fees and charge for a variety of services beyond lending. An infrastructure bank's self-sustainability, in contrast, would depend almost exclusively on its capacity to lend at a higher rate than its cost of capital. If the infrastructure bank were to rely mainly on private capital (either equity or credit), it would have to provide those investors with a rate of return comparable to that available on investments with a similar risk and time profile to those in the bank's portfolio. If the federal government bears some of the risk, then investors would not require as much compensation as they would if not for the federal guarantee. Federal budgeting rules, however, would require that the value of the risk shifted from the private sector to the federal government be accounted for in the federal budget. The other constraint on sustainability is the need to keep the nonfederal share of projects attractive to investors. Currently, state and local governments can finance infrastructure with relatively low-cost capital by issuing tax-exempt bonds. If the infrastructure bank must compensate investors to attract capital, and no federal tax advantages are conferred upon these investors, it seems unlikely that the bank will be able to match the low interest rates available with tax-exempt bonds. The infrastructure bank proposed in S. 652 and S. 1549 would be allowed to charge fees for loans and loan guarantees, which could move the bank closer to sustainability. However, the additional transaction fees or interest rate adjustments would make financing through the infrastructure bank more expensive. The higher these fees go, the less advantageous it will be for a project sponsor to seek infrastructure bank assistance. How will projects be selected? A frequent criticism of current public infrastructure project selection is that it is often based on factors such as geographic equity and political favoritism instead of the demonstrable merits of the projects themselves. In many cases, funding goes to projects that are presumed to be the most important, without a rigorous study of the costs and benefits. Proponents of an infrastructure bank assert that it would select projects based on economic analyses of all costs and benefits. Furthermore, a consistent comparative analysis across all infrastructure sectors could yield an unbiased list of the best projects. Selecting projects through an infrastructure bank has possible disadvantages as well as advantages. First, it would direct financing to projects that are the most viable financially rather than those with greatest social benefits. Projects that are likely to generate a financial return through charging users, such as urban water systems, wastewater treatment, and toll roads, would be favored if financial viability is the key element for project selection. Conversely, projects that offer extensive spillover benefits for which it is difficult to fully charge users, such as public transit projects and levees, would be disfavored. Second, selection of the projects with the highest returns might conflict with the traditional desire of Congress to assure funding for various purposes. Rigorous cost-benefit analysis might show that the most attractive projects involve certain types of infrastructure, while projects involving other types of infrastructure have less favorable cost-benefit characteristics. This could leave the infrastructure bank unable to fund some types of projects despite local support. Third, financing projects through an infrastructure bank may serve to exclude small urban and rural areas because large, expensive projects tend to be located in major urban centers. Because of this, an infrastructure bank might be set up to have different rules for supporting projects in rural areas, and possibly also to require a certain amount of funding directed to projects in rural areas. For example, S. 652 proposes a threshold of $25 million for projects in rural areas instead of $100 million in urban areas. Even so, the $25 million threshold could exclude many rural projects. A fourth possible disadvantage is that a national infrastructure bank may shift some decision making from the state and local level to the federal level. Although the initiation of projects will come from state and local decision-makers, a national infrastructure bank will make the final determination about financing. Some argue that this will reduce state and local flexibility and give too much authority to centralized decision-makers divorced from local conditions. How might an infrastructure bank be structured? Congress has established numerous banking entities taking a wide range of institutional forms. To cite four examples: The National Credit Union Administration Central Liquidity Facility was established in 1978 through statute (12 U.S.C. 1795) as a cooperative corporation that is owned by federal credit unions. It is managed by the board of the National Credit Union Administration (12 U.S.C. 1751) and can borrow from the U.S. Treasury. Its purpose is narrow—to serve as a lender of last resort to credit unions needing liquidity due to unforeseen or unusual circumstances. Government-sponsored enterprises, such as the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal Agricultural Mortgage Corporation (Farmer Mac), are structured as privately held, for-profit corporations designed to serve a public purpose. Some of these entities were designed to be investor owned, while others, such as the Federal Home Loan Bank System and the Farm Credit System, are owned cooperatively by their borrowers. The extent of direct federal involvement varies. The Rural Telephone Bank, established in 1971 (7 U.S.C. 941) to provide credit to telecommunications companies in rural areas, was designed as a mixed-ownership corporation . The federal government capitalized the bank by purchasing its dividend-yielding A class stock, and other classes of stock were sold to private investors. The bank liquidated itself in 2007. The mixed-ownership structure was earlier used for the First Bank of the United States, which was chartered by Congress in 1791 (1 Stat. 192 Section 3) to stabilize the currency and provide a safe depository for funds and a source of credit. The bank's shares were owned by both the U.S. government and private shareholders. Congress has established many lending institutions that are wholly owned government corporations . The Export-Import Bank, mentioned earlier in this report, is an example, as is the Overseas Private Investment Corporation (OPIC; 22 U.S.C. 2191). OPIC was established in 1969, and it offers loans, loan and risk insurance, and other services to U.S. investors operating in overseas markets. Like the Export-Import Bank, OPIC serves a governmentally defined purposes, and it supports its operations through commercial activities. The three bills considered in this report, S. 652 , S. 936 , and H.R. 402 , all would establish infrastructure banks that are wholly government owned. How might an infrastructure bank be governed? The three bills would locate the proposed infrastructure banks within the federal government and establish executive branch direction over them through presidential appointments ( Table 1 ). Each bill would have the President appoint the board of the infrastructure bank, and S. 652 would have the chief executive officer be presidentially appointed rather than chosen by the board. An organization's institutional structure can affect its accountability to Congress and the President. The more tightly yoked to legislative and executive branch authorities an organization is, the more accountable and responsive to those authorities the organization can be expected to be. Hence, if organizations are considered as existing on a spectrum—with a wholly governmental agency on one end and a wholly private firm on the other—the former would tend to be the most accountable and responsive to federal oversight, while the latter the least. This organizational responsiveness to federal oversight comes through a number of means, such as executive and legislative involvement in the appointment of the organization's leadership, the organization's location within or outside the government, and the organization's reliance on appropriated funding. However, with accountability can come sensitivity to competing stakeholder demands. An agency charged with national responsibilities that feels the imperative to satisfy the demands of diverse overseers might not allocate all its efforts toward pursuit of its national objectives. It may apportion some resources to activities intended to satisfy overseers and stakeholders. The infrastructure banks contemplated in the legislation discussed here all would be closely yoked to the federal government—especially S. 936 , which would use appropriations to create a fund within the Department of Transportation. Each bill would have the President appoint the boards of the infrastructure banks, and S. 652 would have the CEO be presidentially appointed (rather than chosen by the board). S. 936 would create an organization funded solely by appropriations, while S. 652 and H.R. 402 would reduce this dependency some degree by authorizing the infrastructure bank to seek funds from other sources, such as fees and bond issuance. However, each bill also would require its infrastructure bank to pursue financial self-sufficiency as a private firm would. S. 652 and H.R. 402 both would establish government corporations, entities explicitly designed to be both governmental and partially motivated by the prospect of financial gain. S. 936 would require the "fund" to maintain a highly rated infrastructure investment portfolio. The imperative to be self-supporting could possibly counter-balance the distributive political pressures. A number of government corporations (e.g., Government National Mortgage Corporation, (12 U.S.C. 1717)) and other self-supporting federal entities (e.g., Patent & Trademark Office (35 U.S.C. 1)) have long records of operating independently. Yet, successful self-supporting federal entities often operate as monopolists; for example, only the Patent & Trademark Office may issue patents. Hence, it can be difficult to disentangle the positive organizational effects of the imperative to be self-sufficient from the advantages of being a monopolist. The infrastructure banks currently proposed would not be monopolists, as many other sources of infrastructure funding exist. A fundamental policy tradeoff underlies the merits of a national infrastructure bank or similar entity. The desire for an equitable distribution of federal investment in infrastructure must be balanced against the often competing goal of an efficient allocation of federal resources. An infrastructure bank that finances projects yielding the highest public benefit (as measured from the national perspective) may yield an unsatisfactory redistribution of federal resources based on a subjective measure of equity. Further, current budget constraints, both federal and nonfederal, may limit public interest in new spending initiatives without accompanying spending reductions on other programs or higher taxes. Ultimately, the anticipated higher productivity and thus greater consumption in the future made possible by infrastructure investment today is not certain. Appendix A. Background on Infrastructure Financing The Federal Role The federal government, state and local governments, and the private sector all invest in what might be defined as infrastructure. In 2008, the Congressional Budget Office (CBO) provided estimates of capital spending on infrastructure. These data show that government invests chiefly in transportation and water infrastructure whereas the private sector invests in energy and telecommunications infrastructure. Within the public sector, state and local governments are typically responsible for a much larger share of infrastructure investment than the federal government. For example, about 25% of government spending on transportation and water infrastructure is from the federal government, with the other 75% from state and local government. The federal government assists in infrastructure investment in several ways. First, it spends directly on certain projects, such as the inland waterway system maintained and operated by the U.S. Army Corps of Engineers. Second, the federal government provides grants to state and local governments through a multitude of programs, such as those that provide funding for the maintenance, rehabilitation, and expansion of bus and transit rail systems. Third, the federal government provides credit assistance to state and local government and the private sector through direct loans, loan guarantees, and tax preferences. In 2010, direct federal spending on non-defense physical capital amounted to $48.1 billion and grants to state and local governments were another $93.3 billion. Tax preferences were also significant. The amount of federal tax revenue foregone through tax-exempt bond financing for infrastructure was estimated to be $26.8 billion for 2010. Federal Credit Assistance Programs As noted above, the federal government also has a number of existing programs that provide loans, loan guarantees, and other credit assistance for a wide spectrum of infrastructure projects, including the following: The Transportation Infrastructure Finance and Innovation Act (TIFIA) program (23 U.S.C. 601 et seq.). TIFIA provides federal credit assistance up to a maximum of 33% of project costs in the form of secured loans, loan guarantees, and lines of credit. The Railroad Rehabilitation and Improvement Financing (RRIF) Program (45 U.S.C. 821 et seq.). RRIF, also originally established in TEA-21, provides loans and loan guarantees to freight railroads and Amtrak for rail infrastructure improvements. The Title XI Federal Ship Financing Program (46 U.S.C. Chapter 537). This program provides loan guarantees for improvements to U.S.-flagged commercial vessels and U.S. shipyards. Title XVII Loan Guarantee Program (42 U.S.C. 16511 et seq.). Enacted in the Energy Policy Act of 2005 ( P.L. 109-58 ) and administered by the Department of Energy, the program provides loan guarantees for up to 80% of construction costs for energy projects that employ innovative technologies to reduce air pollutants and greenhouse gases. Eligible projects included renewable energy systems projects, such as nuclear power stations and electric power transmission systems. The Telecommunications Infrastructure Loan Program (7 U.S.C. 930 et. seq.). This program provides loans and loan guarantees for the "purpose of financing the improvement, expansion, construction, acquisition, and operation of telephone lines, facilities, or systems to furnish and improve telecommunications service in rural areas." Clean Water State Revolving Loan Fund (SRF) Program. Created in amendments to the Clean Water Act ( P.L. 100-4 ), this program provides grants to states to capitalize loan funds (33 U.S.C. 1381-1387). States then may make low-interest loans and provide other types of credit assistance to help with the construction of publicly owned municipal wastewater treatment plants and for some other purposes. Drinking Water State Revolving Loan Fund (SRF) Program. Created in the Safe Drinking Water Act Amendments of 1996 ( P.L. 104-182 ), this program supports the financing of water system infrastructure (42 U.S.C. 300j-12). Like the Clean Water SRF, under this program states receive federal grants to capitalize loan funds to make low-interest loans. In this case, the loans are available to public and private water systems to help finance drinking water system infrastructure. These loans can be up to 20 years in length. Loan repayments are made to the states, making it possible to make new loans for further projects. Tax-Favored Infrastructure Bonds Most of the state and local government bonds issued for infrastructure are tax-exempt. These bonds are either general obligation bonds (roughly one-third of issuance) or revenue bonds (two-thirds). The difference between the two is the "security" behind the bond. General obligation bonds are backed by the full faith and credit of the issuing government and are viewed by investors as the least risky of all tax-exempt bonds. Revenue bonds are secured by a future revenue stream, such as the tolls to be charged for use of a road financed by the bonds. Revenue bonds are less secure than general obligation bonds because the bondholder may be left with no financial recourse if the dedicated revenue is insufficient to service the bond. In 2010, roughly $433 billion in debt was issued by state and local governments. Of this amount, almost two-thirds ($279.8 billion) was "new money" with the remainder used to refund outstanding debt. Table A -1 provides recent data on purposes for which state and local governments issue debt. In addition to the federal income-tax exemption of interest paid on state and local government bonds, the federal government subsidizes private debt issued for infrastructure that could have been issued by a government and considered a governmental bond. These bonds, called "private activity bonds," are usually not repaid with general state or local tax revenues but rather from user fees or facility-specific taxes. Qualified 501(c)(3) (non-profit) entities, for example, can issue tax-exempt, private activity bonds for projects that would in many cases be considered infrastructure. An infrastructure bank would likely rely significantly on some or all of these tax tools for subsidization. For example, H.R. 402 exempts debentures issued by the bank from all state and local taxes. A common tool used in transportation finance is grant anticipation revenue vehicles, or GARVEE bonds. These tax-exempt bonds are similar to revenue bonds in that they are secured by future revenues, in this case, grants from the federal government. In addition to tax-exempt bonds, the American Recovery and Reinvestment Act (ARRA, P.L. 111-5 ) included a debt tool for infrastructure finance, Build America Bonds (BABs). The authority to issue BABs expired December 31, 2010. They were projected to generate a decline in federal revenues of $0.9 billion in 2010, increasing to $3.1 billion in 2012. Unlike tax-exempt bonds, the interest payments to the holders of BABs are taxable, resulting in higher interest rates than those on tax-exempt bonds, but the federal government reduced the cost to issuers by paying BAB issuers a credit equal to 35% of the interest payment. BABs were well received by investors and issuers, with the Securities Industry Financial Markets Association (SIFMA) reporting that almost $181.5 billion in BABs had been issued over the life of the program. A U.S. Treasury Department report on BABs estimated that through March 2010 (when the study was released), the bonds had saved municipal issuers roughly $12 billion in interest costs. The BAB program expired on December 31, 2010. Public-Private Partnerships Public-private partnerships (PPPs) are the primary way that the private sector can directly invest in public infrastructure. Although estimates vary, it is widely believed that a substantial amount of private capital is available globally for infrastructure investment. Owners of this capital seek the opportunity to own or lease assets that could have the potential for generating stable revenues over the long term. Revenues to pay off project loans or to pay dividends to private equity investors are typically generated through facility user fees such as a highway toll or water and sewer charges. In some cases, private-sector financing is backed by "availability payments," regular payments made by a government to the private entity based on negotiated quality and performance standards of the facility. For example, major improvements to I-595 near Fort Lauderdale, FL, are being made by a private company that will design, build, finance, operate, and maintain the facility for 35 years with availability payments made by the Florida Department of Transportation (FDOT). Toll rates on the new express lanes will be set by FDOT, and revenue collected will be retained by the state. The financing includes a federal TIFIA loan and state funds. PPPs are arrangements that involve more than traditional private sector participation in one or more activities involved with designing, building, financing, and operating infrastructure. There are many forms a PPP can take, some with modest amount of private sector involvement, such as operations and maintenance contracts, and others in which the private sector controls most facets of the project. Despite the formation of PPPs in a number of sectors, some believe that the environment for PPPs in the United States is inhospitable compared with other countries such as France, Spain, and Australia. A national infrastructure bank has been suggested as one tool for overcoming barriers to PPP formation and, as a corollary, for attracting new private sector funds to infrastructure investment. Appendix B. Projects Eligible for Financing Under Legislative Proposals

Several bills to establish a national infrastructure bank have been introduced in the 112th Congress. This report examines three such bills, the Building and Upgrading Infrastructure for Long-Term Development Act (S. 652), the American Infrastructure Investment Fund Act of 2011 (S. 936), and the National Infrastructure Development Bank Act of 2011 (H.R. 402). These proposals share three main goals: increasing total investment in infrastructure by encouraging new investment from nonfederal sources; improving project selection by insulating decisions from political influence; and encouraging new investment with relatively little effect on the federal budget through a mostly self-sustaining entity. The federal government already uses a wide range of direct expenditures, grants, loans, loan guarantees, and tax preferences to expand infrastructure investment. A national infrastructure bank would be another way to provide federal credit assistance, such as direct loans and loan guarantees, to sponsors of infrastructure projects. To a certain extent, a new institution may be duplicative with existing federal programs in this area, and Congress may wish to consider the extent to which an infrastructure bank should supplant or complement existing federal infrastructure efforts. It is unclear how much new nonfederal investment would be encouraged by a national infrastructure bank, beyond the additional budgetary resources Congress might choose to devote to it. The bank may be able to improve resource allocation through a rigorous project selection process, but this could have consequences that Congress might find undesirable, such as an emphasis on projects that have the potential to generate revenue through user fees and a corresponding de-emphasis on projects that generate broad public benefits that cannot easily be captured through fees or taxes. As with other federal credit assistance programs, the loan capacity of an infrastructure bank would be large relative to the size of the appropriation. The bank is unlikely to be self-sustaining, however, if it is intended to provide financing at below-market interest rates. The extent to which the bank is placed under direct congressional and presidential oversight may also affect its ability to control project selection and achieve financial self-sufficiency. More generally, Congress may wish to consider the extent to which greater infrastructure investment is economically beneficial. Advocates of increased investment in infrastructure typically assert that high-quality, well maintained infrastructure increases private-sector productivity and improves public health and welfare. Congress may want to weigh the benefit of the increased spending on physical infrastructure against the benefit generated by alternative types of spending.

Marketing Approval and Patent Issues for Generic Drugs The practice of authorized generics has arisen within a complex statutory framework established by the Drug Price Competition and Patent Term Restoration Act of 1984, legislation more commonly known as the Hatch-Waxman Act. Under parameters established by that statute, a manufacturer that wishes to sell a generic drug must both obtain marketing approval from the Food and Drug Administration (FDA) and account for any patent rights that pertain to that product. This report first addresses FDA marketing approval procedures for generic drugs, and then turns to possible patent implications. FDA Approval Procedures The FDA regulates the marketing of pharmaceuticals in the interest of public health. Under this regime, the developer of a new drug must demonstrate that the product is safe and effective before it can be distributed to the public. This showing typically requires the drug's sponsor to conduct both preclinical and clinical investigations. In deciding whether to issue marketing approval or not, the FDA evaluates the test data that the sponsor submits in a so-called New Drug Application (NDA). Prior to the enactment of the Hatch-Waxman Act, the federal food and drug law contained no separate provisions addressing marketing approval for independent generic versions of drugs that had previously been approved by the FDA. The result was that a would-be independent generic drug manufacturer had to file its own NDA in order to sell its product. Some independent generic manufacturers could rely on published scientific literature demonstrating the safety and efficacy of the drug by submitting a so-called paper NDA. Because these sorts of studies were not available for all drugs, however, not all independent generic firms could file a paper NDA. Further, at times the FDA requested additional studies to address safety and efficacy questions that arose from experience with the drug following its initial approval. The result was that some independent generic manufacturers were forced to prove once more that a particular drug was safe and effective, even though their products were chemically identical to those of previously approved pharmaceuticals. Some commentators believed that the approval of an independent generic drug was a needlessly costly, duplicative, and time-consuming process. These observers noted that although patents on important drugs had expired, manufacturers were not moving to introduce independent generic equivalents for these products due to the level of resource expenditure required to obtain FDA marketing approval. In response to these concerns, Congress enacted the Hatch-Waxman Act, a statute that has been described as a "complex and multifaceted compromise between innovative and generic pharmaceutical companies." Its provisions included the creation of two statutory pathways that expedited the marketing approval process for independent generic drugs. The first of these consist of Abbreviated New Drug Applications, or ANDAs. An ANDA allows an independent generic applicant to obtain marketing approval by demonstrating that the proposed product is bioequivalent to an approved pioneer drug, without providing evidence of safety and effectiveness from clinical data or from the scientific literature. The second are so-called Section 505(b)(2) applications, which are sometimes still referred to as "paper NDAs." Like an NDA, a Section 505(b)(2) application contains a full report of investigations of safety and effectiveness of the proposed product. In contrast to an NDA, however, a Section 505(b)(2) application typically relies at least in part upon published literature providing pre-clinical or clinical data. The availability of ANDAs and Section 505(b)(2) applications often allow an independent generic manufacturer to avoid the costs and delays associated with filing a full-fledged NDA. They may also allow an independent generic manufacturer, in many cases, to place its FDA-approved bioequivalent drug on the market as soon as any relevant patents expire. As part of the balance struck between brand-name and independent generic firms, Congress also provided patent proprietors with a means for restoring a portion of the patent term that had been lost while awaiting FDA approval. The maximum extension period is capped at a five-year extension period, or a total effective patent term after the extension of not more than 14 years. The scope of rights during the period of extension is generally limited to the use approved for the product that subjected it to regulatory delay. This period of patent term extension is intended to compensate brand-name firms for the generic drug industry's reliance upon the proprietary pre-clinical and clinical data they have generated, most often at considerable expense to themselves. Resolution of Patent Disputes In addition to being the holder of an FDA-approved NDA, the brand-name pharmaceutical firm may own one or more patents directed towards that drug product. The product described by an independent generic firm's ANDA or Section 505(b)(2) application may possibly infringe those patents should that product be approved by the FDA and sold in the marketplace. The Hatch-Waxman Act therefore establishes special procedures for resolving patent disputes in connection with applications for marketing generic drugs. In particular, the Hatch-Waxman Act requires each holder of an approved NDA to identify patents it believes would be infringed if a generic drug were marketed before the expiration of these patents. The FDA then lists these patents in a publication titled Approved Drug Products with Therapeutic Equivalence Evaluations , which is more commonly known as the "Orange Book." Would-be manufacturers of independent generic drugs must then engage in a specialized certification procedure with respect to Orange Book-listed patents. An ANDA or Section 505(b)(2) applicant must state its views with respect to each Orange Book-listed patent associated with the drug it seeks to market. Four possibilities exist: (1) that the brand-name firm has not filed any patent information with respect to that drug; (2) that the patent has already expired; (3) that the generic company agrees not to market until the date on which the patent will expire; or (4) that the patent is invalid or will not be infringed by the manufacture, use or sale of the drug for which the ANDA is submitted. These certifications are respectively termed paragraph I, II, III, and IV certifications. An ANDA or Section 505(b)(2) application certified under paragraphs I or II is approved immediately after meeting all applicable regulatory and scientific requirements. An independent generic firm that files an ANDA or Section 505(b)(2) application including a paragraph III certification must, even after meeting pertinent regulatory and scientific requirements, wait for approval until the drug's listed patent expires. The filing of an ANDA or Section 505(b)(2) application with a paragraph IV certification constitutes a "somewhat artificial" act of patent infringement under the Hatch-Waxman Act. The act requires the independent generic applicant to notify the proprietor of the patents that are the subject of a paragraph IV certification. The patent owner may then commence patent infringement litigation against that applicant. If the NDA holder demonstrates that the independent generic firm's proposed product would violate its patents, then the court will ordinarily issue an injunction that prevents the generic drug company from marketing that product. That injunction will expire on the same date as the NDA holder's patents. Independent generic drug companies commonly amend their ANDAs or Section 505(b)(2) applications in this event, replacing their paragraph IV certifications with paragraph III certifications. On the other hand, the courts may decide in favor of the independent generic firm. The court may conclude that the generic firm's proposed product does not infringe the asserted patents, or that the asserted patents are invalid or unenforceable. In this circumstance, the independent generic firm may launch its product once the FDA has approved its ANDA or Section 505(b)(2) application. In addition, the independent generic firm may benefit from a 180-day period of marketing exclusivity, a concept this report describes next. Generic Marketing Exclusivity The Hatch-Waxman Act provides prospective manufacturers of independent generic pharmaceuticals with a reward for challenging the patent associated with an approved pharmaceutical. The reward consists of a 180-day generic drug exclusivity period awarded to the first ANDA applicant to file a paragraph IV certification. During this 180-day period, the FDA may not approve another ANDA containing a paragraph IV certification with respect to the same drug. Notably, the 180-day generic drug exclusivity applies only to ANDA applicants, and not to those filing Section 505(b)(2) applications. Commentators have long referred to this provision as creating "generic exclusivity" or "180-day exclusivity." As originally enacted, the Hatch-Waxman Act allowed the brand-name firm and the first independent generic applicant to share the market for the first 180 days of generic competition. At the close of this period, other independent generic competitors could receive FDA marketing approval. Because market prices often drop considerably following the entry of additional generic competition, the first independent generic applicant could potentially obtain more handsome profits than subsequent market entrants. Congressional enactment of the Medicare Modernization and Improvement Act of 2003 clarified that more than one patent challenger can enjoy "generic exclusivity," provided that certain conditions are met. Following the 2003 statute, all "first applicants" are potentially entitled to the 180-day generic exclusivity. The statute defines the term "first applicant" to mean all applicants who, on the first day on which a substantially complete generic application with paragraph IV certification is filed, did themselves file a substantially complete generic application with a paragraph IV certification. The statute therefore makes clear that multiple first applicants—that is to say, more than one generic that filed a paragraph IV generic application on the same day—may each enjoy "shared exclusivity." The 180-day generic exclusivity period is intended to ameliorate collective action problems that may arise with regard to pharmaceutical patent challenges. Stated less technically, an independent generic firm that challenges a patent must bear the expensive, up-front cost of litigation. If the independent generic firm is successful, however, the challenged patent is declared invalid with regard to the entire pharmaceutical industry. Any firm—not just the one who challenged the patent—could then introduce a competing product to the marketplace. Understandably, this forced sharing may undermine the incentives any one independent generic firm would possess to challenge a brand-name firm's patent. The award of 180 days of generic exclusivity is therefore intended to allow a successful patent challenger to capture an individual benefit for its effort, in turn encouraging such challenges in the first instance. The Concept of Authorized Generics Authorized Generics Practice As noted previously, an "authorized generic" is a pharmaceutical that is marketed by or on behalf of a brand-name drug company, but is sold under a generic name. Authorized generics are thus similar to "private label" products, which are manufactured by one firm but sold under the brand of another. Although private label products are commonplace in food, cosmetic, and other markets, they have only recently attracted attention in the pharmaceutical industry. Current interest in authorized generics is largely due to a shift in corporate strategies that has been traced to the early 1990s. Until that time, many entrants in the pharmaceutical industry engaged exclusively either in selling brand-name, innovative drugs, or in selling generic drugs. Several other brand-name firms began to market authorized generics shortly before patents on their products were due to expire. Among such products were Nolvadex® (tamoxifen), authorized by the Stewart Pharmaceutical Division of ICI Americas (now AstraZeneca) and sold by Barr Laboratories; Dyazide® (triamterene/hydrochlorothiazide), marketed by SmithKline Beecham Pharmaceuticals (now GlaxoSmithKline); and Ventolin® (albuterol), authorized by GlaxoSmithKline and sold by Dey LP. Many brand-name firms did not continue to sell authorized generics at that time, however, reportedly due to a lack of profitability. One reason for the "resurgence" of authorized generics in the early 2000's is that physicians, pharmacists and patients more rapidly switch to generic drugs upon their introduction to the marketplace than a decade ago. Because the rate of generic adoption is much greater now, brand-name firms reportedly are more willing to "genericize" their own brands in order to capture a share of that market. The expanding generic adoption rate has also reportedly led to an industry trend where brand-name houses acquire generic firms. This development too may encourage authorized generics practice in the future. In line with current trends, a number of successful paragraph IV ANDA applicants have faced competition from authorized generics during the 180-day generic exclusivity period. These independent generic firms include Barr, for the product Allegra® (fexofenadine); Eon, for the product Wellbutrin SR® (bupropion SR); and Teva, for the product Glucophage®. Some industry analysts believe that authorized generics will form an increasingly prominent feature of the U.S. pharmaceutical market in the future. Other commentators believe that this time has already arrived: According to one account, since 2004 "authorized generic versions have appeared for nearly all drugs with expiring U.S. patents." Authorized Generics within the Hatch-Waxman Framework Authorized generics practice has proven controversial due to the Hatch-Waxman Act's architecture and incentive structures. Some commentators have voiced concerns that the introduction of authorized generics, particularly during the 180-day market exclusivity granted to the independent generic firm that brought a paragraph IV challenge, thwarts the policy goal of encouraging the introduction of generic pharmaceuticals. In particular, critics argue that the use of authorized generics may discourage firms from filing paragraph IV patent challenges if their litigation expenses cannot be recouped through the 180-day market exclusivity period. As antitrust attorney David A. Balto explains: The bounty from challenging a patent is very important. Pharmaceutical patent litigation is a multimillion-dollar proposition. But for the potential reward of six-month exclusivity that represents the vast majority of potential profits from generic entry, many firms might forgo challenging patents. For example, the FDA ruled that the generic manufacturer Apotex was entitled to 180-day exclusivity for its version of the anti-depressant drug Paxil® in 2003. The brand-name drug company, GlaxoSmithKline, introduced an authorized generic version of Paxil®. Although Apotex anticipated sales of up to $575 million during the 180-day generic exclusivity period, its sales were reported to be between $150 million and $200 million. In a 2004 filing with the FDA, attorneys for Apotex asserted "that the authorized generic crippled Apotex's 180-day exclusivity—it reduced Apotex's entitlement to about two-thirds—to the tune of approximately $400 million." In addition, brand-name firms commonly introduce authorized generics on the eve of generic competition. Without an independent generic patent challenger in the first instance, brand-name firms may themselves make diminished, or delayed, use of the authorized generic strategy. As a result, the pro-competitive benefits of authorized generics may be postponed, or not realized at all, should independent generic rivals become less willing to challenge patents held by brand-name firms. On the other hand, authorized generics potentially offer several benefits both to drug companies and to consumers. Authorized generics are commonly less expensive than the brand-name drug. The introduction of an authorized generic therefore allows a lower-cost product to be made available to the consumer. As the FDA opined in a statement issued in July 2004: Marketing of authorized generics increases competition, promoting lower prices for pharmaceuticals, particularly during the 180-day exclusivity period in which the prices for generic drugs are often substantially higher than after other generic products are able to enter the market. More particularly, a June 2009 study conducted by the Federal Trade Commission (FTC) found that retail prices decreased by an average of 4.2% and wholesale prices decreased by an average of 6.5% when an authorized generic competed with an ANDA generic. This level of competition led to an estimated average decline of 50% of the generic firm's revenue. In addition, once a generic version of a drug becomes available following patent expiration, brand-name firms may lose considerable market share. Indeed, many health management organizations and insurance companies reportedly promote the use of generic substitutes for brand-name medications once they become available. Absent participation in the generic market, brand-name firms may not be able to take advantage of investments they previously made with respect to their manufacturing facilities. Authorized generics therefore allow brand-name firms to continue to employ their manufacturing facilities at or near peak capacity even following patent expiration. Authorized generics may also support the research and development efforts of brand-name firms by providing them with additional revenue. Authorized generics may supply the brand-name firm with an additional income source, such as a royalty on sales made by its generic subsidiary or contracting partner. These funds, or some portion of them, can potentially be employed in support of pharmaceutical innovation. Authorized generics may also facilitate settlement of patent infringement suits between brand-name and independent generic firms. A judicial holding of patent invalidity may have a severe impact upon a brand-name firm in terms of its lost revenue. Many observers also believe that patent litigation is an uncertain venture. By settling patent litigation, and allowing an ANDA applicant to produce an authorized generic, brand-name firms may potentially better manage risk. Such a technique provides a more stable revenue stream, both in support of the brand-name firm's research and development activities and for its investors. The generic company making an authorized generic can also benefit by not having to expend funds on litigation with an uncertain outcome or pursue an ANDA at the FDA, while expanding its product line, acquiring manufacturing experience, and gaining the first-mover advantage in the generic market. The use of authorized generics as a litigation settlement mechanism also impacts consumers, but in a manner that is both less certain and likely varies on a case-by-case basis. On one hand, particular settlement agreements may provide for the sale of authorized generics years before the disputed patent is set to expire. As a result, consumers may gain early access to a lower-cost alternative to the brand-name drug. On the other hand, had the generic firm refused to settle and ultimately prevailed in the litigation, then the market would have been open to full competition even earlier. The impact upon competition of a litigation settlement likely depends upon a number of complex factors, including the strength of the patent, the number of potential generic competitors, and the precise terms of the litigation settlement agreement. A Federal Trade Commission Report issued on August 31, 2011, addressed the topic of authorized generics and may contribute to policy debate over the impact of these products. Titled Authorized Generic Drugs—Short-Term Effects and Long-Term Impact , the report made four primary findings: Competition from authorized generics during the 180-day marketing exclusivity period has led to lower retail and wholesale drug prices. During this time, competition by an authorized generic is associated with retail prices that are 4% to 8% lower, and wholesale prices that are 7% to 14% lower, than those without an authorized generic. Authorized generics have a substantial effect on the revenues of competing generic firms. During the 180-day exclusivity period, the presence of an authorized generic competitor on average reduces the first-filing generic's revenues by 40% to 52%. In addition, revenues of the first-filing generic are between 53% and 62% lower during the first 30 months after the exclusivity period ends, if it is facing authorized generic competition. Introduction of an authorized generic can mean hundreds of millions of dollars in lost revenue for the first generic competitor to enter the market. Lower expected profits could affect a generic company's decision to challenge patents on products with low sales. However, the reduced revenues resulting from authorized generic competition during the 180-day exclusivity period have not substantially reduced the number of challenges to branded drug patents by generic firms. Despite the presence of authorized generic competition, generic companies have continued to challenge patents, even on brand-name drugs in small markets. There is strong evidence that agreements not to compete using authorized generics have become a way that some branded firms compensate generic firms for delaying entry to the market. The report is available on the agency's website. Legality of Authorized Generics The policy debate concerning authorized generics has been accompanied by legal challenges before the FDA and the courts concerning this practice. Opponents of authorized generics have contended that the Hatch-Waxman Act's generic exclusivity provisions should be understood as excluding authorized generics from the marketplace for the 180-day period. The FDA has taken the opposite view, however, reasoning that the Hatch-Waxman Act does not require a brand-name pharmaceutical company to file any sort of application in order to market the drug as an authorized generic. In turn, the 180-day period of generic exclusivity provided by the Hatch-Waxman Act only applies to ANDA or Section 505(b)(2) applications with paragraph IV certifications. As a result, the 180-day generic exclusivity period does not bar authorized generics from entering the market. Two notable judicial opinions have upheld the FDA's position favoring authorized generics. In the first of these opinions, Teva Pharmaceutical Industries, Ltd. v. Crawford , the Court of Appeals for the D.C. Circuit found no reasonable reading of the Hatch-Waxman Act that would allow authorized generics to be barred by the 180-day generic exclusivity period. In that case, independent generic manufacturer Teva had previously entered into an arrangement with Purepac Pharmaceutical Co., the first paragraph IV ANDA applicant with respect to the drug gabapentin. Teva and Purepac had agreed to share the 180-day generic exclusivity period. During that period, however, Pfizer sold its own authorized generic version of gabapentin, which was priced substantially below the price of its brand-name drug. Teva responded by petitioning the FDA to prohibit the marketing of authorized generic versions of gabapentin during the 180-day generic exclusivity period. Alternatively, Teva asserted that Pfizer should be required to file a supplemental NDA before selling an authorized generic. According to Teva, the impact of the latter proposed ruling would lead to the same outcome as the first: Pfizer would be compelled to respect the 180-day generic exclusivity period established by the Hatch-Waxman Act. The FDA denied the petition, resulting in a Teva lawsuit against the FDA. The district court confirmed the FDA's views, concluding that "[n]othing in the statute provides any support for the argument that the FDA can prohibit NDA holders from entering the market with [an authorized] generic drug during the exclusivity period." Teva then appealed to the Court of Appeals for the D.C. Circuit, which affirmed. Chief Judge Ginsburg began his opinion by observing that the Hatch-Waxman Act did not stipulate the manner in which the holder of an approved NDA must market its drug. Further, prior to the enactment of the Hatch-Waxman Act, nothing in the Food, Drug, and Cosmetic Act prevented the NDA holder from marketing an authorized generic. The D.C. Circuit thus saw the issue as whether it should "declare that a previously lawful practice became unlawful when the Congress passed a statute that said nothing about that practice." The Court of Appeals further rejected Teva's "functional" interpretation of the Hatch-Waxman Act. According to Teva, the practice of authorized generics had "developed only recently as a routine brand-name business strategy" and therefore had not been anticipated by Congress. Further, authorized generics practice severely diminished generic incentives to challenge pharmaceutical patents. According to Teva, then, "adhering to the 'literal' terms of the statute would lead to an absurd result, namely, that [the Hatch-Waxman Act] grants only a 'meaningless' exclusivity against subsequent ANDA filers rather than a 'commercially effective' exclusivity that runs against the NDA holder as well." The D.C. Circuit responded by reasoning that the balance between innovation and competition struck by the Hatch-Waxman Act was "quintessentially a matter for legislative judgment," such that "the court must attend closely to the terms in which the Congress expressed that judgment." Here, Chief Judge Ginsburg reasoned, the statute was unambiguous. Although the Hatch-Waxman Act barred the approval of subsequent ANDAs for 180 days, the statutory language simply did not speak to marketing arrangements made by the holder of the approved NDA. The court of appeals further observed that, even in the event that an NDA holder authorized a generic, the 180-day exclusivity period continued to bar other firms from marketing a generic version of the drug. As a result, authorized generic practice hardly rendered the Hatch-Waxman Act's generic exclusivity provisions "meaningless." In conclusion, because the Hatch-Waxman Act "clearly does not prohibit the holder of an approved NDA from marketing, during the 180-day exclusivity period, its own 'brand-generic' version of its drug," FDA practices concerning authorized generics were affirmed. A second judicial opinion, Mylan Pharmaceuticals, Inc. v. U.S. Food and Drug Administration , also concluded that the Hatch-Waxman Act "does not grant the FDA the power to prohibit the marketing of authorized generics during the 180-day exclusivity period.... " That case involved the pharmaceutical nitrofurantoin, which is used to treat urinary tract infections. When the FDA approved a paragraph IV ANDA filed by Mylan Pharmaceuticals, Inc, to sell nitrofurantoin, NDA holder Proctor & Gamble Pharmaceuticals, Inc., licensed a third party generic firm to sell an authorized generic version of the drug. Mylan reportedly lost sales of "tens of millions" of dollars due to this arrangement. Mylan challenged the FDA approval of authorized generics practice before the U.S. District Court for the Northern District of West Virginia. Mylan appealed the district court's dismissal of its case to the Court of Appeals for the Fourth Circuit, which affirmed. Citing the D.C. Circuit's decision in Teva v. Crawford with approval, the Fourth Circuit similarly concluded that the statute clearly defined the 180-day exclusivity period only with respect to other paragraph IV ANDAs, not to authorized generics. The Fourth Circuit therefore concluded that "[a]lthough the introduction of an authorized generic may reduce the economic benefit of the 180 days of exclusivity awarded to the first paragraph IV ANDA applicant, Section 355(j)(5)(B)(iv) gives no legal basis for the FDA to prohibit the encroachment of authorized generics on that exclusivity." As a result, the district court's judgment was affirmed. It is possible to criticize the statutory construction of both Teva v. Crawford  and Mylan v. FDA . In particular, neither court of appeals stressed that the Hatch-Waxman Act describes the 180-day time frame as an "exclusivity period." The term "exclusivity" might be viewed as a curious drafting choice in view of the ruling that generic firms must potentially compete alongside authorized generics during the 180-day period. On the other hand, the notion of "shared exclusivity" that arose following the Medicare Modernization Act amendments may be viewed as codifying congressional intent that multiple generic applicants may enter the market during the 180-day marketing exclusivity period. In addition, many prescription drugs are available in a number of different dosage forms and strengths. Under current Hatch-Waxman Act practice, each strength and dosage form is considered a separate drug product for which a distinct generic applicant can qualify for 180-day exclusivity. As a result, the term "exclusivity" may be considered to have a particular meaning in the Hatch-Waxman Act—one that does not necessarily mean that independent generic firms will not face competition during the 180-day period even in the absence of authorized generics. Of course, these provisions may also impact the incentives that independent generic firms possess to challenge pharmaceutical patents. In any event, Teva v. Crawford  and Mylan v. FDA currently represent the law of the land. Absent further judicial developments or congressional activity, authorized generics will be judged as legitimate means for NDA holders to market their products under the Hatch-Waxman Act. Concluding Observations Although Congress made significant amendments to the Hatch-Waxman Act as recently as 2003, authorized generics were not subject to discussion at that time. The rise of this practice, as well as the vigor of the debate surrounding it, suggests both the pace of change within the industry and the prominence of the pharmaceutical industry within the national public health system. As discussion of authorized generics continues, Congress may wish to have a sense of its legislative options. Should Congress conclude that authorized generics are appropriate, then it may simply take no action. The opinions of the D.C. and Fourth Circuits suggest that, as currently drafted, the Hatch-Waxman Act does not allow the FDA to restrict the ability of brand-name firms to sell or approve of authorized generics. Absent legislative input, the FDA may be unlikely to alter its interpretation of the Hatch-Waxman Act in this respect in the future. Alternatively, Congress could simply disallow authorized generics practice. Unenacted bills introduced in the 112 th Congress, H.R. 741 and S. 373 , would have prohibited NDA holders from manufacturing, marketing, selling, or distributing an authorized generic drug. The term "authorized generic drug" was defined as "any version of a listed drug ... that the holder of new drug application ... seeks to commence marketing, selling, or distributing, directly or indirectly, after receipt of a notice" that an ANDA has been filed. Drugs marketed by firms eligible for the 180-day generic exclusivity, or that were sold by anyone after that exclusivity has expired, were not considered to be authorized generic drugs. Another option is to require brand-name firms to file a supplemental NDA, or a similar application, with the FDA when they market authorized generics. This filing would then place the brand-name firm in the same category as generic applicants who did not qualify as the first to file. In turn, the 180-day generic exclusivity period would then apply against the authorized generic. Notably, whether the 180-day generic exclusivity period strikes an appropriate balance between encouraging patent challenges and ensuring prompt access to generic medications is itself a contested proposition within the pharmaceutical industry. Discussion of the authorized generics issue may also prompt further reflection on the basic structure of incentives within the Hatch-Waxman Act. Current interest in authorized generics reflects long-standing congressional concern for the appropriate balance between innovation and competition within the pharmaceutical industry. Although academic inquiry into authorized generics practice remains in its early phases, it is notable that knowledgeable commentators have reached disparate views of the benefits or detriments of this practice. Some observers stress that authorized generics benefit consumers by providing enhanced access to lower-cost alternatives to branded drugs, while others express concerns that authorized generics will defeat the incentives that independent generic firms possess to challenge pharmaceutical patents. Future studies may shed additional light on the impact of authorized generics upon consumer welfare.

The practice of "authorized generics" has recently been the subject of considerable attention by the pharmaceutical industry, regulators, and members of Congress alike. An "authorized generic" (sometimes termed a "branded," "flanking," or "pseudo" generic) is a pharmaceutical that is marketed by or on behalf of a brand-name drug company, but is sold under a generic name. Although the availability of an additional competitor in the generic drug market would appear to be favorable to consumers, authorized generics have nonetheless proven controversial. Some observers believe that authorized generics potentially discourage independent generic firms both from challenging drug patents and from selling their own products. These perceived disincentives result from the provisions of the Drug Price Competition and Patent Term Restoration Act of 1984. Better known as the Hatch-Waxman Act, this legislation provides independent generic firms with a reward for challenging patents held by brand-name firms. That "bounty" consists of a 180-day generic drug exclusivity period awarded to the first patent challenger. During the 180-day period, the brand-name company and the first generic applicant are the only firms that receive authorization to sell that pharmaceutical. At the close of this period, other independent generic competitors may obtain marketing approval and enter the market, ordinarily resulting in lower prices for generic medicines. Some commentators view the 180-day exclusivity period as a crucial incentive for generic firms to challenge patents held by brand-name firms. Under this view, the launch of an authorized generic during the 180-day exclusivity period makes the recovery of litigation expenses more difficult. In turn, the possibility that a brand-name firm will sell an authorized generic during the 180-day exclusivity period may decrease the incentives of generic firms to challenge patents in the first instance. Other observers believe that authorized generics benefit consumers by increasing competition in the generic market. Because the authorized generic is manufactured by the brand-name firm and identical to its own product, consumers may be encouraged to switch to the lower-cost authorized generic alternative. Authorized generics may also facilitate the settlement of patent litigation between brand-name and independent generic firms. As an historical matter, certain of these settlement agreements have allowed authorized generics to enter the market, and therefore promoted competition, prior to the expiration of the relevant patent term. Recent judicial opinions have upheld FDA practices allowing authorized generics. If authorized generic practice is deemed appropriate, then no action need be taken. The approach taken by legislation introduced in the 112th Congress, H.R. 741 and S. 373, presented another option. Under these bills, authorized generics may not be sold during the term of the 180-day generic exclusivity. This legislation was not enacted.

Introduction How long may a city hold property, seized for forfeiture purposes, before it must justify either the validity of its seizure or its right to confiscation? And should the delay be judged by speedy trial or general due process standards? The speedy trial standards focus on which party is most responsible for the delay and the consequences of the delay for the accused. The due process standards ask whether a delay-resulting procedure involves a risk of erroneous governmental deprivation of an individual's interests; the extent to which additional safeguards will mitigate or eliminate that risk; and the costs to the government (including administrative burdens) should those safeguards be required. The United States Supreme Court agreed to consider the issue in Alvarez v. Smith (Doc. No. 08-351), cert. granted, 129 S.Ct. 1401 (2009), but the case became moot before the Court could address the issue. Had the property owners prevailed, adjustments in federal law might have been required. The case was complicated by several factors. First, the Supreme Court has already said in United States v. $8,850 (Vasquez) , that the due process consequences of delays between seizure and a forfeiture hearing are to be judged using the speedy trial standards of Barker v. Wingo . Second, the lower federal appellate court instead found applicable the general due process standards of Mathews v. Eldridge , but remanded to the district court to determine the appropriate remedy. This failure to identify the necessary remedial safeguards could have made Supreme Court review more difficult, since one of the Mathews factors is the extent of governmental inconvenience posed by the safeguards proposed in the name of due process. Third, the appropriate remedy may be elusive since the same level of proof is required to justify both the seizure and final confiscation—probable cause. But the fatal complication was mootness. Before the Court could rule on the merits, the city returned the cars it had seized from the claimants and settled their other claims. Background Forfeiture is the confiscation of property as a consequence of the property's relation to some criminal activity. Forfeiture comes in one of two forms, depending upon the procedures used to accomplish confiscation. Criminal forfeiture involves the confiscation of the property following conviction of the property owner. Civil forfeiture involves the confiscation of property following a civil proceeding in which the property itself is often treated as the defendant. In most cases, due process permits civil forfeiture notwithstanding the innocence of property owner. Neither magistrate nor court need necessarily approve the seizure of personal property for forfeiture purposes. The law enforcement agencies which seize forfeitable property often share in the distribution of proceeds following confiscation. Under the Illinois law at issue, cars and other conveyances used to facilitate or conceal controlled substance offenses are subject to forfeiture. The same is true of any money or thing of value furnished, used, or acquired in the course of a controlled substance offense. Property may be seized under process or a warrant. Alternatively, it may be seized without a warrant or process, if there is probable cause to believe that the property is subject to forfeiture and seizure would be otherwise reasonable. The state may confiscate the property administratively (without a court hearing), if the forfeiture is uncontested and the property is valued at under $20,000 or is a car or other conveyance. To secure his day in court, a person with an interest in the property must file a claim along with a bond equal to 10% of the value of the property (90% of which is returned if the property is found not to be forfeitable). The statutory deadlines are such that several months will ordinarily pass before judicial proceedings begin. In the judicial proceedings, the state has the burden of establishing probable cause to believe that the property is subject to confiscation, after which the burden shifts to the claimant to show by a preponderance of the evidence that his interest in the property is not forfeitable. Sixty-five percent of the proceeds of any uncontested or judicially approved confiscation are distributed to the law enforcement agency which conducted the investigation, ordinarily the agency which seizes the property. The property owners in Smith filed a class action suit under 42 U.S.C. 1963 against city and state officials asserting that the Illinois procedure constituted a violation of due process because of its failure to provide a prompt post-seizure probable cause hearing. The district court dismissed on the basis of circuit precedent. A decade and a half earlier, the same Illinois procedure had been challenged for want of a prompt post-seizure hearing in Jones v. Takaki . Then, the circuit court felt bound by the Supreme Court's $8,850 (Vasquez) decision, which held that the Barker v. Wingo speedy trial factors govern the outcome, that is, "the length of delay, the reason for the delay, the defendant's assertion of this right, and prejudice to the defendant." On the basis of a second Supreme Court decision, United States v. Von Neumann , Jones rejected the argument that in light of the anticipated delay due process required a preliminary judicial probable cause determination. Von Neumann held that due process did not require prompt consideration of a petition to release forfeitable property as a matter of administrative grace. In Smith , the Seventh Circuit Court of Appeals reversed the district court's decision to dismiss . It did so because a Second Circuit opinion helped persuade it that the foundation of its decision in Jones had been eroded. After $8,850 (Vasquez) , Von Neumann , and Jones , the Supreme Court had decided United States v. James Daniel Good Real Property . There, the Court observed that, absent exceptional circumstances, due process required pre-seizure notice and an opportunity to be heard in forfeiture cases. More to the point, it declared that the question of whether the circumstances of a particular case warranted an exception must be answered using the factors identified in Mathews v. Eldridge : "the risk of erroneous deprivation of [a private] interest through the procedures used, as well as the probable value of additional safeguards; and the Government's interest, including the administrative burden that additional procedural requirements would impose." Some years later, the Second Circuit faced a due process challenge to the New York City civil forfeiture procedure used in the driving-under-the-influence cases, Krimstock v. Kelly . The court, in an opinion by then Judge Sotomayor, concluded that vehicle owners had a due process right to "ask what justification the City has for retention of their vehicles during the pendency of [forfeiture] proceedings, and to put that question to the City at an early point after seizure in order to minimize any arbitrary or mistaken encroachment upon plaintiff's use and possession of their property." Moreover, the court asserted, the Mathews analysis governs the due process inquiry into the prompt review of the government's seizure and retention of private property. The Seventh Circuit in Smith endorsed the views of the Second Circuit expressed in Krimstock . It remanded with instructions to identify a procedure (1) under which a property owner might contest the validity of the seizure and the continued governmental retention of his or her property, and (2) under which vehicles and property other than cash might be released under bond or other security order pending a forfeiture proceeding on the merits. Among the other circuits to consider the question, the Sixth, Ninth, and Eleventh Circuits appear to continue to apply Barker v. Wingo factors to the question of whether various pre-trial forfeiture delays offend due process. The Supreme Court granted certiorari to consider In determining whether the Due Process Clause requires a State or local government to provide a post-seizure probable cause hearing prior to a statutory judicial forfeiture proceeding and, if so, when such a hearing must take place, should district courts apply the "speedy trial" test employed in United States v. $8,850 , 461 U.S. 555 (1983) and Barker v. Wingo , 407 U.S. 514 (1972) or the three-part due process analysis set forth in Mathews v. Eldridge , 424 U.S. 319 (1976). Before the Supreme Court Illinois officials raised five points in their argument before the Court. First, the Court has historically held that "a separate proceeding, prior to the forfeiture hearing itself, was unnecessary to determine the reasonableness of the initial seizure." Second, $8,850 (Vasquez) and Von Neuman n provide appropriate standards for purposes due process analysis. Third, given the attendant additional burdens on the government, the Constitution does not require an interim, adversarial hearing. Fourth, the Illinois statute is modeled after the federal statute, neither of which offends due process, in light of the right under either law to seek return of seized property. Fifth, the Illinois system survives due process scrutiny under either the Barker or Mathews standard. The property owners answered, first, that due process assured them of a hearing within a meaningful time, not after the six months that the Illinois procedure contemplated. Second, Mathews supplies the appropriate standard by which to assess the due process implications of the delay. Third, application of Mathews here is not inconsistent with the Court's decisions in $8,850 (Vasquez) or Von Neumann . Fourth, the specific Illinois forfeiture procedures preempt the more general Illinois return of property statute. Finally, an informal hearing or the opportunity to post a bond is constitutionally required and is feasible. The United States filed an amicus brief in support of state and city officials which argued that the final "forfeiture hearing provides adequate pre-forfeiture process unless it is delayed beyond the time that the government's valid administrative interests reasonably require." Alvarez v. Smith The Court learned upon inquiry that the groups' claims had been resolved. It felt it had no choice but to dispose of the case without reaching the merits. The Supreme Court's jurisdiction is predicated on the existence of a "case or controversy." Since the group had been denied certification to act as representatives in a class action, they stood before the Court only on the basis of their individual claims. The Court unanimously agreed that when those claims were settled, disputes over the appropriate procedure to resolve them became moot and the presence of a case or controversy disappeared. The members of the Court were only slightly more divided over whether the Seventh Circuit opinion should be vacated or allowed to stand. The prevailing statute affords the Court considerable latitude. The majority favored application of a general rule under which the judgment in a moot case is vacated. Justice Stevens alone would have opted for a rule under which a judgment pending on the Court's docket would stand when mooted by an intervening settlement by the parties.

Alvarez v. Smith became moot while pending before the United States Supreme Court. At the time, the Court had agreed to decide whether a six-month delay between a state's seizure of property and its forfeiture hearing requires additional procedural safeguards. Traditionally, forfeiture hearing delays have been judged by the speedy trial standards of Barker v. Wingo. The Court had been asked to decide whether they should instead be judged by the general due process standards of Mathews v. Eldridge. Alvarez v. Smith arose in Chicago where a group of property owners filed a civil rights class action against city and state officials over city practices under the Illinois drug forfeiture statute. Under the statute, cars and trucks regardless of their value and money or other property valued at under $20,000 may be seized without a warrant by officers with probable cause to believe it is subject to confiscation. The forfeiture hearing may be held as late as 187 days after the seizure. The Smith group argued their property could not be held for that long without intervening safeguards against hardship and erroneous seizure. The district court dismissed their suit using the higher threshold Barker speedy trial standards to assess the delay and its impact. The Seventh Circuit Court of Appeals reversed. It felt use of the Mathews standards better suited and returned the case to the lower court for determination of an appropriate remedy. At that point, the Supreme Court granted certiorari. Before the Court could rule, however, the city returned the cars it had seized from members of the group and settled the group's claims relating the other property seized. In the absence of a case or controversy, the Court vacated the Seventh Circuit opinion and returned the matter to the lower court. The Illinois statute tracks the federal statutes in several respects. Thus, had the Seventh Circuit view prevailed, changes in federal law might have been required. Related reports include CRS Report 97-139, Crime and Forfeiture, by [author name scrubbed], which is also available in abbreviated form as CRS Report RS22005, Crime and Forfeiture: In Short, by [author name scrubbed].

Introduction The National Security Education Program (NSEP), authorized by the David L. BorenNational Security Education Act (NSEA), (1) provides aid for international education and foreign languagestudies by American undergraduate and graduate students, plus grants to institutions of highereducation (IHEs). The statement of purpose for the NSEA emphasizes the needs of federalgovernment agencies, as well as the Nation's postsecondary education institutions, for an increasedsupply of individuals knowledgeable about the languages and cultures of foreign nations, especiallythose which are of national security concern and have not traditionally been the focus of Americaninterest and study. Specifically, the NSEA declares the purposes of this program to be: providingthe "necessary resources, accountability, and flexibility" to meet the national security needs of theUnited States; increasing the "quantity, diversity, and quality" of teaching and learning of foreignlanguage and area studies critical to the Nation's interest; expanding the pool of applicants foremployment in U.S. government agencies with national security responsibilities; expanding theforeign language and area studies knowledge base upon which U.S. citizens and governmentemployees can rely; and permitting the federal government to "advocate the cause of internationaleducation" (50 USC 1901). Since the terrorist attacks of September 11, 2001, there has been increased congressionalinterest in the NSEP and other federal programs of aid for "critical" foreign language and areastudies. Several bills passed in the 107th and 108th Congressional sessions that would have alteredthe NSEP's funding and administration. In addition, the intelligence reform bill ( P.L. 108-458 )signed by the President on December 17, 2004, amends Title X of the National Security Act to createa new Intelligence Community Scholarship Program (ICSP) that is quite similar to the NSEP(§1042). This report provides background information on the NSEP and an analysis of related issuesincluding the ICSP. It will be updated in response to major legislative developments. Background: Program Activities and Administration The National Security Education Program (NSEP) (2) is intended to complement, and not duplicate, other federalprograms of aid for foreign language and area studies education, such as those authorized under TitleVI of the Higher Education Act, the Fulbright-Hays Act, and other legislation. (3) Distinctive elements of theNSEP, compared to most other federal programs of aid to international education or exchange,include its service requirement for aid recipients, administration by the Department of Defense(DOD), rather than the Departments of Education (ED) or State, and its support for internationaltravel by American undergraduate students. The recent establishment of the NSEP pilot program,the National Flagship Language Initiative, distinguishes it even further from Title VI programs. Forms of Aid Three types of assistance are authorized and currently provided by the NSEA: 1. David L. Boren Scholarships for undergraduate(including community college) students to study abroad in a "critical" foreigncountry; 2. grants to institutions of higher education toestablish or operate programs in "critical" foreign language and area studies areas, often combinedwith study of other disciplines related to national security; and 3. David L. Boren Fellowships to graduate studentsfor education abroad or in the U.S. in "critical" foreign language, disciplines, and areastudies. The NSEA establishes a goal of awarding one-third of each year's grants for each of thesethree forms of aid, although specific allocations of available funds are determined by the NationalSecurity Education Board (NSEB), which also establishes specific criteria for awards in eachcategory. (The NSEB is discussed further below, under "Program Administration.") Individual Grants. Only United States citizensare eligible for the scholarships and fellowships, which are to be awarded on the basis of merit,taking into consideration the geographic distribution and the "cultural, racial, and ethnic diversity"of grant recipients. The NSEA provides that the language skills of aid recipients are to be assessedbefore and after the period of instruction for which they receive assistance. A recent amendment tothe NSEA (contained in P.L. 107-306 ) also allows recipients of NSEP scholarships and fellowshipsto attend the DOD's Defense Language Institute. While financial need is not taken into account in the selection of scholarship or fellowshiprecipients, it is considered in determining the level of individual grants. Undergraduate students mayreceive up to two scholarships, one during their first two years of study, and a second during theirremaining years. Graduate students may receive grants for up to six semesters, but may receive nomore in total than $20,000 for study abroad, $12,000 for domestic study, or $28,000 for a combineddomestic-abroad study program. The current dollar ranges for individual grants are outlined in Table 1 . The number of students receiving undergraduate scholarships increased from 143 in 2001to 194 in 2002 and has since remained at 194. Similarly, the number of graduate fellowshiprecipients increased from 70 in 2001 to 90 in 2002 and has since remained at 90. Both scholarshipand fellowship recipients have traveled to a wide variety of Asian, African, East European, and LatinAmerican nations. NESP has supported study in more than 100 countries. The most frequentdestinations have been Russia, China, Japan, Egypt, and Brazil for undergraduate scholarshiprecipients, and those nations plus Vietnam and Thailand for graduate fellowship recipients. NESPdoes not fund study in Western Europe, Australia, Canada, and New Zealand. The individual award recipients under the NSEP have studied numerous languages. Whilethe most common languages have been Arabic, Chinese (Mandarin), Russian, Japanese, Portuguese,plus Spanish at an advanced level, smaller numbers of aid recipients are studying languages such asZulu, Xhosa, Tibetan, Mongolian, Latvian, Persian, Uzbek, and several other East European,African, and Asian languages which are very infrequently taught in United States IHEs. Table 1. Funding Ranges for Individual Grants Under theNational Security Education Program Source: http://www.worldstudy.gov/overview2.html . Institutional Grants. Through 2002, mostinstitutional grants had been focused on supporting the establishment of instructional andexchange programs involving less commonly taught languages and nations or regions at awide variety of IHEs in the United States; increasing the number of disadvantaged and/orminority students participating in international education and exchange programs; andintegrating foreign language and international studies with professional education in a varietyof fields. Beginning in 2003, NSEP no longer sponsored an annual competition for programsgenerally oriented to establish and/or improve programs in international education. Instead,grants to IHEs will occur under the National Flagship Language Initiative. National Flagship Language Initiative This shift in the strategy and focus for NSEP institutional grants began on a pilotbasis with a share of the grant funds in 2002. (4) Adopted and authorized by the 107th Congress as part ofthe Intelligence Authorization Act for Fiscal Year 2003 ( P.L. 107-306 ), the National FlagshipLanguage Initiative provides multi-year grants to IHEs to develop curricular and instructionalmodels for advanced study of the foreign languages considered most critical for nationalsecurity. (5) Thegoal of the program is "demonstrating program design and administrative structures on ournation's campuses that are capable of dramatically increasing the number of U.S. studentsadvancing to professional levels of language competency." (6) Special considerationis to be given to federal employees in the admission of students to such programs. NewFlagship grant competitions were not conducted for FY2003 or announced for FY2004. The National Flagship Language Initiative responds not only to federal governmentneeds but also perceived weaknesses in the former program of institutional grants. According to a statement on the NSEP's website, past institutional grants have beenshort-term and often insufficiently coordinated with individual awards. They have often beenfocused on improving the general capacity of American IHEs to provide foreign languageand area studies (FLAS) instruction, which duplicates the role of other federal programs,especially Title VI of the HEA. (7) Program Administration The NSEP is administered by the Department of Defense's National DefenseUniversity, under the guidance of a 12-member National Security Education Board (NSEB). The NSEB consists of the Secretaries of Defense (who chairs the Board), Education,Commerce, and State, the Director of Central Intelligence, the Chairperson of the NationalEndowment for the Humanities, plus six persons appointed by the President who haveexpertise in the areas of international, language, area, and nonproliferation studies education. The Board's functions include developing criteria and qualifications for making awards;providing for wide dissemination of information about program activities; reviewingprogram administration; and making recommendations on countries, disciplines, and areaswhere there are knowledge deficiencies which make them "critical" for support under theprogram. In making the latter determination, the Board is to take into account federalgovernment needs as well as the supply of individuals knowledgeable in various languagesand areas of the world. To carry out this responsibility, the Board conducts an annual surveyand analysis of federal agency requirements regarding foreign language proficiency, as wellas national security-related regions/nations and fields of study. (8) As with many of the federal government's programs supporting internationaleducation and exchange, and as specifically authorized by the NSEA, the NSEP is largelyadministered through non-governmental organizations that process applications and overseethe award competition. The Institute of International Education (IIE, http://www.iie.org )performs this role with respect to undergraduate scholarships, the Academy for EducationalDevelopment (AED, http://nsep.aed.org ) does so for the graduate fellowship competition,and the National Foreign Language Center at the University of Maryland( http://www.nflc.org ) has acted as an administrative agent for the NSEP in the awardingof some institutional grants, particularly those under the new National Flagship LanguageInitiative Program. Service Requirement Individuals who receive NSEP fellowships and scholarships are obligated for alimited period of time to seek federal employment in a national security position. (9) If grant recipients candemonstrate that no national security positions are available, they may fulfill the requirementthrough work in any federal government position or in the field of higher education in an areaof study for which the scholarship or fellowship was awarded. If individuals fail to meet theservice requirement, they must repay the amount of their grant plus interest. According to the NSEA, the service period is to be up to the length of time for whichaid was received for scholarship recipients, and 1-3 times of the length of time for which aidwas received for fellowship recipients. Within these limits, the specific length of the servicerequirement is determined by the NSEB. In general, it is approximately equal to the lengthof the educational program for which a person receives aid. Under the original NSEA, as enacted in 1991, the service obligation was somewhatmore flexible -- it could have been met through employment in any Federal agency orposition (i.e., not just positions involved in national security), or as an educator (at any levelof education) in the area of study for which the scholarship or fellowship was awarded. Thecurrent service requirement provision was adopted under P.L. 104-201 , the National DefenseAuthorization Act for Fiscal Year 1997 , and amended by P.L. 107-296 , the HomelandSecurity Act of 2002. (10) Since adoption of the current service requirement, approximately 73% of scholarshipand fellowship recipients (combined) have met the service requirement through federalemployment, and 27% through employment in higher education. (11) However, thepattern of service is distinctly different for undergraduate scholarship recipients versusgraduate fellowship recipients -- 93% of scholarship recipients have met the requirementthrough federal employment versus 50% of the fellowship recipients. Funding Funding for this program is provided from a National Security Education Trust Fund(NSETF) in the U.S. Treasury. Money may be taken from the Fund for grants andadministrative costs, but only to the extent specified in authorization and appropriationslegislation. Money in the Fund may be invested only in interest-bearing obligations of theUnited States or guaranteed by the United States. Reimbursements for failure to meet servicerequirements are to be paid into the Fund. An initial amount of $150 million was appropriated to the Fund for FY1992. Earlyin the 104th Congress, FY1995 rescissions legislation was passed by the House which wouldhave eliminated the program completely and returned all of its $150 million trust fund to theTreasury. (The initial amount was still available because the NSEP did not begin makinggrants until academic year 1994-1995.) Under the final version of this legislation ( P.L.104-6 ), one-half of the funds originally appropriated for the NSEP trust fund ($75 million)was rescinded. Each year since FY1992, the NSETF has grown through interest income, and eachyear since FY1995, it has declined through appropriations for grants and programadministration. Particularly in recent years, NSETF expenditures have exceeded income, sothe balance remaining in the Fund has steadily declined. The Department of DefenseAppropriations Act for Fiscal Year 2003 ( P.L. 107-248 ) provided for $8 million to beappropriated from the National Security Education Trust Fund for FY2003, the same as theFY2002 amount as well as the President's FY2004 request. Table 2 shows the annualappropriations from the NSETF each year since FY1995 and the projected Fund balance atthe end of FY2002, 2003 and 2004. Table 2. Annual Appropriations from the NationalSecurity Education Trust Fund, FY1995-2004, and Projected Fund Balance,FY2002-2004 P.L. 107-306 requires the Secretary of Defense to submit to selected congressionalcommittees (12) a report on the effectiveness of the NSEP and the advisability of conversion from a trust fundmechanism to annual appropriations. The authorization of $10 million per year for aNational Flagship Language Initiative is contingent upon submission of this report with afinding that "the programs carried out under the David L. Boren National Security EducationAct of 1991 are being carried out in a fiscally and programmatically sound manner." P.L. 107-306 further authorizes $300,000 for the Secretary of Defense, "actingthrough the Director of the National Security Education Program," to prepare a report on thefeasibility of establishing a "Civilian Linguist Reserve Corps," to be composed of U.S.citizens with advanced foreign language skills. Those preparing the report are encouragedto consider the reserve components of the armed forces as a possible model for this Corps. Issues Selected issues that have arisen with respect to the NSEP are discussed in theremainder of this report. Funding Mechanism As noted earlier, the original intention was that the NSEP would be funded via theearnings of a trust fund. An initial appropriation of $150 million was provided to the trustfund, with the possibility of additional appropriations being provided to the fund afterward. The apparent intention of using this funding mechanism was to help insulate the programfrom the uncertainties of the annual budget and appropriations processes, although funds tobe used for annual grants and administration must still be appropriated from the Fund. However, the reduction of the NSETF by one-half in subsequent rescissionslegislation ( P.L. 104-6 ), combined with a decline in interest rates mean that annual NSETFearnings have been only $2-3 million in recent years, much lower than the annualappropriations and program level of approximately $8 million per year. Thus, as noted in Table 2 , the Fund's balance is steadily declining; if current trends continue, the Fund will bedepleted by FY2006. If NSEP activities are to be maintained at their current (or higher)levels, the size of the Fund must be increased significantly. Alternatively, the NSEP'sfunding structure might be shifted totally to an annual appropriations basis, as is the case forthe majority of federal grant programs. P.L. 107-306 , discussed above, requires theSecretary of Defense to study the feasibility of such a shift. Targeting of Critical Languages, Regions, and Disciplines An issue which arises with respect to any federal program intended to supportinstruction in "critical" foreign languages, regions, and disciplines is whether aid awards areappropriately targeted on such languages, regions, and disciplines. According to the NSEA,"critical" foreign languages, regions, and disciplines are those in which there is a majornational security interest, the knowledge and skills of U.S. students and federal employeesare deficient, and they are infrequently taught in the nation's colleges and universities andinfrequently represented in other international educational exchange programs. The NSEB conducts an annual survey of federal agencies to identify foreignlanguages, regions, and disciplines which the agencies deem to be critical to their operations. A wide variety of languages that are both frequently (e.g., Spanish) and infrequently (e.g.,Farsi) taught are identified through this process. However, the NSEB identifies a subset ofthese languages, along with associated world regions/nations, plus disciplines to be the focusof scholarship and fellowship awards for the succeeding year. In addition, the NationalFlagship Language Initiative, as planned by the NSEB and as authorized by P.L. 107-306 ,will attempt to identify the most critical languages to be the focus of all institutional grantsbeginning in 2003. While any process to identify critical foreign languages, world regions and disciplineswill be imperfect and subject to regular revision, and past institutional grants may not alwayshave been clearly focused on such critical subjects, it appears that substantial effort isdevoted toward focusing NSEP grants on languages, regions and disciplines which areinfrequently taught in American IHEs, and are of national security interest, particularly incomparison to most other federal foreign language and area studies programs. Coordination with Other Federal Programs Supporting Foreign Language andInternational Studies The NSEP's emphasis on helping to meet national security needs, and its servicerequirement for individual aid recipients, distinguish it from other federal programs ofsupport for foreign language and area studies. Nevertheless, the NSEP shares with severalother federal programs the goals of increasing understanding of, and the availability ofadvanced instruction in, world languages and regions which are infrequently taught in UnitedStates IHEs. Therefore, efficiency in the use of federal aid funds is likely to be enhancedthrough coordination of the NSEP and such programs as ED's Title VI of the HigherEducation Act and the Fulbright-Hays Act programs administered by the Departments ofState and Education. Currently, such coordination occurs through representation on theNational Security Education Board of designees of the Secretaries of Education and State,among others. However, there is no statutory provision for analogous representation ofNSEP officials on decision-making bodies for related programs administered by other federalagencies. One aspect of the NSEP -- institutional grants, including those under the NationalFlagship Language Initiative -- is especially similar to activities supported under anotherfederal program, Title VI of the Higher Education Act (HEA). (13) Both the NSEPinstitutional grants and two programs under HEA Title VI -- National Resource Centers andLanguage Resource Centers -- provide grants to United States IHEs to increase their capacityto provide instruction in foreign languages and regions, with special emphasis on thosewhich are infrequently taught in this nation. The major difference may be the degree of focuson "most critical" foreign languages and regions, especially in view of the plannedrestructuring of the NSEP institutional grants under the National Flagship LanguageInitiative. The NSEP has attempted to address this concern about possible program overlap byrequiring IHEs to propose activities which complement, but do not duplicate, those supportedunder other federal programs when applying for NSEP institutional grants. Nevertheless,especially given recent efforts through the annual appropriations process to increase the focusof HEA Title VI on the most critical languages and regions, plus the inefficiencies andadministrative costs associated with conducting multiple federal grant competitions for IHEs,as well as the concerns expressed about NSEP institutional grants by some members of theacademic community (discussed later in this report), the possibility of consolidating theNSEP institutional grant program with the HEA Title VI national and language resourcecenter programs might be considered. In addition, coordination with other programs may be altered by proposals to movethe administrative responsibility for NSEP from the Secretary of Defense to the Director ofCentral Intelligence ( H.R. 1588 as passed by the Senate) or to the Secretary ofEducation (as the President's Budget recommends). Placing responsibility for both the NSEPand the HEA, Title VI programs under the Secretary of Education would presumably increasethe degree of coordination and decrease the amount of overlap among these programs. Onthe other hand, it is not clear how shifting responsibility for the NSEP to the Director ofCentral Intelligence would impact program coordination. Support for Undergraduate Travel Abroad Some have questioned whether support of foreign travel grants by a limited numberof undergraduate students should be a priority for expenditure of federal funds under theNSEA. In the 107th Congress the Senate-passed version of H.R. 4628 wouldhave eliminated the NSEP's undergraduate scholarship program, shifting available funds tograduate fellowships and institutional grants. Although the enacted version of this legislationdoes not eliminate authority for undergraduate scholarships, debate over this issue maycontinue. According to the Senate Select Committee on Intelligence report (on S. 2506 , 107th Congress): The Committee views the graduate program asthe most effective way of achieving the stated goal of the program for several reasons. First,the graduate program reaches students after they have already selected a career path. Also,NSEP officials have told the Committee that graduate students are enthusiastic about servingas federal employees, and generally seek employment in national security positions. TheCommittee notes that the undergraduate program, while providing unique learningopportunities, is an inadequate mechanism for ensuring that students will obtain employmentwith the federal government, and thereby fails to meet the stated goal of producing anincreased pool of applicants to serve in the federal government. Because the NSEP isessentially taking a 'risk' on students by providing them with a substantial amount offinancial assistance, the Committee believes that it is in the best interest of the program tofocus on those students most likely to seek and attain employment in the field of nationalsecurity. ( S.Rept. 107-149 ) In addition to the above arguments, the level of foreign language proficiency attainedby graduate students is likely to be substantially higher than for undergraduates. In contrast, supporters of the current NSEP undergraduate scholarship program haveargued that it provides a relatively rare opportunity for federally-funded foreign travel at apoint in their educational careers at which most students are deciding upon the path they willfollow for their graduate study and future careers. Only one other, relatively small, federalprogram -- the Gilman International Scholarship Program (14) -- supports foreigntravel opportunities for U.S. undergraduate students, and it is not focused on critical foreignlanguages or world regions. (15) In addition, the argument that graduate students are more likely to pursue a career ina national security position with the federal government would not seem to be supported bydata on the ways in which scholarship and fellowship recipients have met their servicerequirements thus far. According to cumulative data for 1996-2002 provided by NSEP staff,the percentage of undergraduate scholarship recipients who have taken federal positions(93%) is much higher than the percentage of graduate fellowship recipients who have mettheir service requirement by taking federal positions (50%). Thus far, it appears thatgraduate fellowship recipients are much more likely to meet their service requirement bytaking positions in higher education. This is most likely to occur with respect to students indoctoral (as opposed to master's) degree programs. Service Requirement and Linkages to National Security Agencies Throughout the life of the NSEP, and especially after the adoption of amendmentsto the NSEA service requirements in 1996 (by P.L. 104-201 , the National DefenseAuthorization Act for Fiscal Year 1997), some members of the U.S. academic communityhave expressed concern about the linkages between this program and the DOD, CentralIntelligence Agency (CIA), and other federal national security agencies. This concern arisesnot only from the NSEP's service requirement -- the obligation to seek employment in anational security position (although not necessarily in a national security agency) -- but alsoother linkages between the program and national security agencies -- e.g., administration ofthe program by the DOD, under the auspices of the National Defense University; andrepresentation of national security agencies on the NSEB. The NSEA explicitly prohibits scholarship and fellowship recipients from beingrequired to "undertake any activity" on behalf of any federal agency, as a condition for receiptof their assistance, while engaged in their subsidized education program. In addition, asnoted earlier, the service requirement has been interpreted relatively broadly in practice toinclude positions in a wide range of federal agencies (see footnote 9). Further, the length ofthe service requirement -- generally equal to the period of time for which aid was received-- is shorter than for some other scholarship or loan forgiveness programs, requiring servicefor only a few months to two years in general. Further, cumulative (1996-2002) data provided by NSEP staff on federal employmentof scholarship and fellowship recipients indicate that a majority have met their servicerequirement by taking positions outside the DOD, CIA, and similar national securityagencies. First, 50% of graduate fellowship recipients, and 7% of undergraduate scholarshiprecipients, have met their service requirement by taking positions in higher educationinstitutions, not the federal government. Second, among those taking federal positions tomeet their service requirement, more than one-half have taken positions in agencies otherthan the DOD, CIA, and similar national security agencies. (16) Nevertheless, critics of these linkages have expressed concern that participatingstudents would be treated with suspicion and might even be in danger abroad if they areidentifiable as possible future employees of U.S. intelligence and defense agencies. Concernhas been expressed about the safety of participants as well as the cooperation of foreigneducational institutions if the NSEA is perceived as being related to the U.S. nationalsecurity agencies. While critics of this aspect of the NSEP have expressed concerns about all of theprogram's grant programs, such criticism has most recently been focused primarily on thecurrent and prospective institutional grant programs, including the National FlagshipLanguage Initiative. Critics have argued that the linkages between the NSEP and nationalsecurity agencies affect only individual students under the scholarship and fellowshipprograms, while involving, at least indirectly, entire IHEs which accept institutional grants. According to a statement by the Board of Directors of the Middle East Studies Association(MESA), [W]e have (1992, 1995) noted our strongreservations concerning the decision to locate the NSEP administration in the Departmentof Defense and the involvement of the CIA on the Board that oversees the NSEP. Webelieve it is essential to maintain the administrative independence of such programs fromgovernment agencies involved in national security .... [W]e are apprehensive that theproposed establishment of university programs will link all participating students byassociation with Defense Department language study funding through the institutional grantsthat NFLI-P [National Flagship Language Initiative-Pilot program] has announced .... Agovernment-funded program that emphasizes cooperation between the U.S. academy andgovernment agencies responsible for intelligence and defense will increase the difficultiesand dangers of such academic activities, and may foster the already widespread impressionthat academic researchers from the United States are directly involved in governmentactivities. This may discourage foreign colleagues from collaboration with Americans inscholarly projects. Ultimately, such a program may actually undermine the research andteaching of languages, histories and culture that area studies programs in U.S. universitiesstrive to advance .... We urge that funding for second-language acquisition, like othereducational programs, be administered through the Department of Education .... Werecommend that MESA members and institutions not seek or accept funding for the NFLI-Pas presently defined, constituted, and administered. (17) In contrast, supporters of the service requirement and other NSEP linkages withnational security agencies argue that they are consistent with what they view as being theprimary purposes of the program, and help to assure that the federal government receives anappropriate return for its investment in persons aided by the program. While other federalprograms supporting foreign language and area studies are administered by the Departmentsof Education and State, they argue, those other programs have broader purposes than theNSEP. The statement of purpose in the NSEA focuses primarily on helping to meet thenational security needs of the United States and expanding the pool of applicants foremployment in U.S. government agencies with national security responsibilities, while alsomentioning the somewhat broader goals of increasing the "quantity, diversity, and quality"of teaching and learning of foreign language and area studies critical to the Nation's interest,expanding the foreign language and area studies knowledge base upon which both U.S.citizens and government employees can rely, and permitting the federal government to"advocate the cause of international education" (50 U.S.C. § 1901). Supporters of theprogram's current provisions and structure argue that this mixture of purposes is consistentwith the NSEP's linkages to national security agencies, combined with flexibility in otherrespects (e.g., alternative of service in higher education, opportunity to meet the servicerequirement in a relatively wide variety of federal agencies, and relatively short term ofrequired service). In fact, if the primary, distinctive purpose of the NSEP is to increase thenumber of individuals with specialized language skills in national security positions, theservice requirement might even be tightened -- for example, by lengthening the requiredperiod of service, narrowing the variety of federal agencies at which the service requirementmay be met, or eliminating the alternative of meeting the service requirement throughemployment in higher education.

The National Security Education Program (NSEP), authorized by the David L. BorenNational Security Education Act of 1991 (NSEA, Title VIII of P.L. 102-183 ), provides aid forinternational education and foreign language studies by American undergraduate and graduatestudents, plus grants to institutions of higher education. The statement of purpose for the NSEAemphasizes the needs of federal government agencies, as well as the Nation's postsecondaryeducation institutions, for an increased supply of individuals knowledgeable about the languages andcultures of foreign nations, especially those which are of national security concern and have nottraditionally been the focus of American interest and study. Three types of assistance are authorized and currently provided by the NSEA: (a) David L.Boren Scholarships for undergraduate students to study in "critical" foreign countries; (b) grants toinstitutions of higher education to establish or operate programs in "critical" foreign language andarea studies areas, including a National Flagship Language Initiative-Pilot Program; and (c) DavidL. Boren Fellowships to graduate students for education abroad or in the U.S. in "critical" foreignlanguages, disciplines, and area studies. Individuals who receive NSEP fellowships and scholarshipsare obligated for a limited period of time to seek employment in a national security position with afederal agency. Grant recipients who demonstrate that such positions are not available may fulfillthe requirement through work in any federal agency or in the field of higher education in an area ofstudy for which the scholarship or fellowship was awarded. The NSEP is intended to complement, and not duplicate, other federal programs of aid forforeign language and area studies education, such as those authorized under Title VI of the HigherEducation Act and the Fulbright-Hays Act. Distinctive elements of the NSEP, compared to mostother federal programs of aid to international education or exchange, include the service requirementfor aid recipients, administration by the Department of Defense (rather than the Departments ofEducation or State), and support for international travel by American undergraduate students. Therecent establishment of the NSEP pilot program, the National Flagship Language Initiative,distinguishes it even further from Title VI programs. The NSEP is administered by the Departmentof Defense's National Defense University, under the guidance of a Presidentially appointed NationalSecurity Education Board. Several bills passed in the 107th and 108th Congressional sessions that would have altered theNSEP's funding and administration. In addition, the intelligence reform bill ( P.L. 108-458 ) signedby the President on December 17, 2004, amends Title X of the National Security Act to create a newIntelligence Community Scholarship Program (ICSP) that is quite similar to the NSEP (§1042). Thisreport provides background information on the NSEP and an analysis of related issues including theICSP. It will be updated in response to major legislative developments.

Introduction Most individuals in the United States obtain health insurance coverage in the group market (e.g., employer-sponsored insurance). The predominance of group coverage can mask differences in its availability. Historically, access to coverage has been more limited in the small group market than in the large group market. For example, smaller employers have been less likely to offer health insurance coverage to employees compared with larger employers. In 2013, 34.8% of private-sector employers with fewer than 50 employees offered coverage, compared with 95.7% of those with 50 or more employees. Among smaller employers that do not offer coverage, the cost of offering coverage is often cited as a major reason for not doing so. The Patient Protection and Affordable Care Act (ACA; P.L. 111-148 , as amended) includes a number of provisions intended to improve access to health insurance coverage. These provisions have been implemented over the course of several years; some went into effect shortly after ACA was enacted (2010), and many others were not effective until 2014. Some of these provisions apply to the small group market to address perceived problems in the market, including lower offer rates among smaller employers and the cost of coverage. The small business health options program (SHOP) exchanges are among these provisions. As required by ACA, a health insurance exchange was established in each state as of January 1, 2014. Each exchange has two parts: a marketplace where individuals can shop for and enroll in health insurance coverage ( individual exchange ), and a SHOP exchange for small employers. SHOP exchanges are marketplaces where private health insurance issuers sell health insurance plans to small employers. All SHOP exchanges are administered in one of three ways: solely by a state, solely by the Department of Health and Human Services (HHS), or by HHS with some degree of state involvement. For purposes of this report, SHOP exchanges solely administered by a state are referred to as state-based (SB-SHOP), and all SHOP exchanges with federal involvement are referred to as federally-facilitated (FF-SHOP). Figure 1 shows SHOP exchange arrangements in each state in 2014. All health plans sold through a SHOP exchange must be certified as qualified health plans (QHPs). To obtain certification as a QHP, a health plan must meet certain ACA-required criteria, such as offering a comprehensive benefit package (the essential health benefits, EHBs). ACA does not require employers to purchase coverage through SHOP exchanges, nor does it prohibit employers from purchasing coverage in the market outside SHOP exchanges. ACA and its implementing regulations include some prescriptive requirements for the establishment and operation of SHOP exchanges. These requirements often apply similarly to SB-SHOPs and FF-SHOPs. When ACA and regulations are not prescriptive, decisions about the establishment and operation of SHOP exchanges are left to a state or the entity administering the SHOP exchange (e.g., HHS). As a result, not all SB-SHOPs and FF-SHOPs share the same features or implement shared features in the same way. This report describes certain features of SHOP exchanges. Each description includes information about how the feature is implemented in SB-SHOP and FF-SHOP exchanges. Each description also includes information about the timing of implementation. The report concludes with a discussion about the current and future place of SHOP exchanges in the broader context of the private health insurance market. Eligibility Small employers that offer health insurance coverage to all of their full-time employees are eligible to use SHOP exchanges. Prior to January 1, 2016, ACA allows states to define small employer as having either 100 or fewer or 50 or fewer employees. Beginning in 2016, all states must define small employer as 100 or fewer employees. (Information about the definitions and methods employers must use to determine size is below.) Beginning in 2017, states have the option to allow large employers to use a SHOP exchange. Small employers may be able to purchase coverage through one or more SHOP exchanges. A small employer may purchase coverage through a SHOP exchange that services its principal business address or through each SHOP exchange that services employees' primary worksites, if employees work at multiple worksites and those worksites are not all in the service area of one SHOP exchange. In order for an employee to be eligible to obtain coverage through a SHOP exchange, a SHOP-eligible employer must offer the employee coverage. Determining Employer Size and the Definition of Full-Time An employer's SHOP exchange eligibility depends on size and whether the employer offers coverage to all full-time employees. ACA and its implementing regulations set forth methods and definitions with respect to determining employer size and whether an employee is full-time. For plan years beginning in 2014, the FF-SHOPs rely on definitions and methods described in 4980H(c) of the Internal Revenue Code (IRC). A full-time employee is defined as one who works 30 hours or more each week. The full-time equivalent (FTE) method, whereby both full-time and part-time employees are included in the calculation, is the method for determining the number of employees. Each full-time employee counts as one employee, and hours worked by part-time employees (i.e., those working less than 30 hours per week) are converted into FTEs by adding overall hours worked by all part-time employees during a month and dividing the total by 120. The result from the part-time employee calculation is added to the number of full-time employees to get the total number of FTEs. For example, consider an employer with 10 full-time employees (30 or more hours). Assume the employer also has 20 part-time employees who all work 24 hours per week (96 hours per month). These part-time employees' hours would be treated as equivalent to 16 full-time employees for the month, based on the following calculation: (20 employees x 96 hours) / 120 = 16 Thus, in this example, if the employer applied for coverage through an FF-SHOP, it would be considered a small employer , based on a total FTE count of 26—that is, 10 full-time employees plus 16 FTEs based on the number of part-time hours worked. In the case of plan years beginning prior to January 1, 2016, SB-SHOPs may elect to use the definitions and methods set forth in 4980H(c) of the IRC, or they may use state-specific terms and methods to determine employer size. In the case of plan years beginning on or after January 1, 2016, all SHOP exchanges must rely on the definitions and methods described in 4980H(c) of the IRC currently used by the FF-SHOPs. Consumer Assistance Statute and regulations require that exchanges, both SHOP and individual, carry out certain consumer assistance functions. Some functions require that exchanges provide direct support to consumers. For example, exchanges must provide for the operation of a call center that addresses the needs of consumers who have questions about SHOP exchanges and individual exchanges. Exchanges are also expected to provide indirect support to consumers by implementing consumer assistance personnel programs. Exchanges must establish Navigator programs and certified application counselor (CAC) programs, and exchanges have the option to implement a program for non-Navigator consumer assistance personnel. Under these programs, individuals are trained to help consumers make informed decisions about their insurance options and help consumers access SHOP and individual exchange coverage. However, consumer assistance personnel may not enroll small employers or individuals in coverage. Pursuant to state law, exchanges may also allow insurance agents and brokers to help small employers and individuals obtain coverage through exchanges. Unlike consumer assistance personnel, agents and brokers may enroll individuals and small employers in coverage through exchanges. See the " Role of Agents and Brokers in Enrollment Process " section of this report for specific information about how agents and brokers can enroll small employers in coverage obtain through SHOP exchanges. Enrollment To enroll in coverage offered through a SHOP exchange, both employers and employees must submit applications to the SHOP. The SHOP exchange must verify the information submitted and determine employers' and employees' eligibility. Enrollment in a SHOP exchange is not limited to a specified open enrollment period, except in certain circumstances. Specific circumstances aside, a SHOP must allow employers to enroll any time during a year, and the employer's plan year must consist of the 12-month period beginning with the employer's effective date of coverage. Each SHOP exchange must establish uniform enrollment timelines for employers and employees. SHOP exchanges must provide a specific timeframe during which an employer can select qualified health plans (QHPs) to offer to its employees and a time period of no less than 30 days for an annual open enrollment period for employees. SHOP exchanges must provide special enrollment periods for employees and their dependents. Special enrollment periods allow individuals to enroll in coverage outside the open enrollment period. The eligibility criteria for special enrollment periods are outlined in regulations and include events such as the loss of eligibility for Medicaid or the State Children's Health Insurance Program (CHIP) and the experience of a life event such as marriage or divorce. Minimum Participation Rates and Contribution Rates In general, a minimum participation rate is a requirement that at least a certain percentage of an employer's workers enroll in a health plan. Pursuant to state law, health insurance issuers may institute minimum participation rates. SHOP exchanges are generally allowed to establish uniform minimum participation rates, as long as the rate is based on the rate of employee participation in the SHOP. Minimum participation rates cannot be based on enrollment in any given QHP or with a particular health insurance issuer. Employers that do not meet the minimum participation rate are not prohibited from purchasing coverage through a SHOP exchange; rather, if a SHOP exchange authorizes a minimum participation rate, an issuer may limit the availability of coverage for any employer that does not meet the minimum rate to an annual enrollment period that begins November 15 and extends through December 15 of each year. For plan years beginning in 2014, the FF-SHOPs are generally using a 70% minimum participation rate. To calculate the rate, the number of employees accepting coverage is divided by the number of employees offered coverage, excluding from the calculation any employee who is enrolled in coverage through another employer's group health plan or through a government program (e.g., Medicare or Medicaid). Regulations allow FF-SHOPs to use different minimum participation rates in certain circumstances, such as if the state has a law indicating a different rate. The SB-SHOPs may establish their own minimum participation rates, provided they do so within the confines of the requirements described above: the rate must be based on employee participation in the SHOP exchange and employers that do not meet the specified rate must be given the opportunity to enroll in coverage during an annual enrollment period. A minimum contribution rate is a requirement that an employer contribute at least a certain amount to employees' premiums. Issuers may institute minimum contribution rates, provided they are allowed to do so under state law. With respect to SHOP exchanges, neither statute nor regulations explicitly prohibit minimum contribution rates for QHPs purchased through SHOP exchanges. However, HHS has indicated that in the 2014 plan year, FF-SHOP exchanges may not allow issuers to institute minimum contribution rates. The restriction does not apply to SB-SHOP exchanges. It should be noted that minimum participation rates and minimum contribution rates, whether implemented in the small group market inside or outside SHOP exchanges, are subject to the parameters of ACA's guaranteed issue provision. Under this provision, issuers offering coverage in the small group market must accept every applicant for coverage, as long as the applicant agrees to the terms and conditions of the coverage offer (such as the premium). As such, issuers cannot prohibit employers that do not meet an allowed minimum participation rate or a minimum contribution rate from purchasing small group coverage. Instead, issuers may limit the availability of coverage for any employer that does not meet an allowed minimum participation or contribution rate to an annual enrollment period—November 15 through December 15—of each year. Enrollment Pathways There are multiple ways for small employers and their employees to enroll in QHPs offered through SHOP exchanges. The availability of various enrollment pathways differs among SHOP exchanges. For the 2014 plan year, small employers and employees using FF-SHOPs can shop for and compare all available QHPs on the FF-SHOP website. However, small employers and employees can apply for coverage only by mailing an application to the FF-SHOP or by using the direct enrollment process. Under direct enrollment, a small employer contacts an agent, broker, or insurance company that offers an FF-SHOP plan. The contacted entity helps the small employer fill out an exchange application and sends it to an FF-SHOP. The contacted entity may then allow the small employer and its employees to enroll in a QHP offered by the contacted entity without waiting to receive an eligibility determination from the FF-SHOP exchange. For the 2015 plan year, it is expected that small employers and their employees will be able to enroll online, as well as mail in applications and use the direct enrollment process. In terms of timing, the availability of various enrollment pathways has differed across SB-SHOP exchanges. Some SB-SHOPs have supported on-line enrollment and enrollment through other pathways (e.g., mail-in application) since the SB-SHOPs opened, while others have not yet begun to offer on-line enrollment and rely on enrollment through other pathways. It remains to be seen what enrollment pathways will be available in SB-SHOPs for the 2015 plan year. Role of Agents and Brokers in Enrollment Process Regulations provide that a state may permit agents and brokers to help individuals and small employers enroll in exchange coverage using the agent's or broker's own website. This feature is currently available in individual exchanges, but it is not available in SHOP exchanges for plan years beginning in 2014. SHOP exchanges may allow agents and brokers to enroll employers and employees through their own websites beginning in 2015, provided state law permits this activity. HHS has noted that it does not currently anticipate that FF-SHOPs will make this function available in 2015. Selecting a QHP If an employer is eligible to use a SHOP exchange, the employer may select one or more QHPs to offer to its employees. Each SHOP exchange determines the number of QHPs an employer may offer (i.e., one or more than one) and the method by which employers can select which QHPs to offer. Provided a SHOP exchange allows employers to select more than one QHP, regulations identify two selection methods: employee choice or an alternative method. Under employee choice, employers may select a metal level of coverage (e.g., silver or gold) in which all QHPs at that level are made available to its employees. An example of an alternative method is for the SHOP to allow employers to select more than one level of coverage in which all QHPs at the various levels are available to its employees. For the 2014 plan year, FF-SHOPs allow employers to select only one QHP to offer to their employees. FF-SHOPS do not allow the employee choice method or any alternative selection method. For plan year 2014, most SB-SHOPs allow employers to select more than one plan to offer to their employees, either by the employee choice method or a different method. For plans years beginning in 2015, regulations provide that a SHOP exchange may choose whether to provide the employee choice method, based on a written recommendation submitted by the State Insurance Commissioner. If an FF-SHOP elects not to implement the employee choice method, then it will allow an employer to select only a single QHP to offer to its employees. Among states with FF-SHOP exchanges, HHS has approved recommendations from State Insurance Commissioners not to implement employee choice in 18 states in 2015. The 14 remaining FF-SHOPs will implement employee choice in 2015. If an SB-SHOP chooses not to implement the employee choice method, it will allow an employer to make one or more QHPs available to employees by a different method. HHS notes that the option to implement the employee choice function in 2015 (based on the recommendation from the State Insurance Commissioner) is a transitional policy. HHS indicates that for plan years beginning in 2016, all SHOP exchanges must offer at least the employee choice method (and may offer an additional selection method). In other words, under current regulations, beginning in 2016, employers will have the option to offer more than one plan to employees (by the employer choice method and possibly by another method) in all SHOP exchanges. Purchasing a QHP Offered through a SHOP Exchange ACA and its implementing regulations set forth some requirements about how issuers selling coverage in the small group market must develop premiums to offer to employers. In general, the requirements apply regardless of whether an issuer is offering coverage inside or outside a SHOP exchange. Once an issuer has set premiums for an employer, the employer must determine its contribution to employees' premiums. SHOP exchanges may establish standard methods that employers may use to define their contributions toward employee and dependent coverage. In addition, SHOP exchanges are expected to implement certain administrative procedures related to collecting premiums from employers and paying premiums to QHP issuers. Premiums Charged by Health Insurance Issuers ACA imposes adjusted community rating rules on the determination of premiums. Adjusted community rating rules prohibit issuers from pricing health insurance plans based on health factors but allow premium variation for four factors: (1) self-only or family enrollment, (2) geographic rating area, (3) tobacco use, and (4) age. These rules apply to health plans offered in the small group market both inside and outside SHOP exchanges, and they may be modified by state laws that impose stricter rating rules (i.e., states may impose pure community rating, or the prohibition of using any factor to vary premiums). Issuers must use a per-member rating practice to determine the total premium for a health plan purchased by a small employer. Under a per-member rating practice, the total premium charged by an issuer to an employer is determined by summing the premiums of each employee and dependent enrolled in the plan, adjusted for any permitted rating variations (e.g., the age of each enrollee). When an issuer provides premium information to an employer, the issuer may offer the employer the per-member premiums, or the issuer may offer the employer composite premiums. Composite premiums are average enrollee premium amounts; to develop composite premiums, an issuer divides the total premium amount (based on the summation of per-member rating) by the total number of enrollees to develop an average premium amount per enrollee. Table 1 illustrates how per-member and composite premiums may differ. If an issuer offers composite premiums to an employer, it must comply with the following: (1) the total premium must be based on per-member rating; (2) the composite premium cannot vary during a plan year, regardless of the addition or loss of enrollees in the plan; (3) tobacco use cannot be considered for the composite premium, it must be applied to the tobacco user's premium after the composite premium is developed; and (4) if an issuer makes composite premiums available for a health plan for one employer, it must make composite premiums available to all employers that want to purchase that health plan. So far, the information presented in this section applies to small group plans offered inside and outside SHOP exchanges. However, QHPs offered through SHOP exchanges must abide by additional SHOP-specific rules. SHOP exchanges must require that all issuers make changes to their rates at uniform times that occur no more often than quarterly, and all SHOP exchanges must prohibit QHP issuers from varying an employer's rates during the employer's plan year. In addition, if the employee choice function becomes available in FF-SHOPs (for plan years beginning on or after January 1, 2015), employers that opt to use the employee choice function will not have the option to receive composite premiums from issuers. Instead, employers may receive only per-member premiums from issuers. This is not a requirement in SB-SHOPs; unless otherwise prohibited by a state or a SHOP exchange, an issuer may provide composite premiums to employers that opt for the employee choice method in SB-SHOPs. Methods for Determining Employer Contributions to Premiums Once an issuer has developed premiums (whether per-member or composite) for a health plan offered to a small employer, the small employer can determine its contribution toward employees' premiums. A SHOP exchange may establish one or more standard methods that employers may use to define their contributions toward employee and dependent coverage. The methods that FF-SHOPs must establish are described in regulations, but methods are not prescribed for SB-SHOPs. For plan year 2014, the method for determining employer contributions in FF-SHOPs is relatively straightforward because employers may select only one QHP to offer to their employees. Once the employer has selected the QHP (the reference plan), the employer will define a percentage contribution toward premiums for employee-only coverage under the reference plan and, if dependent coverage is offered, a percentage contribution toward premiums for dependent coverage. The resulting contribution amounts for each employee's and dependent's coverage may then be applied toward the QHP offered to employees. Employee choice will be an option in some FF-SHOPs in 2015. As such, a method for determining employer contributions if an employer selects more than one QHP to offer to its employee is outlined in regulations. In this case, the employer will select one QHP to serve as a reference plan on which contributions will be based (but the employees will be allowed to enroll in QHPs other than the reference plan per the employee choice arrangement). The employer will define percentage contributions. To the extent permitted by state law, an FF-SHOP may permit an employer to define different contribution percentages for full-time employees, non-full-time employees, dependents of full-time employees, and dependents of non-full-time employees. The resulting contribution amount (based on the reference plan) is then applied to the QHP selected by each enrollee. Regulations specify that state law or the employer may require an FF-SHOP to base contributions on separately calculated composite premiums for employees, adult dependents, and dependents below age 21; however, HHS issued guidelines in October 2013 indicating that FF-SHOPs are able to accommodate composite ratings only for employees. Contributions for employees' dependents will be based on per-member rating. HHS has not specified whether FF-SHOPs will be able to accommodate composite ratings for dependents in 2015. See the Appendix for more details about how the different contribution methods in FF-SHOPs may work in practice. Administrative Procedures for Collecting and Paying Premiums SHOP exchanges are expected to establish one or more standard procedures to allow employers to pay premiums. For plan years beginning in 2015, the established procedures must include premium aggregation functions: (1) a SHOP must provide each employer with a monthly bill that identifies the employer contribution, the employee contribution, and the total amount that is due to QHP issuer(s); (2) a SHOP must collect from each employer the total amount due and make payments to QHP issuers for all SHOP enrollees; and (3) a SHOP must maintain books, records, documents, and other evidence of accounting procedures and practices of the premium aggregation program for each benefit year for at least 10 years. FF-SHOP exchanges are not performing premium aggregation functions for the 2014 plan year, and SB-SHOP exchanges have the option to perform the functions for the 2014 plan year. As noted above, regulations provide that all SHOP exchanges must offer the premium aggregation functions listed above beginning with the 2015 plan year. Small Business Health Insurance Tax Credits Under ACA, certain small employers are eligible for a small business tax credit. To be eligible, the small employers must contribute a uniform percentage of at least 50% toward their employees' health insurance. The tax credits have been available to eligible small employers since 2010. Beginning in 2014, the tax credits are generally available only to eligible small employers that obtain coverage through a SHOP exchange; however, the Internal Revenue Service (IRS) provides transition relief for certain small employers that cannot obtain a QHP offered through a SHOP exchange because the small employer's principal business address is in a county in which a QHP through a SHOP is not available in 2014. Also beginning in 2014, the credits are available only to eligible small employers for two consecutive tax years (beginning with the first year the small employer purchases coverage through a SHOP exchange). Beginning in 2014, the maximum credit is 50% of an employer's contribution toward premiums for for-profit employers, and 35% of employer contributions for nonprofit organizations. The full credit is available to employers that have 10 or fewer full-time equivalents (FTEs) and that have average taxable wages of $25,400 or less. The tax credit is phased out as an employer's number of FTEs increases from 10 to 25 and as average employee compensation increases from $25,400 to $50,800. Health Insurance Issuer Participation in SHOP Exchanges In general, ACA does not require health insurance issuers to participate in individual or SHOP exchanges. However, HHS set forth requirements with respect to issuer participation in FF-SHOPs. An FF-exchange will certify a QHP for the individual market only if the issuer meets one of the following conditions: the QHP issuer offers at least one small group market QHP at the silver level and one at the gold level through the state's FF-SHOP; the QHP issuer does not offer small group market plans in the state, but another issuer in the same issuer group offers at least one small group market QHP at the silver level and one at the gold level through the state's FF-SHOP; or neither the QHP issuer nor any other issuer in the same group has a share of the small group market greater than 20% (as determined by HHS). In other words, if an issuer wants to offer through the FF-individual exchange, it may have to also offer through the FF-SHOP exchange. This is dependent on the size of the issuer's presence in the small group market outside of an FF-SHOP exchange and whether an issuer in its same group offers QHPs through an FF-SHOP exchange. Issuers offering coverage through SB-SHOPs do not have to comply with these requirements, but states that have SB-SHOPs may have their own requirements related to offering coverage through a SHOP exchange. For example, at least three states (DC, Maryland, and Vermont) require issuer participation in SHOP exchanges for plan year 2014. SHOP Exchanges in Context SHOP exchanges are just one part of the health insurance landscape in the United States. Being one part of a larger whole, the SHOP exchanges are both affected by and affect other parts of the landscape. This section provides some context to help clarify how SHOP exchanges currently operate within the broad health insurance landscape and how they are expected to do so in the future. As noted earlier, while most individuals in the United States obtain health insurance coverage in the group market, access to coverage has historically been more limited in the small group market as compared with the large group market. Small employers often cite the cost of small group coverage as a reason for not offering coverage. ACA includes a number of provisions to address perceived problems in the small group health insurance market to improve access to coverage. The small business health care tax credit and the SHOP exchanges are among these provisions. ACA also includes provisions intended to improve access to other parts of the health insurance market. For example, ACA includes a number of consumer protections that make it easier for individuals to access coverage in the nongroup (or individual) market, such as a prohibition on preexisting condition exclusions. ACA also requires that each state have an individual health insurance exchange, where certain lower-income individuals can obtain financial assistance to purchase nongroup health insurance coverage. ACA also expands access to Medicaid, includes a requirement for most individuals to obtain coverage or face a penalty (individual mandate), and assesses penalties on large employers that either do not offer coverage or offer coverage that does not meet required standards (often referred to as the employer penalty). SHOP Exchanges in 2014 In 2014, internal and external factors affected the operation and functionality of SHOP exchanges and influenced small employers' interest in using SHOP exchanges. The factors also affected the role of SHOP exchanges in the larger health insurance landscape in 2014. Internal Factors The internal factors relate to the functionality of SHOP exchange features. SHOP exchanges had the potential to provide features to small employers that are not widely available in the small group market outside SHOP exchanges. Such features include the ability to view, compare, and enroll in plans offered by multiple issuers through one website; employee choice, or the ability for employers to allow their employees to select from multiple health plans; and assistance in administering the financial aspects of offering coverage (e.g., aggregating premiums owed to multiple issuers). To the extent that such features attracted small employers and issuers to the SHOP exchanges, the SHOP exchanges were potentially a vehicle for increasing small employer offer rates and reducing the cost of small group coverage by increasing competition in the market. However, as discussed in various parts of this report, implementation of many of the aforementioned features was delayed in 2014. External Factors The external factors relate to broader changes in the health insurance landscape (largely as a result of ACA) that may have discouraged, or at least not encouraged, small employers to obtain coverage through a SHOP exchange. ACA included many health insurance market reforms that apply to coverage sold in the small group market (including through SHOP exchanges). For example, beginning in 2014, small group health plans have to cover the essential health benefits (EHBs). The EHBs are a defined set of benefits, and covering the EHBs may increase the cost of some health plans. To the extent a small employer finds obtaining ACA-compliant coverage unappealing (perhaps because compliance is seen as increasing the cost of the coverage), the small employer may choose not to purchase coverage to offer to its employees. Or the small employer may choose to self-insure, provided it is allowed to do so under state law, because self-insured employers can offer coverage that does not have to comply with all of ACA's market reforms. Either way, the small employer will not purchase coverage in the small group market, and will have no reason to use a SHOP exchange. In 2013, media reports indicated that some small employers took advantage of the ability to early renew . Provided it was allowed under state law, an issuer could allow a small employer that would typically renew its plan in 2014 (per the terms of the contract) to renew its plan prior to 2014. For example, instead of renewing a plan in January 2014, a small employer may have had the opportunity to renew the contract in November 2013. Going forward, the small employer's contract year would be November–October. If an existing plan was renewed in October 2013 with a 12-month contract, the plan would not have to comply with 2014 ACA market reforms until it renews in October 2014. A small employer that took this option would have no need to purchase a plan through a SHOP exchange for at least part of the 2014 plan year. Similarly, under a transitional policy first announced by CMS in November 2013, issuers offering coverage in the small group market could choose to continue coverage that would otherwise be cancelled. Pursuant to the policy, state insurance commissioners could choose whether to enforce compliance with specified ACA market reforms. Presumably, if state insurance commissioners chose not to enforce compliance, then issuers could renew coverage for small employers that would otherwise receive cancellation notices. The transitional policy was extended in March 2014; pursuant to the extended policy, coverage renewed for a plan year between January 1, 2014, and October 1, 2016, does not have to comply with certain ACA market reforms, provided the coverage meets specified conditions. Just like small employers that opted to early renew, small employers that were (and still are) able to provide coverage that is not completely ACA-compliant have no reason to purchase coverage through a SHOP exchange. Finally, some of the external factors affecting SHOP exchanges have less to do with small group market coverage and more to do with improved access to other types of coverage. ACA includes provisions that make it easier for individuals to access coverage in the nongroup market. It creates individual exchanges and provides financial subsidies to lower-income individuals purchasing nongroup coverage through those exchanges, and it expands the Medicaid program. If a small employer found that its employees were able to easily obtain coverage outside of group coverage as a result of these provisions, the small employer may lack an incentive to provide coverage to its employees, regardless of the potential attributes of a SHOP exchange. These factors may be particularly salient to small employers not subject to ACA's employer penalty—those employers with fewer than 50 full-time equivalent (FTE) employees. SHOP Exchanges in 2015 and Beyond Some of the internal and external factors affecting SHOP exchange performance in 2014 will change while others will remain in place in 2015 and beyond. In addition, new factors will likely affect how issuers, employers, and consumers interact with SHOP exchanges going forward. Internal Factors It is expected that some currently delayed features of SHOP exchanges will be implemented in 2015 and in future years. For example, as discussed in this report, there are indications that SHOP exchange websites will generally be more functional going forward. HHS has indicated that on-line enrollment will be available in all FF-SHOPs in 2015. Also, the employee choice function is to be implemented in some FF-SHOPs in 2015 and is expected to be implemented in all SHOP exchanges in 2016 and beyond. The availability of these features may attract greater SHOP participation from employers and issuers. In 2016, the definition of small changes for purposes of the small group market and SHOP exchange eligibility. Beginning in 2016, a small employer is defined as having 100 or fewer employees. Larger firms (those with between 50 and 100 employees) are generally more likely to provide coverage than smaller firms; as such, the definition change may increase enrollment in SHOP exchanges (provided the larger employers decide to purchase coverage through SHOP exchanges). The change in the definition coincides with implementation of the employer penalty on employers with 50-99 employees; this could further incentivize these employers to provide coverage (although not necessarily through a SHOP exchange). In 2017, states have the option to open the SHOP exchange to large employers, which could also change employer and issuer participation patterns in SHOP exchanges. External Factors At the same time the SHOP exchanges change internally, the broader health insurance market will evolve as ACA-related changes continue to occur in the market. By the end of 2014, any coverage that was renewed early will have expired, and small employers will have to obtain ACA-compliant coverage for plan year 2015 if they want to continue to offer coverage. Also, the transitional policy may expire or be extended (depending on decisions made by state insurance commissioners), which will affect whether small employers have to offer ACA-compliant coverage. It is difficult to say how SHOP exchanges changes coupled with the potential requirement to provide ACA-compliant coverage will affect participation in SHOP exchanges. CRS is not aware of data that estimate the number of small employers that early renewed or opted for the transitional policy and therefore may need to purchase ACA-compliant coverage in 2015 or later years. It is also difficult to predict whether the requirement to offer ACA-compliant coverage will incentivize small employers to stop offering coverage or to continue offering coverage. If small employers continue to offer coverage, does the increased functionality of the SHOP exchanges incentivize them to offer through the SHOP, or would they obtain coverage outside the SHOP exchanges? Appendix. Employer Contributions to FF-SHOP Exchange Coverage This appendix explains the methods an employer purchasing coverage through an FF-SHOP exchange may use to determine its contributions toward employees' and their dependents' health insurance premiums. Table A-1 illustrates how an employer's contributions to health insurance coverage obtained through an FF-SHOP in 2014 may be determined. For the purposes of the example, the employer offers coverage to all of its employees and their dependents, and none of the employees or the dependents use tobacco products. Because this example is in the context of an FF-SHOP in 2014, and employee choice is not allowed in FF-SHOPs in 2014, the employer may select only one QHP to offer to its employees. In the example in Table A-1 , an issuer provides an employer with per-member premiums based on the base rate of the reference plan selected by the employer and the age of all enrollees (column D multiplied by column C to obtain the per-member premiums in column E). According to regulations, either state law or the employer may require that the FF-SHOP base the employer's contributions on separately calculated composite premiums rather than the per-member premiums; however, HHS has indicated that FF-SHOPs are able to accommodate composite ratings for employees only. Provided composite premiums are used for employees only, the resulting employer contribution toward each enrollee's coverage is determined by multiplying the employer contribution percentage (column G) by the composite premiums for employees (column F) or the per-member premiums for dependents (column E). The employer then pays the resulting contribution (columns H, I) toward each enrollee's premium. Table A-2 illustrates how an employer's contributions to health insurance coverage obtained through an FF-SHOP that allows employee choice in 2015 may be determined. As in the previous example, the employer offers coverage to all of its employees and their dependents, and none of the employees or the dependents use tobacco products. Because this scenario takes place in an FF-SHOP that allows employee choice in 2015, the employer can select more than one QHP to offer to its employees. In the example in Table A-2 , the employer selects one plan to serve as the reference plan on which contributions are based (but employees will have the option to select other plans according to the FF-SHOP's particular employee choice arrangement). As in the 2014 example, regulations provide that either state law or the employer may require that the FF-SHOP base contributions on separately calculated composite premiums, but HHS has indicated that FF-SHOPs are able to accommodate composite ratings for employees only (column G). However, different from 2014, an FF-SHOP may permit employers to define different contribution percentages for different employees (full-time and part-time) and their dependents (columns H, I). Provided the composite premiums for employees and per-member premiums for dependents are used, the resulting employer contribution toward each enrollee's coverage is determined by multiplying the applicable employer contribution percentage by the applicable premiums. The employer then pays the resulting contribution (columns J, K) toward each enrollee's premium for the QHP selected by the enrollee.

The Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended) includes a number of provisions intended to improve access to health insurance coverage. Among these are provisions that apply to the small group market to address perceived problems in the market, including low offer rates among smaller employers and the sometimes prohibitive cost of health plans available in the small group market. The small business health option program (SHOP) exchanges are among the ACA provisions directed at the small group market. SHOP exchanges are marketplaces where private health insurance issuers sell health insurance plans to small employers. All health plans available through SHOP exchanges must meet certain federally required criteria, such as offering a standardized package of benefits. Certain small employers may be eligible to receive tax credits toward the cost of coverage if they obtain coverage through a SHOP exchange. A SHOP exchange is currently in operation in every state; some are administered by states, while others are administered in part or in entirety by the Department of Health and Human Services (HHS). ACA and its implementing regulations include some prescriptive requirements for the establishment and operation of SHOP exchanges. Although these requirements often apply uniformly to all SHOP exchanges, in some instances that may not be the case. For example, some requirements apply only to SHOP exchanges administered by HHS and not to SHOP exchanges administered by states. When ACA and regulations are not prescriptive, decisions about the establishment and operation of SHOP exchanges are left to a state or the entity administering the SHOP exchange (e.g., HHS). As a result, not all SHOP exchanges share the same features or similarly implement shared features. This report describes certain features of SHOP exchanges, such as employer eligibility, methods for selecting health plans offered through SHOP exchanges, and how health insurance agents and brokers interact with SHOP exchanges. Each description includes information about how the feature is implemented in SHOP exchanges administered by states and those administered in part or in entirety by HHS. Each description also includes information about the timing of implementation. The report concludes with a discussion about the current and future place of SHOP exchanges in the broader context of the private health insurance market.

Introduction The United States deployed nuclear weapons on the Korean Peninsula between 1958 and 1991. Most of these weapons were intended to deter a ground invasion from North Korea by providing capabilities needed to slow or stop advancing troops and by convincing North Korea that any attack would invite unacceptable damage on the North in retaliation. Their presence was also meant to reassure South Korea of the U.S. commitment to South Korea's defense. The United States removed these weapons as a part of a broader change in the U.S. nuclear force posture at the end of the Cold War, but it remains committed to defending South Korea under the 1953 Mutual Defense Treaty and to employing nuclear weapons, if necessary, in that defense. Recent advances in North Korea's nuclear and missile programs have led to discussions, both within South Korea and, reportedly, between the U.S. and South Korean officials, about the possible redeployment of U.S. nuclear weapons on the Korean Peninsula. Some opposition leaders and members of South Korea's parliament have called for South Korea to develop its own nuclear weapons. More recently, in August 2017, representatives of the largest opposition party, Liberty Korea, called on the current government to ask the United States to redeploy U.S. nuclear weapons on the peninsula and suggested that they would push for approval of the nuclear deployments in the South Korean legislature and in discussions with U.S. officials. In addition, according to recent reports, South Korea's Defense Minister Song Young-moo may have indicated during discussions with U.S. Secretary of Defense Mattis that "redeployment of tactical nuclear weapons is an alternative worth a full review." South Korea's President Moon Jae-in has not supported proposals to redeploy U.S. nuclear weapons, and has continued to call for the denuclearization of the Korean Peninsula. South Korean government officials recently reiterated this stand, despite of the pressure from Liberty Korea and reports of some interest from U.S. officials. The U.S. government has not addressed, in public, the possible redeployment of nuclear weapons to the Korean Peninsula. However, press reports indicate that the Trump Administration is reviewing a wide range of military, diplomatic, and economic responses, and "is not ruling out moving tactical nuclear weapons to South Korea should Seoul request them." Senator John McCain, in an interview on CNN, also suggested the United States should consider redeploying nuclear weapons to the peninsula. Although some U.S. analysts have questioned whether the U.S. nuclear posture is sufficient to deter North Korea, most argue that, even if the United States sought to supplement its capabilities, it would not need to deploy nuclear weapons on the peninsula to deter or respond to North Korean aggression. Many also argue that the United States could expand its conventional capabilities and bolster its political commitments to South Korea to address concerns about its commitment to the U.S.-ROK alliance. Nevertheless, some have questioned whether the redeployment of nuclear weapons on the Korean Peninsula might be necessary if North Korea continues to expand its nuclear arsenal. As this debate unfolds, Congress could be asked to consider a number of questions about the potential costs and benefits of the redeployment of U.S. nuclear weapons to the Korean Peninsula, along with the implications for regional security and U.S.-allied relations. This In Brief report provides background information, explores the options that might be available, and discusses these potential implications. Background During the Cold War, nuclear weapons were central to the U.S. strategy of deterring aggression against the United States and U.S. allies in Europe and Asia. Toward this end, the United States deployed a wide variety of systems that could carry nuclear warheads. The long-range land-based intercontinental ballistic missiles (ICBMs), submarine-launched ballistic missiles (SLBMs), and heavy bombers that could carry cruise missiles or gravity bombs are known as strategic weapons. These were the weapons that the United States deployed so that it could threaten destruction of an adversary's central military, industrial, and leadership facilities. The United States also deployed thousands of shorter-range systems—including nuclear mines, artillery, short- and medium-range missiles, and some gravity bombs—on the territories of its allies, on naval vessels deployed around the world, and with its troops in the field. These weapons, which usually had less explosive power and were deployed with launchers that would deliver them across shorter ranges than strategic nuclear weapons, are known as nonstrategic, or tactical, nuclear weapons. They were intended for use by troops on the battlefield or within the theater of battle to achieve more limited objectives. On October 1, 1953, shortly after the end of the conflict on the Korean Peninsula, the United States and South Korea (officially known as the Republic of Korea, or ROK) signed a Mutual Defense Treaty, which provides that if either party is attacked by a third country, the other party will act to meet the common danger. To meet its obligations under this treaty, the United States has maintained a continuous military presence on the Korean Peninsula and is committed to helping South Korea defend itself, particularly against any aggression from the North. At the present time, the United States maintains about 28,500 troops in South Korea, while South Korean armed forces total over 625,000 troops, with about 490,000 in the Army, 70,000 in the Air Force, and 65,000 in the Navy. The United States deployed nuclear weapons in South Korea between 1958 and 1991. It deployed a number of different types of systems for use on the battlefield, including nuclear landmines, nuclear shells for howitzers, short-range surface-to-surface missiles, short-range cruise missiles, and some medium-range systems that could reach further into North Korea. These included nuclear bombs for delivery by fighter-bombers and the dual-mission Nike Hercules anti-air and surface-to-surface missiles. The number of nuclear weapons on the peninsula eventually reached nearly 950 warheads in the mid-1960s. Some of these weapons were deployed for just a few years, while others stayed for decades. Most of these weapons were intended to deter a ground invasion from North Korea, both by providing capabilities needed to slow or stop advancing troops and by convincing North Korea that any attack would not only be unsuccessful but would also invite unacceptable damage on the North in retaliation. In the mid-1970s, the Pentagon conducted a major review of the security of U.S. nuclear weapons storage sites in the Pacific and found that, in some cases, security was unsatisfactory and that the number of weapons deployed exceeded the requirements of the war plans. As a result, the United States began to withdraw some of its weapons systems; by 1977, it had deactivated the nuclear weapons storage facility at Osan Air base just south of Seoul, leaving nuclear weapons only at the base at Kunsan Air Base in the southwestern part of the country. As a result of these reductions, the number of nuclear weapons on the peninsula declined from around 540 in 1976 to approximately 150 artillery shells and bombs in 1985. By 1991, approximately 100 warheads remained, including around 60 shells for 155-mm Howitzer nuclear artillery and about 40 B61 bombs for delivery by fighter-bombers. On September 27, 1991, U.S. President George H. W. Bush announced that the United States would withdraw all of its land-based tactical nuclear weapons from overseas bases and all sea-based tactical nuclear weapons from U.S. surface ships, submarines, and naval aircraft. This initiative was a response to changes in the international security environment. In Europe, the threat the weapons were to deter—Soviet and Warsaw Pact attacks in Europe—had diminished with the collapse of the Warsaw Pact in 1989. Further, the military utility of the land-based weapons had declined. In Europe, the Soviet Union had pulled its forces eastward, beyond the range of these weapons. In Asia, growing U.S. and ROK conventional capabilities were seen as a more credible and capable response to the threat of an invasion from North Korea. While North Korea's nascent nuclear program was a concern, North Korea had not yet developed or tested functional nuclear weapons. The United States would rely on its longer-range, strategic nuclear weapons, deployed on land in the United States and on submarines at sea, and bomber aircraft deployed in the United States to deter North Korean aggression and to retaliate, if necessary, after an attack. The United States quickly removed its remaining 100 nuclear weapons from bases in South Korea—all were gone by the end of 1991. In addition, although the United States retained the B61 bombs in storage in the United States, it dismantled all the warheads for land-based shorter-range missiles and artillery. The U.S. Army no longer maintained the capability to deploy or employ nuclear weapons. Options for Redeployment of U.S. Tactical Nuclear Weapons Because the United States retired all warheads for land-based nonstrategic nuclear weapons under the 1991 presidential initiative, the only warheads remaining in the U.S. stockpile that could be deployed on the Korean Peninsula are B61 bombs, which can currently be delivered by B-2 bombers and F-15 or F-16 fighters. F-35 fighters, a next-generation strike fighter being procured for the U.S. military, may also eventually be equipped to deliver B61 bombs. To redeploy B61 bombs to South Korea, the United States would have to recreate the infrastructure needed to house the bombs. This would likely require the construction of secure vaults similar to those used to house U.S. nuclear weapons at bases in Europe, and the installation of similar security perimeters and safety systems. It would also require resources and training time to certify that the personnel at the bases were capable of maintaining the weapons and operating the aircraft for the nuclear mission. This would entail initial costs, when the bases are first modified and certified to store and handle nuclear weapons, and ongoing costs in time and training to maintain nuclear certification. While it is possible that the Pentagon could add resources to the Air Force to support a nuclear mission on the Korean Peninsula, the Air Force may face limits in funding and personnel, forcing it to shift needed resources from ongoing conventional missions in Korea to train the crews and maintain the weapons. As an alternative, the United States could reacquire and redeploy shorter-range nuclear-armed land-based missiles or artillery. This option could take a significant number of years to implement, as the U.S. Army no longer maintains or deploys missiles armed with nuclear warheads and the National Nuclear Security Administration retired the warheads that could be deployed on those missiles years ago. Recreating such a system would likely be expensive, as would be the effort to reintroduce nuclear weapons into the Army's forces. The time and resources needed to store, safeguard, and maintain the weapons, along with the time and resources needed to train and certify the troops, would likely far exceed those needed to return B61 bombs to the Korean Peninsula. Moreover, such an option would indicate that the United States and ROK viewed nuclear weapons as a complement to conventional forces on the battlefield, rather than as a deterrent to attack and a response to North Korea's nuclear program. Pros and Cons of U.S. Nuclear Deployment in South Korea Most of the discussions about the possible redeployment of U.S. nuclear weapons to South Korea focus on the role that these weapons might play in both deterring a North Korean attack against the South and reassuring South Korea of the U.S. commitment to the ROK's defense. As was noted above, the United States currently maintains nuclear weapons on land-based missiles and bombers in the United States and on submarine-launched ballistic missiles for this purpose. The United States also employs other strategic assets to demonstrate its commitment to South Korea's defense; it rotates B-1, B-2 and B-52 bombers through Andersen Air Force Base in Guam and periodically includes them in exercises with Japanese and South Korean aircraft. One such exercise occurred in late August, when two B-1Bs from Andersen Air Force Base (on the U.S. territory of Guam) and four U.S. Marine F-35Bs conducted a joint mission with four South Korean F-15K fighters. According to the U.S. Pacific Command, "this mission was conducted in direct response to North Korea's intermediate-range ballistic missile launch." While none of these aircraft carry nuclear weapons during these exercises, and the B-1 bombers are no longer capable of carrying nuclear weapons at all, many see the highly visible presence of U.S. strategic bombers as a clear indication of the power that the United States could bring to bear in support of South Korea. In recent years, the United States has also increased the frequency and depth of official interactions between U.S. and South Korean defense officials to bolster South Korea's confidence in the U.S. commitment to its defense. Most of these discussions have taken place in the Extended Deterrence Strategy and Consultative Group, where discussions help "build a better common understanding of extended-deterrence issues." The two nations have also held meetings at the ministerial level, with the U.S. Secretaries of Defense and State meeting with the ROK Foreign and Defense Ministers. The U.S. State Department recently announced that the United States and South Korea would hold more regular routine meetings of the Extended Deterrence Strategy and Consultative Group and would link these meetings more closely to the meetings at the ministerial level. Many analysts note that these meetings, along with the broader political relationship between the United States and South Korea, are critical to addressing South Korea's concerns. Few have questioned whether United States and ROK have the military capabilities that would be needed to defeat North Korea, although most note that the cost of a conventional conflict would be high, but, as is noted below, some see President Trump's comments about South Korea as a source of doubt about the U.S. commitment. Further, some have wondered whether the United States would be willing to fight on behalf of South Korea if it were vulnerable to a nuclear attack from North Korea. This is a classic dilemma in alliance relations known as "decoupling," which was often addressed during the Cold War with changes in the U.S. nuclear force posture. Within this context, and given that the only near-term option available is the possible redeployment of B61 bombs, the primary question is whether the U.S. ability to deter North Korean aggression and reassure South Korea of the U.S. commitment to its security is better served with the deployment of B61s on the peninsula, or whether their delivery by aircraft based in the United States is sufficient. Some who support the redeployment of U.S. nuclear weapons argue that their presence on the peninsula would be a visible, high-profile form of reassurance. They argue that, while off-shore weapons could conduct the necessary attacks if a conflict occurred, the act of returning weapons to the peninsula would send a powerful deterrent message to the North and demonstrate a strong commitment to the South. Some also argue that weapons located on the peninsula could serve as a "bargaining chip" in negotiations to freeze or eliminate North Korea's nuclear program, and that their presence would allow for a more rapid nuclear response to a North Korean attack. This is because aircraft based on the peninsula, if they were placed on alert during a crisis and loaded with nuclear weapons, could reach targets more quickly than aircraft coming from Guam or the United States. Those who oppose the redeployment of B61 bombs argue that the costs and risks of deployment on the peninsula would outweigh the benefits. Some note that nuclear weapons deployed on the peninsula could undermine deterrence and would present a tempting target for North Korea, possibly inviting an early attack if North Korea believed it needed to destroy the weapons before a conflict escalated to nuclear use. Moreover, although the time needed to deliver weapons to target would be shorter than for weapons based in the United States, some argue that this is unnecessary unless the United States planned to use the weapons to blunt an ongoing offensive. If the goal were to retaliate with unacceptable consequences after an attack, and not seek to disrupt the attack while it was ongoing, then the added time needed to launch the attack could be acceptable. In addition, the Pentagon could move existing weapons to a higher level of readiness during a crisis, which would shorten their time to use if they were needed to disrupt a North Korean attack. Finally, some assess that the cost of installing the necessary storage, security, and safety infrastructure could drain funding from other military priorities and time needed to train and certify the crews could undermine readiness for other military missions. If the United States believed it needed the capability to deliver nuclear weapons to North Korea in a shorter amount of time than allowed by the current force posture, it could pursue sea-based options that would not impose many of the costs or risks associated with the deployment of nuclear weapons on the peninsula. Although the United States deactivated and retired all its nuclear-armed sea-launched cruise missiles and carrier-based bombs after the 1991 presidential decision, it could, in time, reacquire and redeploy similar capabilities to add to its options in the Pacific. While the acquisition of these capabilities would impose financial and operational costs on the Navy, they are less likely to introduce attractive targets that could undermine stability on the peninsula itself. U.S. Redeployment of Tactical Nuclear Weapons and Current Agreements or Treaties If the United States deployed its own nuclear weapons on the Korean Peninsula, it would not violate any agreements between the United States and South Korea. It would also not violate any existing agreements limiting U.S. nuclear weapons, unless the United States were to develop and deploy a land-based missile with a range between 500 and 5,500 kilometers. Land-based systems in this range are prohibited by the 1987 Intermediate-range Nuclear Forces (INF) Treaty. Neither air-delivered weapons, such as the B61 bomb, nor sea-based missiles with ranges between 500 and 5,000 kilometers, are limited by the treaty. Thus, neither would be limited or prohibited. The Nuclear Non-proliferation Treaty (NPT) does not prohibit the United States from basing its nuclear weapons in other countries. However, as with the pre-1991 period, the United States would need to retain operational control of the weapons at all times. Position of the Current South Korean Government on U.S. Redeployment of Tactical Nuclear Weapons to South Korea Although President Moon has advocated for more muscular defense options, including reversing his decision to delay the deployment of a U.S. missile defense battery and requesting that the United States allow South Korea to develop more missile capabilities, his administration has indicated that it continues to support the denuclearization of the peninsula and that it is not currently reviewing its policy on the redeployment of U.S. nuclear weapons. The Liberty Korea Party, the main opposition party, has formally called for the move. As the party of the disgraced previous president, Liberty Korea is attempting to rebrand itself, including in the national security sphere. The position is relatively popular: In an early 2017 poll, over half of South Koreans favored South Korea developing its own nuclear weapons. A more recent survey released by Embrain reported that 68.4% percent of 1,015 respondents said the country needs to be armed with tactical nuclear weapons and nuclear-powered submarines, although the poll did not specify whether they preferred their own weapons or the redeployment of U.S. weapons. As one analyst points out, "Even if the North has effectively become a nuclear power, acknowledging it as one without South Korea itself going nuclear is politically untenable." The decision of whether to allow nuclear weapons back into South Korea could present Korean officials with both political and strategic problems. For those who maintain hope that North Korea could take steps toward denuclearization, including individuals in the current Moon administration, reintroducing nuclear weapons into South Korea could make it much more difficult to pressure the North to take these steps. As noted above, however, others argue that South Korea could use the presence of tactical nuclear weapons as a bargaining chip with the North; in other words, removal of such weapons could be offered as an incentive for North Korea to make its own concessions on the path to denuclearization. Regional Implications of Redeployment of U.S. Tactical Nuclear Weapons South Korea and the U.S.-ROK Alliance The redeployment of U.S. tactical nuclear weapons to the Korean Peninsula would likely be met with mixed reactions from the security community and the public in the ROK. On one hand, the move would reinforce the U.S. commitment to defend South Korea from the North, including the use of nuclear weapons, and would be welcomed by some South Koreans. Particularly among older South Koreans, many of whom remember the Korean War, there has long been a fear of U.S. abandonment in the face of North Korea's escalating threats. Stationing nuclear weapons, likely at the Osan base south of Seoul, may reassure those South Koreans concerned about the durability of the U.S. commitment. On the other hand, any change in the status quo could alarm Pyongyang, which could upset an already delicate security situation and unnerve the South Korean public. President Moon came into office pledging to reduce tensions with the North. Former U.S. ambassador to South Korea Mark Lippert points out that positioning nuclear weapons in the South would undercut the South's moral authority in calling for Pyongyang to disarm as well as dilute the U.S. goal of a denuclearized peninsula. The U.S.-ROK alliance is already feeling strains under the Moon and Trump Administrations. As candidates, both men made statements that observers believe undercut the strength of the alliance. As a candidate, Trump stated, "The countries we are defending must pay for the cost of this defense, and if not, the U.S. must be prepared to let these countries defend themselves." Candidate Trump also suggested he would be open to South Korea and Japan acquiring their own nuclear weapons, which would reverse decades of U.S. policy. President Moon, elected in May in a special election after the former president was impeached, campaigned on leftist themes, including criticizing the previous administration's decision to accept a U.S. missile defense battery known as the Theater High Altitude Area Defense system, or THAAD. As President, Trump asserted that South Korea should pay for the THAAD battery, contrary to the original agreement, thereby strengthening suspicious among some in South Korea that the United States would pin the cost of the system on Seoul. Although the two leaders have adjusted their positions and held a cordial summit in June 2017 that reiterated previous commitments to the alliance, cost-sharing and other flashpoints remain that could weaken the partnership in the months to come. Seoul has also expressed concern about President Trump's rhetoric mentioning a possible preventive military strike against North Korea, leading Moon to warn the United States in a nationally televised speech that no military action should be taken without South Korea's agreement. Moon's statement that "[o]nly the Republic of Korea can make the decision for military action on the Korean Peninsula" suggested to some observers that alliance coordination had become more contentious under these two administrations. A U.S. initiative to reintroduce tactical nuclear weapons could exacerbate differences between Washington and Seoul if the move is not carefully coordinated, including in terms of how it is presented to South Korea's public. China Redeploying nuclear weapons to the Korean Peninsula could have security repercussions for the broader region as well. To China, this move would likely be seen as escalatory. Given Beijing's fierce criticism of the THAAD deployment, China likely would see further U.S. offensive capabilities in the region as threatening to its own security. The March 2017 announcement that THAAD was being deployed prompted a stern response from China, which warned that it would "take the necessary steps to safeguard our own security interests, and the consequences will be shouldered by the United States and South Korea." Chinese state media encouraged Chinese consumers to boycott South Korean companies and tourism officials said that they would cease booking trips to South Korea by Chinese travelers, retaliations with serious consequences for many South Korean companies who depend heavily on the Chinese market. Some analysts, however, argue that demonstrating U.S. resolve could pressure China to exert more influence on the Pyongyang regime to change its behavior. In the past, China appears to have been inclined to put more pressure on North Korea when the United States has pursued measures that bolster U.S. capabilities in the region, such as enhancements to American missile defense systems, in response to DPRK provocations. On the other hand, Beijing may be sufficiently threatened by the presence of U.S. nuclear weapons that it instead increases its support to North Korea. China could also respond by increasing its own nuclear weapons arsenal. In addition, because of the complexity and range of issues that frame the U.S.-China bilateral relationship, other U.S. interests in the region could be affected, including trade, maritime disputes in the South China and East China Seas, Taiwan, and human rights concerns. Japan For Japan, reaction could be mixed as well. Tokyo is currently engaged in a debate about whether Japan should upgrade its own defense capabilities in light of the increased threat from North Korea. As with Seoul, the United States has a mutual defense treaty with Tokyo that includes the nuclear "umbrella." However, no U.S. nuclear weapons have been based in Japan, with the exception of U.S. naval ships carrying nuclear weapons into Japanese ports during the Cold War under a secret agreement from the 1960s. Given Japan's sensitivity to the use of any nuclear power—based on its history as the only country bombed by an atomic weapon and further demonstrated by resistance among many Japanese to using nuclear reactors for electricity generation—it seems highly unlikely that Japan would seek U.S. nuclear weapons on its own soil. Nevertheless, any adjustment of the U.S. military posture on the peninsula, including a redeployment of nuclear weapons to the peninsula, could create additional security concerns for Tokyo if it sees the moves as bolstering South Korea's military capabilities. These concerns would likely be heightened by the historical rivalry between Tokyo and Seoul. Issues for Congress The Department of Defense is currently conducting a Nuclear Posture Review that is examining both the role of nuclear weapons in U.S. national security policy and ongoing plans to modernize the U.S. nuclear enterprise. While it is not known, at this time, whether the review will address questions about the overseas deployment of U.S. nuclear weapons or recommend any changes to those deployments, the public debate in South Korea about the possible redeployment of U.S. nuclear weapons could affect the review's recommendations. If the review recommends changes in the U.S. force posture in Asia, either through the deployment of weapons on the peninsula, or through the development of new types of weapons to reinforce deterrence in the region, Congress may review not only the implications of that decision, but also the costs associated with developing and deploying new weapons. Congress may also consider how other U.S. policies and deployments might bolster South Korea's confidence in the United States' commitment to its defense. These steps could include increased deployments of U.S. nonnuclear strategic assets to South Korea, changes in military exercises, and the expansion of U.S.-ROK consultation strategic consultations.

Recent advances in North Korea's nuclear and missile programs have led to discussions, both within South Korea and, reportedly, between the United States and South Korean officials, about the possible redeployment of U.S. nuclear weapons on the Korean Peninsula. The United States deployed nuclear weapons on the Korean Peninsula between 1958 and 1991. Although it removed the weapons as a part of a post-Cold War change in its nuclear posture, the United States remains committed to defending South Korea under the 1953 Mutual Defense Treaty and to employing nuclear weapons, if necessary, in that defense. The only warheads remaining in the U.S. stockpile that could be deployed on the Korean Peninsula are B61 bombs. Before redeploying these to South Korea, where they would remain under U.S. control, the United States would have to recreate the infrastructure needed to house the bombs and would also have to train and certify the personnel responsible for maintaining the weapons and operating the aircraft for the nuclear mission. Some who support the redeployment of U.S. nuclear weapons argue that their presence on the peninsula would send a powerful deterrent message to the North and demonstrate a strong commitment to the South. Their presence would allow for a more rapid nuclear response to a North Korean attack. Some also argue that weapons could serve as a "bargaining chip" with North Korea and that their presence would allow for a more rapid nuclear response to a North Korean attack. Those who oppose the redeployment argue the weapons would present a tempting target for North Korea and might prompt an attack early in a crisis. They also argue that nuclear weapons based in the United States are sufficient for deterrence, and that the costs of installing the necessary facilities on the peninsula could detract from conventional military capabilities. Finally, some assess that the cost of installing the necessary storage, security, and safety infrastructure could drain funding from other military priorities and time needed to train and certify the crews could undermine readiness for other military missions. Some analysts also assert that, if the United States believed it needed the capability to deliver nuclear weapons to North Korea in a shorter amount of time than allowed by the current force posture, it could pursue sea-based options that would not impose many of the costs or risks associated with the deployment of nuclear weapons on the peninsula. South Korea's President Moon Jae-in has advocated for more muscular defense options, but does not support the redeployment of U.S. tactical nuclear weapons. The Liberty Korea Party, the main opposition party, has formally called for the move. While some in South Korea believe nuclear weapons are necessary to deter the North, others, including those who maintain hope that North Korea will eliminate its program, argue that their redeployment could make it that much more difficult to pressure the North to take these steps. Further, if North Korea saw the deployment as provocative, it could further undermine stability and increase the risk of conflict on the peninsula. China would also likely view the redeployment of U.S. nuclear weapons as provocative; it has objected to U.S. military deployments in the past. Some analysts believe that China might respond by putting more pressure on North Korea to slow its programs, while others believe that China might increase its support for North Korea in the face of a new threat and, possibly, expand its own nuclear arsenal. Japan's reaction could also be mixed. Japan shares U.S. and South Korean concerns about the threat from North Korea, but given its historical aversion to nuclear weapons, Japan could oppose the presence of U.S. nuclear weapons near its territory. In addition, any adjustment of the U.S. military posture on the peninsula could create additional security concerns for Tokyo.

Introduction and Background Since 1945, the McCarran-Ferguson Act has provided the "business of insurance" generally with a statutory exemption, albeit one limited over the past 30 years or so by the courts, from the federal antitrust laws. Although Congress has on several occasions considered repealing the exemption in its entirety, current repeal efforts are restricted to providers of health and medical malpractice insurance. In Paul v. Virginia (75 U.S. (8 Wall.) 168 (1868)), the Supreme Court ruled that "[i]ssuing a policy of insurance is not a transaction of [interstate] commerce." In United States v. South-Eastern Underwriters Ass'n. (322 U.S. 533 (1944)), the Court held, however, that the federal antitrust laws were applicable to an insurance association's interstate activities in restraint of trade. Although the 1944 Court did not specifically overrule its prior determination, the case was viewed as a reversal of 75 years of precedent and practice, and created significant apprehension about the continued viability of state insurance regulation and taxation of insurance premiums. Congress' response was the 1945 McCarran-Ferguson Act. It prohibits application of the federal antitrust laws and similar provisions in the Federal Trade Commission (FTC) Act, as well as most other federal statutes, to the "business of insurance" to the extent that such business is regulated by state law; the single exception to that immunity is the statement that nothing in McCarran-Ferguson "shall render the Sherman Act inapplicable to any agreement to [or act of] boycott, coerc[ion], or intimidat[ion]." Early McCarran-Ferguson decisions mostly favored insurance companies. After 1969, however, the exemption for the "business of insurance" was generally limited to activities involving the underwriting and spreading of risk, and those surrounding insurance companies' relationships with their policyholders; agreements between insurance companies and entities outside the insurance industry were specifically not deemed any part of "the business of insurance." In 2003, the Supreme Court ruled that McCarran case law prohibiting the indirect application of federal antitrust (or other) laws to the "business of insurance" would no longer control with respect to those areas over which Congress has unquestionable legislative authority (e.g., ERISA, civil rights, securities), notwithstanding insurance-company involvement. Recommendations for the repeal of McCarran-Ferguson have been voiced for a number of years, coming, for example, from the American Bar Association (ABA) and, most recently, from the Antitrust Modernization Commission (AMC), a body established by Congress to "to examine whether the need exists to modernize the antitrust laws and to identify and study related issues." The ABA has repeatedly expressed the "view that industry-specific exemptions from the antitrust laws are rarely justified, and that evidence that the exemption results in consumer benefit should exist to justify any such exemption." In its chapter on "Government Exceptions to Free-Market Competition," the 2007 AMC Report and Recommendations cautions that the harms of an antitrust exemption be "carefully weigh[ed]" against any loss of consumer benefit. With respect, specifically, to the exemption contained in the McCarran-Ferguson Act, the AMC stated that "no immunity should be granted to stabilize prices in order to provide an industry with certainty and predictability for purposes of investment or solvency." Several bills addressing McCarran-Ferguson repeal have been introduced in prior Congresses, including S. 430 (102 nd Congress), the Insurance Competitive Pricing Act of 1991; and S. 618 and H.R. 1081 (110 th Congress), the Insurance Industry Competition Act of 2007. They would each have modified McCarran-Ferguson as it affects every segment of the insurance industry; the measures in the 110 th would also have restored the ability of the Federal Trade Commission (FTC) to conduct investigations of the insurance industry, a power limited in 1980 in section 5 of the Federal Trade Commission Improvements Act of 1980 . Legislation in the 111th Congress H.R. 3596, S. 1681 Currently, 15 U.S.C. § 1012(b) (section 2(b) of the McCarran-Ferguson Act) declares that the antitrust laws "shall be applicable to the business of insurance to the extent that such business is not regulated by State law." Since virtually all states regulate the insurance industry, the effect is to immunize "the business of insurance" generally from application of the federal antitrust laws. Each of two, identical, stand-alone bills introduced in the 111 th Congress— H.R. 3596 , S. 1681 (each titled the Health Insurance Industry Antitrust Enforcement Act of 2009)—would apply only to issuers of health insurance and medical malpractice insurance. Notwithstanding any provision in the McCarran-Ferguson Act, those entities would be prohibited from engaging "in any form of price fixing, bid rigging, or market allocations in connection with the conduct of the business of providing" such insurance. According to Representative Conyers, the bill's sponsor, those "pernicious practices … are detrimental to competition and result in higher prices for consumers." Senator Leahy's statement upon introducing S. 1681 noted that "the health insurance industry currently does not have to play by the same good-competition rules as other industries. That is wrong, and this legislation corrects it." Hearings were held in the House Judiciary Committee on October 8, 2009, and in the Senate Judiciary Committee on October 14, 2009; H.R. 3596 was reported on October 21, 2009 with an amendment to permit the collection, compilation or dissemination of historical loss data, or the performance of actuarial services to the extent that those activities do "not involve a restraint of trade." S. 1681 remains in the Senate Judiciary Committee; whether it might ultimately contain a provision concerning information sharing is unknown; its substance was not inserted in the Senate health care reform bill passed on December 24, 2009. Section 262 of H.R. 396216 The provision would amend McCarran-Ferguson itself by adding a new subsection ((c)) to 15 U.S.C. § 1013 to clarify that the "nothing contained in this Act [McCarran-Ferguson] shall modify, impair, or supersede the operation of any of the antitrust laws with respect to the business of health … or … medical malpractice insurance." In other words, the new section would carve out a subset of insurance to whom the antitrust laws would apply, notwithstanding the overall antitrust exemption for the "business of insurance" contained in 15 U.S.C. § 1012(b). There is also, as in H.R. 3596 as reported, a "semi-safe harbor" for information sharing and actuarial services if engaging in those activities "does not involve a restraint of trade." The provision defines, in language similar to that inserted in H.R. 3596 as reported, the information-sharing terms, "historical loss data" and "loss development factor." H.R. 4626 Introduced on February 22, 2010, and passed by the House on February 24, 2010, this measure (Health Insurance Industry Fair Competition Act) is unlike H.R. 3596 and S. 1681 and more like Section 262 in that it does specifically amend McCarran-Ferguson: "nothing contained in this Act [i.e., McCarran-Ferguson Act] shall modify, impair, or supersede the operation of any of the antitrust laws with respect to the business of health insurance." But it is limited to "the business of health insurance" and does not address the business of medical malpractice insurance. Like S. 1681 , it does not contain any specific provision related to information sharing; a proposed amendment concerning information sharing was defeated during Rules Committee consideration of the bill and again by the House on a motion to recommit. Discussion The "Business of Insurance" Immediately following the enactment of McCarran-Ferguson, the tendency of the courts was to immunize from antitrust challenge almost everything done by an insurance company. But beginning at least in 1969, a judicial trend, especially in the Supreme Court, toward focusing more particularly on the phrase, "the business of insurance," became evident: the Court said in 1969, that "whatever the exact scope of the statutory term ['business of insurance'], it is clear where the focus was [in McCarran]—it was on the relationship between the insurance company and the policyholder." Ten years later, the Court left no doubt that the "business of insurance" was a not synonymous with "insurance-company activity": the "exemption is for the 'business of insurance,' not the 'business of insurers.'" In 1982 the Court set out an even more restrictive definition: There are three criteria relevant in determining whether a particular practice is part of the "business of insurance" exempted from the antitrust laws by § 2(b) [15 U.S.C. § 1012(b)]: first, whether the practice has the effect of transferring or spreading a policyholder's risk; second, whether the practice is an integral part of the policy relationship between the insurer and the insured; and third, whether the practice is limited to entities within the insurance industry. No case has been found in which any attempt was made to argue that bid rigging is protected from antitrust prosecution by McCarran-Ferguson's grant of antitrust immunity for "the business of insurance." Indeed, it is difficult to imagine the specifics of such an argument. Case law concerning the treatment of "market allocation" as a legitimate activity protected by the McCarran-Ferguson "business of insurance" immunity has been somewhat equivocal in the past. In State of Maryland v. Blue Cross and Blue Shield , a federal court noted the "paucity of authority on horizontal market allocation agreements in the insurance industry." Reviewing the few cases that appeared to support the viability of a positive relationship between "market allocation" and the "business of insurance," the court found that the better interpretation dictated a likely negative relationship because market allocation is not an activity that is unique to the insurance arena. Recently, the Congressional Budget Office has noted that, "[a]ccording to State insurance regulators, State laws already prohibit issuers of health insurance and medical malpractice insurance from engaging in practices such as price fixing, bid rigging, and market allocations." To the extent that "price fixing" is equated with joint rate-setting, the language of several state statutes is instructive. Although, for example, Oregon prohibits conspiracies among insurers "to fix, set or adhere to insurance rates," it qualifies that prohibition with "except as expressly sanctioned by the Insurance Code"; the Insurance Code expressly authorizes "[c]ooperation among rating organizations or among rating organizations and insurers in rate making or in other matters within the scope of this chapter …." Further, the Insurance Code mandates that rates should neither be "excessive" nor " inadequate ," defining "inadequate" as "unreasonably low for the insurance provided and that which 'endangers the solvency of the insurer' or will have the effect of destroying competition or creating a monopoly." Similarly, New Jersey dictates that "[e]very rating organization, and every insurer which makes its own rates, shall make rates that are not unreasonably high or inadequate for the safety and soundness of the insurer …." Michigan also explicitly authorizes, but regulates "cooperative action among insurers in rate-making and in other matters within the scope of the insurance code . " The applicable provision dictates that rates "shall not be excessive, inadequate , or unfairly discriminatory," but emphasizes that "[n]othing in this chapter is intended (1) to prohibit or discourage reasonable competition, or (2) to prohibit, or encourage except to the extent necessary to accomplish the aforementioned purpose [promotion of the public welfare], uniformity in insurance rates, rating systems, rating plans, or practices." The preceding examples illustrate that although the states, which up to this point have the greatest regulatory expertise in the insurance area, are obviously concerned with rates that are "excessive," they are at least as concerned that overly low rates may be "inadequate" to provide sufficient revenue to assure the continued solvency of companies. That consideration reflects the concern that rate payers (policyholders) continue to be served by solvent insurers able to adequately pay claims. In other words, competition that results in premium rates being set too low to assure the likely, continued viability of an insurance company, is disfavored—competition for competition's sake is not perceived to be a valid goal for the insurance industry. Insurance Industry Cooperation Competitors in many industries have an economic incentive to cooperate in ways, such as creating cartels or price-fixing, that could result in general inefficiency and, ultimately, harm to the consumer. This possible consumer harm is one of the underlying reasons for the antitrust laws. Due to the specific economics of the insurance industry, however, cooperation among insurers, especially in the area of information sharing, may very well result in greater efficiencies and, possibly, lower prices for consumers. Even in instances where consumer prices may not be lowered, however, as the preceding paragraphs illustrate, there may nevertheless be offsetting benefits for consumers. Insurance depends critically on insurers possessing a large quantity of information to allow them to judge and price risks accurately. In a theoretical world of perfect information and competition, every consumer would pay a premium that covered his risk, and the resulting overall amount paid by consumers would be the lowest possible amount that would cover the aggregate losses to the group as a whole. If insurers can pool their information, the resulting rates can more accurately reflect risk and thus be lower for consumers as a whole, although some individual consumers may pay higher rates. Small insurers particularly benefit from information sharing, as they do not have a large volume of information of their own to analyze. The theoretically perfect world, however, assumes competition between insurers that would serve to reduce premium rates; too much cooperation between insurers could dampen this competition, reducing the consumer benefit that comes from allowing insurers to share information. Insurer cooperation and information sharing revolves around advisory organizations, also known as ratings bureaus. Some form of these organizations has existed for nearly as long as insurance has existed in the United States. At their most basic form, they gather data from the various insurers, aggregate and analyze this data, and provide the aggregated data back to the insurers for use in setting future rates. In practice, they have done, and continue to do, a good deal more than this. Historically, rating bureaus formulated final rates that insurers might charge for particular policies and in some cases required participating insurers to use the bureau's suggested rates. Having a central organization create insurance rates, whether mandatory or not, raised serious antitrust concerns. By the early 1990s, the main advisory organizations had ceased publishing fully formed rates. Advisory organizations continue, however, to collect, aggregate, and analyze data, providing not only historical loss data but also estimates of future loss data and future insurer expense data. Some maintain that this estimation of future data, known as "trending" raises antitrust concerns similar to those inherent in the creation of final rates. Another primary activity of advisory organizations is the creation and filing of insurance policy forms. Insurance policy forms are complex legal documents, and, as controversies over insurance coverage for New York's World Trade Center and for buildings damaged in Hurricane Katrina have shown, many millions of dollars may ride on the interpretation of a handful of words. Joint creation of these forms allows for the sharing of the legal talent needed to create the forms, and, some would argue, promotes comparison shopping by consumers by reducing the confusion that could result from multiple policy forms being offered by different companies. Since the states generally require the filing of policy forms for state approval, using a jointly created form that has already been filed with the states significantly reduces the regulatory burden on a single insurer. The uniformity of policy forms, however, also may reduce consumer choice. If one were shopping for a particular policy feature that was not a part of the standard form, it might be impossible, or very costly, to find an insurance policy that would meet this particular need. Further industry cooperation, both through the advisory organizations and other state-created mechanisms, occurs in state residual market mechanisms and state guaranty funds. Residual market mechanisms are often created to insure availability of insurance that is legally mandated, such as workers compensation or auto insurance. While such mechanisms differ significantly between states, they may have advisory organizations administering them or require some other joint action by insurers, such as splitting up high-risk insureds who are unable to find insurance in the regular market; such "splitting" might be considered market allocation. State guaranty funds are intended to protect the policyholders in the case of insurer insolvency. In general, states require insurers to join these associations, which may preclude allegations of unfair collaboration or collusion. The Bills' "Safe Harbor" for Information Sharing At least some of the information sharing that occurs in much of the industry would purportedly be immunized by both H.R. 3596 as reported, and section 262 of H.R. 3962 . Inasmuch as both provisions specify, however, that the named, cooperative activities are expressly permitted only to the extent that they do not constitute a "restraint of trade," the exemption is, at best, a "semi-safe" harbor: on the one hand, if there is no "restraint of trade," no protection is needed; on the other, there is no protection against application of the antitrust law in the event that a cooperative activity is found to be a "restraint of trade." Moreover, in the event of a challenge (either by a private individual or the Department of Justice), a court would necessarily have to make the determination—either that the challenged activity did not amount to a restraint of trade, or, if it did, that its restrictive nature was (or was not) outweighed by some countervailing or pro-competitive result—without having been provided any guidance other than the general antitrust principles usually relied on by the courts when analyzing a practice under the "rule of reason." Effect of State Action Exemption Notwithstanding any limitation imposed at the federal level on the McCarran-Ferguson antitrust exemption available to health and medical malpractice insurers, any activity that the subject insurance companies currently (or might in the future) undertake—including joint ratemaking or certain information sharing—might nevertheless remain legally permissible. The "state action" doctrine in antitrust law immunizes from the federal antitrust laws: (1) all actions of state public entities and (2) those of private entities that are legislatively mandated or authorized and are "actively supervised" by the states. The "state action" doctrine is generally considered to have the originated in the 1943 Supreme Court opinion, Parker v. Brown. In that case, the Supreme Court, reviewing the antitrust legality of a California prorate plan for the marketing of raisins, said it saw "no suggestion of a purpose to restrain state action in the [Sherman] Act's legislative history." The Court noted that the state command to the [Prorate] Commission and to the program committee of the California Prorate Act is not rendered unlawful by the Sherman Act since, in view of the latter's words and history, it must be taken to be a prohibition of individual and not state action. Earlier in its decision it had emphasized that it is plain that the prorate program was never intended to operate by force of individual agreement or combination. It derived its authority and its efficacy from the legislative command of the state and was not intended to operate or become effective without that command. From the time that McCarran-Ferguson was enacted, and the "state action" doctrine was enunciated, the courts have issued a series of opinions that have, simultaneously, narrowed the scope of the McCarran-Ferguson exemption for the "business of insurance" and expanded the scope of the doctrine. "State action" has developed from a narrow recognition that the Sherman Act does not (and, according to the Court, canno t ) apply to the states as states, to the broader recognition that the states might require (usually, although not necessarily, via statute) a private individual to take certain action or to act in a specific manner, to the approval of state-authorized (even if not state-mandated) activities that would, absent such authorization violate the federal antitrust laws. In other words, over the years since its first iteration, the doctrine has been interpreted, clarified and expanded to the point that it now confers antitrust immunity not only on the states qua states (including state agencies and officials who act in furtherance of state-directed activity), but also on those who act pursuant to state-sanctioned, but not necessarily mandated, courses of action. Its essence is captured in the two-part test set out in California Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc . : first, the challenged restraint must be "clearly articulated and affirmatively expressed as state policy" (most commonly, although not necessarily, in a legislatively enacted statute); second, the policy must be "actively supervised" and subject to enforcement by the state itself. Conclusion Currently, all states regulate the insurance industry, giving rise to potential McCarran-Ferguson immunity. If McCarran-Ferguson antitrust protection for "the business of insurance" were, in fact, curtailed or abolished (whether generally, or for a subset including health and medical malpractice insurance), lawsuits challenging some insurer-cooperation practices as violations of the federal antitrust laws would be likely. If all of the cited examples of cooperation were found to be in violation, it would necessitate major changes in the operation of insurers, particularly small insurers which do not have large pools of information from their own experience. Should additional data be unavailable to small insurers in some way, further consolidation in the insurance industry as small insurers merge in order to gain the competitive advantage of additional information is a likely, albeit, ironic, possibility. That outcome, however, is only one of a range of possibilities. Many of the cooperative activities that insurers engage in, but that could be prohibited by H.R. 3596 , S. 1681 , H.R. 4626 , or section 262 of H.R. 3962 (e.g., joint rate-setting), might nevertheless be found to be permissible under the "state action" doctrine; or found not to be violations of the antitrust laws at all, even without the protection of either McCarran-Ferguson or the "state action" doctrine. In the event that any insurer practices are determined to be violations of the antitrust laws, the issue in the absence of (some or all) McCarran-Ferguson immunity, likely would be whether and to what extent existing state mandates or authorizations, while adequate to meet the requirements of the McCarran-Ferguson exemption, would be adequate to meet the more rigorous requirements of the antitrust "state action" doctrine. Inasmuch as "state action" immunity is available only if a state "clearly articulates" a state policy that mandates or contemplates anticompetitive conduct, and engages in the "active supervision" of any private activity that occurs in response to that articulation, it is at least questionable whether a general scheme of insurance regulation would be sufficiently specific to allow successful invocation of "state action." That issue, too, would likely be subject to extensive litigation.

Narrowing or eliminating the 1945 McCarran-Ferguson Act's antitrust exemption for the "business of insurance" has been pursued for many years in many Congresses, and in the 111th Congress, there have been at least four measures—three stand-alone bills, and a provision in the House health care reform bill. Unlike prior legislation to eliminate the entire exemption—currently applicable generally to the extent such business is regulated by state law—however, three of the current measures (H.R. 3596, S. 1681, and section 262 of H.R. 3962 (the House-passed health care reform bill)) are applicable only to the provision of health and medical malpractice insurance; H.R. 4626, as introduced, and as passed by the House on February 24, 2010, is applicable only to health insurance. Two of the stand-alone bills, H.R. 3596 and S. 1681, would prohibit issuers of such insurance from engaging in "price fixing, bid rigging, or market allocations in connection with the conduct of the business of providing" health or medical malpractice insurance. H.R. 4626, like Section 262 of H.R. 3962, does not specify particular, prohibited activities, mandating instead that nothing in McCarran-Ferguson shall prevent the application of the antitrust laws to the business of health [or medical malpractice] insurance. H.R. 3596 as voted out of the House Judiciary Committee on October 21, 2009, was amended to permit the sharing of historical loss data or the "perform[ance of] actuarial services" if doing so "does not involve a restraint of trade." H.R. 4626 contains no information-sharing provisions. Hearings have been held on S. 1681, but the bill remains in the Senate Judiciary Committee; whether it will ultimately be amended to contain a provision concerning information sharing is unknown, as is the likelihood that its substance will be inserted in a final health care reform bill. Section 262 of H.R. 3962 contains language similar to the information-sharing provision in H.R. 3596, including a section to define several of the terms used. There is not currently any provision addressing McCarran-Ferguson in the Senate health care reform bill (H.R. 3590), passed on December 24, 2009. Due largely to the importance of information sharing to insurers, the insurance industry has cooperated in the past in a variety of ways, including sharing loss information, jointly developing policy forms and rates, operating residual market mechanisms, and participating in state guaranty funds. Some forms of cooperation, including publication of mandatory advisory rates, have already been curtailed because of antitrust concerns. Passage of any of the measures is likely to precipitate litigation to define the scope of the prohibition and/or any remaining exemption. The precise impact on the affected portion of the insurance industry will depend critically, therefore, on future court decisions. Notwithstanding any limitation imposed at the federal level on the McCarran-Ferguson antitrust exemption available to health and medical malpractice insurers, however, any activity that the subject insurance companies currently (or might in the future) undertake—including joint ratemaking or certain information sharing—may nevertheless remain legally permissible. The "state action" doctrine in antitrust law immunizes from the federal antitrust laws: (1) all actions of state (but not necessarily, municipal) public entities and (2) those of private entities that are "clearly articulated" and legislatively (or otherwise) mandated or authorized and are "actively supervised" by the states. Currently, all states regulate the insurance industry. The "state action" issue, then, is whether and to what extent existing state mandates or authorizations, while adequate to meet the requirements of the McCarran-Ferguson exemption, would be adequate to meet the requirements of the antitrust "state action" doctrine, which dictates both that there be a "clear articulation" of state policy, and that a state engage in "active supervision" of the private activity that occurs in response to that articulation. This report will be updated as necessary.

Background Since FY2001, Congress has conditioned part of U.S. aid to Serbia after a certain date of the year on a presidential certification that Serbia has met three conditions: they are cooperating with the International Criminal Tribunal for Yugoslavia (ICTY); ending support for separate Bosnian Serb institutions; and protecting minority rights and the rule of law, including the release of political prisoners. The provision also has recommended that U.S. support for loans from international financial institutions to the Federal Republic of Yugoslavia (the now-defunct federation of Serbia and Montenegro) be conditioned on the certification. The certification does not apply to Kosovo, which is nominally a Serbian province but is administered by a U.N. mission. The provision also has not applied to humanitarian or democratization aid to Serbia. The certification process typically affects only a modest portion of the amount allocated for any given year, due to the deadline being set in the spring of the fiscal year, and the exclusion of humanitarian and democratization aid. In addition to U.S. bilateral aid, the aid conditions have said that the United States "should" vote against financing from the international financial institutions, a key source of funding for Serbia. However, despite this provision, Serbia's non-cooperation with the ICTY does not seem to have affected its access to international loans, such as those from the IMF and World Bank. Moreover, the European Union, a key aid donor, has not explicitly conditioned its aid to Serbia on war crimes cooperation. Serbian Compliance FY2001-FY2007 For most of the period since the overthrow of the regime of Serbian strongman Slobodan Milosevic in late 2000, Serbian cooperation with the ICTY has followed a similar pattern each year: Serbia delivers several indictees to the Tribunal just before or shortly after the certification deadline. The Administration makes the certification as required by the legislation, and urges Serbia to do more, in particular calling for the surrender of former Bosnian Serb army chief Mladic and former Bosnian Serb leader Radovan Karadzic. However, Serbian cooperation then slows, with Serbian leaders claiming that political and legal obstacles preclude greater efforts. Nevertheless, more indictees are delivered as the next deadline for certification approaches, and so on. For example, the conditions on U.S. aid to Serbia were an important factor in the timing of the arrest of Milosevic by Serbian police on April 1, 2001, one day after the March 31 certification deadline set by the FY2001 legislation. When making the certification on April 2, Secretary of State Colin Powell warned that U.S. support for an international aid conference for Serbia would depend on Milosevic's delivery to the Tribunal. Milosevic was delivered to the Tribunal in The Hague on June 28, 2001, one day before the donors conference. Serbian cooperation then decreased significantly. The FY2002 deadline passed without certification, but Serbia encouraged six indictees to surrender to the Tribunal in late April and early May 2002. The Administration made the FY2002 certification on May 21, 2002. The FY2003 foreign aid appropriations measure was included as part of the Consolidated Appropriations Resolution for FY2003 ( P.L. 108-7 ). The bill contained certification provisions on aid to Serbia similar to the FY2001 and FY2002 bills, and required the President to make the certification by June 15, 2003. In a demonstration of the power of dangerous forces threatening cooperation with the ICTY and democracy in Serbia, on March 12, 2003, Serbian Prime Minister Zoran Djindjic was assassinated. Investigators discovered that the crime was committed by organized crime figures who reportedly feared prosecution for war crimes and other criminal activities. Djindjic's murder appeared to galvanize Serbian leaders in the fight against organized crime leaders and war criminals. Indictees Miroslav Radic, Veselin Sljivancanin, paramilitary leader Franko Simatovic, and former intelligence chief Jovica Stanisic were turned over to the ICTY in May and June 2003. Secretary of State Powell made the FY2003 certification on June 15, 2003. It should be noted that ICTY cooperation is only one of the three conditions for U.S. aid to Serbia. However, the Administration accepted the assurances of Serbian authorities that they had ended support to separate Republic Srpska institutions (which had included paying the salaries of RS army officers). Neither this condition, nor the third condition, dealing with minority rights and the release of ethnic Albanian political prisoners, has proved to be a stumbling block to certification, particularly after the release of Kosovar prisoners from Serbian jails in March 2002. The FY2004 foreign operations appropriations bill (incorporated into P.L. 108-199 , an omnibus appropriations bill) contained the same certification provisions as previous years, requiring the President to make the certification by March 31, 2004. The Administration did not make the FY2004 certification and suspended $16 million in FY2004 aid to Serbia. The FY2005 foreign aid appropriations were incorporated into an omnibus spending bill ( P.L. 108-447 ). It contained the same certification process as previous years, with a deadline of May 31, 2005. In January 2005, the Administration announced that because there had been "no improvement" in Belgrade's cooperation with the Tribunal, the United States would withhold $10 million in FY2005 aid from Serbia. U.S. Ambassador to Serbia and Montenegro Michael Polt said that the aid cuts could lead to the withdrawal of U.S. technical advisors from Serbian ministries working on such issues as World Trade Organization membership and economic reform. However, an Administration spokesman noted that the remaining portion of the $73.6 million in aid to Serbia would still go to "organizations and programs outside of the central government that are committed to reform." On June 9, 2005, the Administration certified that Serbia had met the conditions set out in the FY2005 legislation, freeing up the $10 million that had been suspended in January. In the first half of 2005, Serbia transferred 14 indictees to the ICTY, according to ICTY Chief Prosecutor Carla Del Ponte. However, Del Ponte and U.S. officials continued to note with regret that Mladic and Karadzic were still at large. The FY2006 foreign operations appropriations bill ( P.L. 109-102 ) conditioned U.S. aid to Serbia's central government after May 31, 2006, on "(1) cooperating with the International Criminal Tribunal for Yugoslavia, including access for investigators, the provision of documents, and the surrender and transfer of indictees or assistance in their apprehension, including making all practicable efforts to apprehend and transfer Ratko Mladic and Radovan Karadzic, unless the Secretary of State determines and reports to the Committees on Appropriations that these individuals are no longer residing in Serbia; (2) taking steps that are consistent with the Dayton Accords to end Serbian financial, political, security and other support which has served to maintain separate Republika Srpska institutions; and (3) taking steps to implement policies which reflect a respect for minority rights and the rule of law." It says the Administration "should" vote for loans and aid for Serbia and Montenegro from international financial institutions after May 31, 2006, if the certification is made. The aid conditions did not apply to Montenegro, Kosovo, humanitarian aid, or assistance to promote democracy. The provision was identical to that in FY2005, with a few exceptions. First, it specifically names Karadzic as well as Mladic as persons Serbia should detain. Second, it allows the Administration to issue a certification even if the two men are not transferred, if it determines that the two are not living in Serbia. (The exact whereabouts of the two men are uncertain. Mladic is widely assumed to be living in Serbia under the protection of former and serving military and security officials. Most speculation on Karadzic's location places him in Bosnia, perhaps crossing the border into Serbia at times.) In January 2006, the Serbian government admitted that Mladic had been drawing a Serbian Army pension as late as mid-November 2005. On May 31, 2006, the Administration, in compliance with the certification provision in the FY2006 foreign operations appropriations bill, suspended $7 million in U.S. aid to Serbia, due to its failure to cooperate with the ICTY. The House-passed version of the FY2007 foreign operations appropriations bill ( H.R. 5522 ) contains a certification provision very similar to the FY2006 bill. Section 562 blocks aid to Serbia's central government unless the certification is made by May 31, 2007. However, it omits specific reference to Karadzic as a person Serbia should detain, while retaining the mention of Mladic. The Senate did not pass an FY2007 foreign aid bill before the end of the 109 th Congress. Section 563 of the version of H.R. 5522 reported by the Senate Appropriations Committee conditions aid to Serbia's central government on ICTY cooperation by May 31, 2007, "including access for investigators, the provision of documents, timely information on the location, travel, and sources of financial support of indictees, including Radovan Karadic, and the surrender and transfer of indictees or assistance in their apprehension, including Ratko Mladic." Unlike the House version, the section retains a specific mention of Karadzic but appears to soften it by tacitly acknowledging that Mladic might be easier for Serbian authorities to apprehend than Karadzic. The 109 th Congress did not complete an FY2007 foreign aid bill before it adjourned. FY2007 foreign operations were funded through February 15, 2007 by a continuing resolution ( P.L. 109-383 ) and then through the rest of the fiscal year by another continuing resolution ( P.L. 110-5 ). However, the terms of the continuing resolution carried forward the FY2006 Serbia aid conditions through FY2007. On July 3, 2007, the Administration certified that Serbia had met the aid conditions in the legislation, and released $6 million in aid that had previously been suspended. In justifying the move, the Administration pointed to the June 2007 arrest and transfer to the Tribunal of Zdravko Tolimir and Vlastimir Djordjevic, two Serb suspects wanted by the ICTY. At present, four ICTY suspects, all Serbs, are still at large, including the two most important ones, Karadzic and Mladic. FY2008 Legislation Division J of the Consolidated Appropriations Act of 2008 ( P.L. 110-161 ) includes FY2008 foreign aid appropriations. Section 699D permits U.S. aid to Serbia after May 31, 2008 if Serbia meets certain conditions. The section also says that the Administration "should" vote for loans and assistance for Serbia in international financial institutions after this deadline if it meets the aid conditions. The most important condition, as in past years, is "cooperating with the International Criminal Tribunal for the former Yugoslavia including access for investigators, the provision of documents, timely information on the location, movement, and sources of financial support of indictees, and the surrender and transfer of indictees or assistance in their apprehension, including Ratko Mladic and Radovan Karadzic." Two other conditions, also part of the aid conditions in previous years, are also included. They are "taking steps that are consistent with the Dayton Accords to end Serbian financial, political, security and other support which has served to maintain separate Republika Srpska institutions" and "taking steps to implement policies which reflect a respect for minority rights and the rule of law." These latter two conditions have not been invoked to deny aid to Serbia in recent years. As in past years, the provision exempts humanitarian aid, assistance to promote democracy, and aid to Kosovo from the conditions laid down in this section. U.S. Policy Although it has used the aid conditions to extract at least partial Serbian cooperation with the ICTY, the Administration has shown signs of impatience with the certification process and what the Administration believes is the seemingly open-ended nature of the ICTY's prosecutions. The Administration favored shifting responsibility for prosecuting all but a handful of major war crimes cases from the ICTY to Serbian courts. The United States, along with other countries, successfully pushed for the adoption of U.N. Security Council Resolution 1503 in August 2003. The resolution calls for ICTY to complete its trials by 2008 and all appeals by 2010. The United States is assisting Serbia's efforts to prosecute war criminals itself by providing assistance in such areas as helping to set up witness protection programs, providing training to judges and contributing funds to help establish a new Serbian court to try organized crime and war crimes cases. In addition to the aid conditions, the Administration has also used positive inducements to show Serbia the benefits of a better U.S.-Serbia relationship that would follow from ICTY cooperation. For example, in November 2003, the Administration certified that Serbia and Montenegro is eligible for Normal Trade Relations (NTR) with the United States. The country's NTR status was suspended in 1992, in response to its role in the war in Bosnia, according to the terms of P.L. 102-420 (106 Stat. 2149). The legislation permits the Administration to restore NTR to Serbia and Montenegro if the President certifies that it had ceased armed conflict with other peoples of the former Yugoslavia, agreed to respect the borders of the former Yugoslav states, and ended support to Bosnian Serb forces. Administration officials say the move was made in response to the improved situation in Serbia, especially in defense reform and cutting links between the Serbian and Bosnian Serb armed forces. Serbian officials hailed the restoration of NTR, saying it would give a significant boost to Serbia's exports to the United States in such areas as furniture, hunting rifles and pharmaceuticals. One Serbian leader added that the granting of NTR was more important to Serbia than the aid certification issue. In June 2005, after the FY2005 aid certification, the Administration announced that it had granted duty-free treatment to some products from Serbia and Montenegro under the Generalized System of Preferences (GSP). In a move that surprised some observers in its suddenness, the Administration reversed long-standing policy in November 2006 and offered support for Serbia's membership in NATO's Partnership for Peace (PFP) program. The United States had previously conditioned Serbia's participation in PFP on Mladic's transfer to the Tribunal. Serbia joined PFP in December 2006. PFP is aimed at helping countries come closer to NATO standards and at promoting their cooperation with NATO. PFP membership is a prerequisite if a country wishes to join NATO in the future. Some have argued that certification has played an important role in encouraging Serbian leaders to deal with difficult issues that they would have rather avoided. Serbia's democracy will be healthier in the long run, proponents of certification say, if Serbs come to terms with the war crimes issue, especially since those supporting the war criminals continue to be threats to reform and reformers, as demonstrated by the murder of Prime Minister Djindjic. On the other hand, it can be argued that while they may be positive for Serbia in the long term, the aid conditions have been a domestic political liability for Serbian reformers. Serbian leaders complain that what they see as unending Western demands upon them reduce their credibility in the eyes of the Serbian public. Cooperation with the Tribunal has aggravated tensions among reformers, but it should be noted that it is only one of many issues dividing them, which include corruption scandals and personal ambitions of their leaders. Moreover, skeptics of the certification process claim that it hinders accomplishment of the most important U.S. goal in the region, which is the Euro-Atlantic integration of Serbia and other countries in the region. Observers believe the U.S. decision to permit Serbia to join PFP without transferring Mladic to the ICTY was intended to help pro-Western parties in Serbian parliamentary elections to be held on January 21, 2007. However, the elections did not result in a marked improvement of the share of the vote won by democratic parties. Nevertheless, after months of wrangling, a new government of democratic parties was formed on May 15, 2007. The new government vowed to cooperate fully with the ICTY. While the government has taken positive steps in transferring Tolimir and Djordjevic, there still may be obstacles to full cooperation, including the transfer of the remaining four indictees. One is tension within the government. The Democratic Party of President Boris Tadic and the G17 Plus Party see ICTY cooperation as a more important priority than the nationalist Democratic Party of Serbia, led by Prime Minister Vojislav Kostunica. More important, however, may be the impact of international efforts to determine the status of Serbia's Kosovo province. The United States and its key European allies are likely to recognize Kosovo's independence in early 2008. The Serbian government and parliament have threatened to sharply downgrade relations with any country that does so. Therefore, if the United States and its allies were to recognize Kosovo, Serbia cooperation with the ICTY might cease and Serbia's prospects for Euro-Atlantic integration would suffer a serious blow, at least for a time.

Since FY2001, Congress has conditioned U.S. aid to Serbia on a presidential certification that Serbia has met certain conditions, including cooperation with the International Criminal Tribunal for the Former Yugoslavia (ICTY). The second session of the 110th Congress may consider similar certification provisions in the FY2009 foreign aid legislation. Supporters of aid conditionality say such provisions may have spurred Serbia's cooperation with the Tribunal. Serbian cooperation with the ICTY may also be affected by the status of Serbia's Kosovo province. The Serbian government and parliament have threatened to sharply downgrade relations with any country that recognizes Kosovo's independence. If the United States and most European Union countries recognize Kosovo, as they are expected to do in early 2008, Serbia cooperation with the ICTY might cease, at least for a time. This report will be updated as events warrant. For more information on Serbia, see CRS Report RS22601, Serbia: Current Issues and U.S. Policy, by [author name scrubbed].

Introduction Premium conversion allows employees to pay their share of employment-based health insurance premiums on a pre-tax basis. Although plans vary, on average employers pay about 84% of the premium for single coverage and 73% of the premium for family coverage, leaving employees to pay the remaining portion. The employer share is always excluded from the employees' income and employment taxes (i.e., Social Security and Medicare taxes). In contrast, the employee share is paid either in after-tax dollars without premium conversion or in pre-tax dollars with it. Paying with pre-tax dollars results in tax savings for both the employee and the employer. For example, consider an employee whose share of the premium is $1,000. If the employee were in the 15% federal tax bracket, the employee would need to earn $1,293 in wages to have $1,000 left over after paying $194 in income taxes and $99 in employment taxes. With premium conversion, the $1,000 is not subject to taxes, reducing the taxable part of the $1,293 to $293 and income and employment taxes to $66, a tax savings of $227. To some, premium conversion seems like an accounting trick. It is difficult for people who are not tax experts to follow the calculations or understand the rationale. Rules limiting its use strike some as arbitrary and unfair. Premium conversion is sometimes referred to as premium only or section 125 plans, causing further confusion. This report provides more explanation of premium conversion and requirements for its use. It summarizes the statutory and regulatory background and briefly discusses whether it is sound public policy. Finally, it discusses two policy issues, whether premium conversion should include retirees and what role it might play in health care reform. Premium Conversion Basics Premium conversion is authorized by section 125 of the Internal Revenue Code, a section entitled "cafeteria plans." In general, the section allows taxpayers to choose among taxable and nontaxable benefits offered by an employer without paying taxes if they select the latter. As a rule under tax law, when taxpayers are offered a choice between taxable and normally nontaxable income they will be taxed on whichever they choose; they will be deemed to be in "constructive receipt" of the taxable income whether or not they take it. Section 125 makes an exception to the constructive receipt rule for benefits such as health insurance that meet the section's requirements. Cafeteria plans can be established only by employers. They must always offer a choice of taxable and nontaxable benefits. The taxable benefit usually offered is cash, but it might include benefits normally purchased with after-tax dollars, such as group term life insurance. Allowable nontaxable benefits include accident and health insurance, health care flexible spending accounts, accidental death and dismemberment insurance, dependent care assistance, adoption assistance, and others. Certain nontaxable employer benefits may not be offered, such as scholarships, education assistance programs, and long-term care insurance or services. In addition, cafeteria plans cannot offer benefits that defer compensation to a later year aside from 401(k) account contributions. Short carryover periods (i.e., several months) are permitted. Some cafeteria plans offer employees choices among a number of benefits (hence the name), whereas others limit the choice to cash and one specific nontaxable benefit. Premium conversion is an example of the latter. It is possible for employers to offer both premium conversion and a separate plan with choices among other benefits. The cash option may be wages. Under salary reduction agreements, employees in effect agree to work for reduced wages in exchange for having their employer provide an equivalent amount of nontaxable benefits. Premium conversion uses these agreements: employees are given the choice of receiving taxable wages or reducing their wages by their share of the health insurance premium ($1,000 in the earlier example) and having the employer use that sum to pay the premium. Taxable wages are thus converted to an employer payment for a nontaxable benefit. Premium conversion can apply both to health plans chosen by employers (which is the usual case) as well as insurance that individual workers obtain on their own. If employers allow the latter, they must ensure that payments they make in fact are used for health coverage. Like all cafeteria plans, premium conversion plans must be in writing. They must be limited to employees, though former employees may be included provided the plan is not maintained predominantly for them. Employee elections must be irrevocable for the plan year aside from changes due to changes in family status, in alternative coverage for family members, and other limited circumstances. Employers must file a report each year with the Department of Labor; separate IRS reporting requirements were suspended in 2002. All cafeteria plans must meet nondiscrimination tests. Plans may not discriminate in favor of highly compensated employees with respect to eligibility to participate, nor as to employer contributions or actual use of benefits. In addition, the nontaxable benefits of key employees cannot exceed 25% of the aggregate nontaxable benefits provided all employees under the plan. Finally, cafeteria plans must comply with the nondiscrimination requirements for the benefit in question. Thus, coverage under employers' self-insured accident and health plans must meet the additional nondiscrimination standards in section 105(h). Section 125(g) includes a safe-harbor test (a simplified test providing one way to meet the standards) for all accident and health plans, and the proposed regulations include another for premium-only plans. Nonetheless, applying the rules can be complex if not all employees are allowed to participate (e.g., part-time workers), if many eligible workers do not participate, or if participants choose different benefits. The complexity of nondiscrimination rules is one reason that small firms generally do not use cafeteria plans. In particular, the rule regarding key employees would preclude use by many small companies since those employees would often account for more than 25% of the nontaxable benefits. The complexity contributes to the administrative cost of establishing plans and ensuring they remain in compliance. In addition, owners of small businesses reportedly are reluctant to establish cafeteria plans if they are sole proprietors, partners, or more than 2% owners of S-corporations. These owners are not classified as employees under the tax code and thus cannot participate in employee benefit programs. Some Background to Premium Conversion Section 125 was included in the Internal Revenue Code by the Revenue Act of 1978 ( P.L. 95-600 ). It has been amended a number of times, especially in the first decade after enactment. Nearly all of the current text consists of provisions dealing with qualified benefits and nondiscrimination. Detailed rules regarding cafeteria plans appear not in the statute but in IRS guidance, particularly proposed rules issued in 1984 and 1989. These rules were never finalized, but they remained the position of the IRS and employers relied upon them. The 1984 and 1989 rules were withdrawn when the IRS issued comprehensive proposed rules on August 7, 2007. Benefit choice did not originate with section 125 or the IRS guidance; instead, the statutory and regulatory rules were in response to plans starting to spread among employers. In particular, there reportedly was an increase in employers offering cash-or-deferred arrangements (CODAs), which allow workers to choose between receiving cash or having employers contribute to a qualified retirement trust without being taxed on the latter until withdrawals occur in later years. The IRS had previously issued revenue rulings supporting these arrangements, but in 1972 it proposed to tax workers at the time of the contribution if it were made in return for a reduction in wages or in lieu of an increase in wages. In response, Congress included a provision in the Employee Retirement Income Security Act of 1974 (ERISA, P.L. 93-406 ), that temporarily blocked application of the proposed rule for plans in existence on June 27, 1974, until it could study the issue. The provision was extended several times before the Revenue Act of 1978 added section 125. The conference report on ERISA explicitly states that the provision applied not just to CODAs but also to cafeteria plans. Although neither ERISA nor section 125 mentions premium conversion, they establish authority for its tax treatment. Premium conversion probably became more common after the 1970s when, in the face of rising costs, employers sought to limit health plan contributions and help employees manage their own. Employers might obtain results similar to premium conversion by restricting wage growth and using the savings to increase what they pay for premiums. Many probably follow this strategy even if they are reducing the percentage of the premium they pay (i.e., they are still increasing the dollar amount of their contributions). For workers who have employer-provided health care, the effect of premium conversion and restrictions on wage growth could be roughly the same, depending on how the employer changes the wage levels (it might not be the same dollar amount for all workers). However, restrictions on wage growth would be less advantageous for workers who decline employment-based coverage, either because they do not value it highly or because they have better coverage through a spouse. Only premium conversion allows them the flexibility to individually opt out of a wage reduction that otherwise would be imposed across the board. Whether premium conversion is sound public policy has received little attention. It might be criticized since workers' tax savings depend upon their marginal tax rate, allowing higher-income workers to benefit more. In addition, because only employees are eligible for premium conversion, people who purchase insurance on their own cannot benefit. However, these criticisms apply generally to the exclusion for employer-provided health insurance, of which premium conversion is a minor part. If one were concerned solely about equity, one might limit or end the entire exclusion, not just premium conversion. Moreover, if only premium conversion were limited, employers could always obtain the same tax benefits for themselves and most of their employees by restricting wage growth and using the savings to pay premiums, as described in the previous paragraph. Some Policy Issues In recent years, the principal premium conversion issue before Congress has been whether it should be extended to federal retirees. If health care reform were enacted, consideration may also be given to what role premium conversion might play. Retirees Retirees sometimes complain that they cannot take advantage of premium conversion. The barrier is not section 125, for as indicated above cafeteria plans may include former employees provided the plan is not maintained predominantly for them. Instead, the restriction is due to an IRS determination that distributions from qualified retirement plans are always subject to taxes, aside from several minor exceptions. The IRS ruling precludes former employees from recasting pension payments as pretax income, as active workers can recast their wages. It might appear that this rule is unfair to retirees since in general their income is lower than current workers who have premium conversion. The outcome seems to conflict with the equity principles underlying cafeteria plan nondiscrimination rules. However, it is important to recognize that employer payments for retiree health insurance are excluded from taxes, just as they are for active workers. For many retirees, the employer pays much of the premium and tax savings on this share would generally be two to three times the additional tax savings from premium conversion. While allowing retirees the additional advantages of premium conversion would treat them like active workers, it would then seem even more unfair to retirees without access to employer coverage. The latter retirees are likely to have lower incomes yet. In the 111 th Congress, H.R. 1203 (Van Hollen) and S. 491 (Webb) would allow federal retirees to pay their share of Federal Employees Health Benefits Program (FEHBP) premiums on a pre-tax basis. Besides the equity discussion in the previous paragraph, it might seem difficult to justify extending premium conversion to federal retirees and not retirees with private sector or state or local government retiree health insurance. Extending premium conversion to other retiree groups would greatly increase the revenue loss of this proposal. Health Care Reform Massachusetts enacted a broad health care reform law in April 2006 called Chapter 58. Among other things, the law requires employers with 11 or more full-time equivalent (FTE) workers to establish premium conversion plans, which it calls section 125 plans. The plans must be set up whether or not employers offer health insurance and whether or not they contribute to the cost of coverage. As mentioned above, premium conversion is allowed for insurance that individual workers obtain provided employers ensure that payments they make (including those by premium conversion) in fact are used for that purpose. The Massachusetts provision benefits workers of employers that previously had not offered premium conversion or extended it to all workers. Their employers would also save on employment taxes. The public cost of the provision is borne primarily by the federal government through reduced income and employment tax revenue, though Massachusetts would experience a small reduction in its own income tax revenue. Chapter 58 also requires employers with 11 or more FTE workers to make a fair contribution to their health insurance costs or pay a penalty of $295 per worker. Some observers think that once the reforms are well established smaller employers may be asked to make some contribution and set up premium conversion arrangements. However, some small employers might have difficulty meeting the nondiscrimination requirements that were described above. Massachusetts cannot by itself exempt employers from federal requirements. A similar requirement for premium conversion might be considered in the reform legislation now before Congress. The tax savings could help employers and employees pay for the coverage that would be available through the exchanges the bills envision. Unlike Massachusetts, however, which could obtain an additional federal subsidy at little cost, the federal government would be the primary payer for this benefit. In addition, some in Congress are considering limiting the tax exclusion for employer-provided coverage, not expanding it. If Congress were to require or encourage employers to adopt premium conversion, consideration may be given to enabling more small businesses to take advantage of it. Legislation introduced in the 111 th Congress by Senator Snowe ( S. 988 , the SIMPLE Cafeteria Plan Act of 2009) would remove some of the barriers discussed above. If premium conversion were included in health care reform, consideration may also be given to modifying the statutory and regulatory nondiscrimination rules. As described above, premium conversion is covered by rules applying to cafeteria plans generally, though the August 2007 proposed IRS rules would allow a simplified test. These rules originate in a concern reflected in a number of parts of the tax code that people with high income or influence over employer policies can take advantage of nontaxable benefits while others cannot. For example, if low-wage workers cannot afford to give up cash wages, then most of the tax subsidy associated with nontaxable benefits would accrue to higher-paid workers. Health care reform legislation now before Congress could change these circumstances: for example, the principal proposals now being considered would require everyone to have health insurance, making it no longer an option, and lower-income taxpayers would receive premium subsidies of some sort. Congress may consider establishing separate nondiscrimination rules for premium conversion that takes account of the new proposed subsidies.

Premium conversion allows employees to pay their share of employment-based health insurance premiums on a pre-tax basis. The tax treatment is difficult for people who are not tax experts to understand, as are the rules that limit its use in a manner some consider arbitrary and unfair. Premium conversion is sometimes referred to as "premium only" or "section 125 plans," causing further confusion. Premium conversion is authorized by section 125 of the Internal Revenue Code, a section entitled "cafeteria plans." In general, the section allows taxpayers to choose among taxable and nontaxable benefits offered by an employer without paying taxes if they select the latter. As a rule under tax law, when taxpayers are offered a choice between taxable and normally nontaxable income they will be taxed on whichever they choose. Section 125 makes an exception to this rule for benefits such as health insurance that meet the section's requirements. Some cafeteria plans allow workers to choose among a number of benefits (hence the name), though others allow only a choice between cash and one nontaxable benefit. Premium conversion is restricted in this manner, with cash being in the form of wages that are not given up and health insurance being the one nontaxable benefit. Employers that offer premium conversion may also offer separate cafeteria plans with other choices. All cafeteria plans must be in writing and meet a number of nondiscrimination rules regarding highly compensated employees and company officers and owners. The rules are complex, and some make it difficult for small businesses to have the plans. Section 125 was included in the tax code in 1978, but it is not clear when employers began adopting premium conversion. It likely became more common as rising health care costs led employers to limit their insurance contributions and to help employees manage their own. Employers might obtain results similar to premium conversion by restricting wage growth and using the savings to increase what they pay for premiums. However, only premium conversion allows workers the flexibility to individually choose this outcome. Retirees sometimes complain that they cannot take advantage of premium conversion. The barrier is not section 125 but an IRS determination that distributions from qualified retirement plans are always subject to taxes, aside from several minor exceptions. Legislation, H.R. 1203 (Van Hollen) and S. 491 (Webb), has been introduced in the 1111th Congress to allow premium conversion for federal retirees. In its 2006 health care reform legislation, Massachusetts required all employers with 11 or more full-time equivalent workers to adopt premium conversion. Consideration might be given to whether a similar requirement might be included in health care reform legislation now before Congress. If it is included, Congress might also consider making it easier for small businesses to establish premium conversion, as it might establishing separate nondiscrimination rules for it. However, some in Congress are considering limiting the tax exclusion for employer-provided coverage, not expanding it; presumably they would not favor extending premium conversion to more employees.

Overview of FSMA Provisions FSMA focused on FDA-regulated foods and amended FDA's existing structure and authorities, in particular the Federal Food, Drug, and Cosmetic Act (FFDCA, 21 U.S.C. §§301 et seq.). Among its many provisions, FSMA expanded FDA's authority to conduct a mandatory recall of contaminated food products; enhanced surveillance systems to investigate foodborne illness outbreaks; established new preventive controls and food safety plans at some food processing facilities and farms; enhanced FDA's traceability capacity within the nation's food distribution channels; increased inspection frequencies of high-risk food facilities (both domestic and foreign facilities); and expanded FDA's authority and oversight capabilities regarding foreign companies that supply food imports to the United States. FSMA does not directly address meat and poultry products under the jurisdiction of USDA. When the law was enacted, FDA has identified five key elements of FSMA: Preventive controls —FSMA provides FDA with a legislative mandate to require comprehensive, prevention-based controls across the food supply. As examples, the act requires mandatory preventive controls for food facilities and mandatory produce safety standards, and also gives FDA the authority to prevent intentional contamination. Inspection and Compliance —FSMA provides FDA with the ability to conduct oversight and ensure compliance with new requirements and to respond when problems emerge. Examples include establishing a mandated inspection frequency (based on risk); giving FDA access to industry records and food safety plans; and requiring certain testing to be conducted by accredited labs. Response —FSMA provides FDA with the ability to respond to problems when they emerge. Examples include giving FDA mandatory recall authority for all food products; expanding FDA's authority to administratively detain products that are in violation of the law; giving FDA the authority to suspend a facility's registration, effectively prohibiting the company from selling any products within the United States; establishing pilot projects so FDA can enhance its product tracing capabilities; and requiring additional recordkeeping by facilities that "manufacture, process, pack or hold" foods designated as "high-risk." Imported Food Safety —FSMA provides FDA with the ability to help ensure that food imports meet U.S. food safety standards. Examples include requiring importers to verify that their foreign suppliers have adequate preventive controls; establishing a third-party verification system; requiring certification by a credible third party for high-risk foods as a condition for entry into the United States; establishing a voluntary qualified importer program for expedited review and entry from participating importers; and giving FDA the right to refuse entry into the United States of food from a foreign facility if FDA is denied access to the facility or the country where the facility is located. Enhanced Partnerships —FSMA provides FDA with the authority to improve training of state, local, territorial, and tribal food safety officials. Examples include requiring FDA to develop and implement strategies to enhance the food safety capacities of state and local agencies through multi-year grants, as well as strategies to enhance the capacities of foreign governments and their industries; and giving FDA the authority to rely on inspections of other federal, state, and local agencies in meeting its increased inspection mandate for domestic facilities. FSMA authorized additional appropriations and staff for FDA's future food safety activities. The Congressional Budget Office (CBO) estimated that implementing the newly enacted law could increase net federal spending subject to appropriations by $1.4 billion over a five-year period (FY2011-FY2015). FSMA authorizes an increase in FDA staff, to reach 5,000 in FY2014. During the regulatory development phase of FSMA, seven "foundational" rules were identified as required to fully implement FSMA (see listing in text box below). These regulations were to have been proposed or, in some cases, finalized within one to two years of enactment (roughly January 2012 and January 2013); other rules were to have been submitted within 18 months of enactment (roughly mid-2012). However, FDA's regulations were not finalized until 2016. Some other FDA actions under FSMA were also delayed. Table 3 documents the scheduled timeline for actions on selected FSMA provisions, as specified in the law, and FDA-reported actions taken to date, based on available FDA press releases and publicly available progress reports. For more information about each of these provisions, see Appendix B in CRS Report R40443, The FDA Food Safety Modernization Act (P.L. 111-353) . Delays in FSMA's Implementation Schedule FDA began to release proposed rules for some of the foundational regulations that constitute the food safety framework under FSMA in 2013. However, there were continued delays in the agency's release of other FSMA rules, industry guidance, and reports, well beyond the dates required under the law. These delays were exacerbated by FDA's decision to extend the public comment and response period for most FSMA proposed regulations as well as the agency's decision to re-propose key provisions of some regulations. Other factors also contributed to delays in FSMA implementation, including oftentimes a lengthy review process by the Office of Management and Budget's (OMB) and—according to FDA—limited agency resources and the lack of availability of discretionary appropriations. Delays in FDA's rulemaking process resulted in many FSMA regulations being released according to a court-ordered schedule under a federal lawsuit brought by the Center for Food Safety. Delayed Publication of FDA's Proposed Rules Publication of FDA proposed regulation often took place well after FSMA's mandated rulemaking schedule. Most of the law's key regulations were not proposed until 2013, with some proposals being delayed until later that same year. For example, proposed rules regarding Preventive Controls for Human Food (FSMA §103) and Produce Safety Standards (FSMA §105) were both released in January 2013. Two other related rules regarding imported foods—Foreign Supplier Verification Program (FSMA §301) and Standards for Third-Party Auditors (FSMA §307)—were not released until July 2013. Proposed requirements for Preventive Controls for Food for Animals (FSMA §103) were not released until October 2013, followed by proposed requirements for Intentional Adulteration (FSMA §106) in December 2013. FDA's Sanitary Transportation of Human and Animal Food proposal (FSMA §111) was released in February 2014. For some proposed rules, press reports indicated that several proposals were held up, often for many months, by OMB's review process. It was also reported that OMB made changes to several proposed rules while in review. Extensions in Public Comment and Response Period Some FSMA proposed rules were granted multiple extensions for public comment and review. For example, FDA's first two proposed foundational rules—Preventive Controls for Human Food (FSMA §103) and Produce Safety Standards (FSMA §105)—were released in January 2013 but later granted a series of extensions, eventually closing on November 15, 2013. These extensions were requested by a wide range of stakeholders, given the complexity of the regulations as well as FDA's delayed release of other related FSMA rules that some groups argued needed to be considered together as a full regulatory package. FDA's Decision to Re-Propose Certain Key Provisions Further delay in FDA's implementation of FSMA is attributable to FDA's announcement that would re-propose key provisions in some of its proposed regulations. In the agency's December 2013 announcement, it acknowledged that "significant changes will be needed in key provisions of the two proposed rules affecting small and large farmers," namely regulations implementing Preventive Controls for Human Food (FSMA §103) and also Produce Safety Standards (FSMA §105). Provisions that FDA plans to change "include water quality standards and testing, standards for using raw manure and compost, certain provisions affecting mixed-use facilities, and procedures for withdrawing the qualified exemption for certain farms." Some stakeholders expect further changes to other provisions in these proposed rules. In March 2014, FDA announced it would also re-propose regulations implementing a second preventive controls regulation, namely the Preventive Controls for Food for Animals (FSMA §103). FDA had suggested that they would likely publish the re-proposed sections of these rules at or very near to the same time. The agency also indicated that it will accept "additional comments only on those sections of the proposed rules that have been revised," recognizing the "court order regarding the timelines for finalizing these rules." In September 2014, FDA re-proposed certain aspects of four major proposed rules, including preventive controls for both human food and animal food (FSMA §103(a) and (c)), produce safety (FSMA §105(a)), and the Foreign Supplier Verification Program (FSMA §301(a)). Congress pushed FDA to consider rewriting these proposed regulations. Several Members of Congress have submitted a series of letters to FDA requesting that the agency release a second set of proposed rules and solicit public comment before going final. Within Congress, two letters were sent to FDA on November 22, 2013, including a House-Senate letter from Senators Shaheen and Blunt and Representatives Courtney and Gibson, and a letter from members of the House Organic Caucus, each expressing concerns about the proposed requirements in FDA's produce rule, among other concerns. A third letter was sent to FDA on November 13, 2013, by Senators Tester and Hagan expressing concerns about the effects of the proposed rules on small farms and facilities. Another letter was sent on November 15, 2013, from Members from Vermont (Senators Leahy and Sanders, and Representative Welch), urging FDA to re-propose these rules. A wide range of stakeholders have also expressed similar concerns and are supporting FDA's reexamination of some of its proposed regulations. Other congressional actions taken regarding FSMA include the addition of a provision in the enacted 2014 farm bill ( P.L. 113-79 , §12311) requiring FDA to provide Congress with a scientific and economic analysis of FSMA, including an analysis of how the law affects farm businesses of all sizes, prior to implementing final regulations under the law. Recent appropriations bills also have addressed certain aspects of FDA's implementation of regulations under FSMA. As part of the enacted FY2014 appropriations, Congress directed FDA to implement a "comprehensive training program" for federal and state inspectors and commended FDA for its decision to revise its proposed rules affecting farmers. As part of the enacted FY2015 and FY2016 Agriculture appropriations, both the House and Senate Appropriations Committees made a number of recommendations in their respective bills regarding FDA's ongoing efforts to develop FSMA-related regulations and guidance. Both committees have addressed FSMA's re-proposal of certain key regulations regarding food safety preventive controls for both human and animal food, and standards for produce, and have also expressed a range of concerns as FDA has developed regulations under FSMA, including concerns about extensive delays in FDA's rulemaking and implementation of FSMA. Budgetary and Staff Resources Limited resources and the availability of discretionary appropriations might also have affected FDA's rollout and full implementation of FSMA. Although the law authorized appropriations, it did not provide the actual funding needed for FDA to perform these activities. When the law was being debated in Congress, CBO had estimated that implementing the law could increase net federal spending subject to appropriation by about $1.4 billion over a five-year period (FY2011-FY2015). The Obama Administration has repeatedly requested that additional user fees be implemented to cover some of these costs, which Congress has not approved. Increases in appropriated funding for FDA's Food Program have not matched the Administration's additional requested user fees. Staff levels at FDA also have remained below levels authorized in FSMA, with an estimated 3,700 FDA staff working on food-related activities in FY2014. As part of the agency's implementation of FSMA, FDA has conducted stakeholder outreach, hosted public meetings, and released web videos and other written materials and presentations. During the past six years (FY2011-FY2016), enacted budgetary changes for food safety and FSMA implementation (as reported by congressional appropriators) have totaled nearly $300 million. This amount includes the enacted FY2016 Agriculture appropriation for FDA food safety activities, which provided for a $104.5 million increase in budget authority to "assist the FDA in preparation for the implementation of FSMA prior to the effective dates of the seven foundational proposed rules." Previously, FDA reported that an additional $400 million to $450 million per year above the FY2012 base is needed to fully implement FSMA. Available FDA funding for FSMA implementation and other food safety activities has been lower than what FDA has said it needs to fully implement the law. Lawsuit and Court-Order Deadlines for Final Rules In August 2012, the Center for Food Safety (CFS) filed suit in federal court against FDA and OMB, citing the government's failure to implement seven food safety regulations required by FSMA (see box below). CFS argues that, by not meeting statutory deadlines for rulemaking, FDA is breaking the law and needs to protect the public. FDA filed a motion to dismiss the complaint against the agency in November 2012, which was denied by the court in April 2013. As part of a June 2013 agreement, FDA was ordered to complete the regulations as follows: by November 30, 2013, publish all remaining proposed regulations; by March 31, 2014, close any comment period on these proposed regulations; and by June 30, 2015, finalize all regulations. In July 2013, FDA filed a motion to reconsider, asking the court to extend the implementation timeline for two FSMA-required rules: Sanitary Transport of Food and Feed (FSMA §111) and Intentional Contamination (FSMA §106). This motion was also denied in August 2013. The Center for Food Safety accepted a 60-day extension of the deadline for publication of the sanitary transport proposed rule (until January 31, 2014), provided that the comment period end date not be extended beyond April 30, 2014, and that the final rule date remain June 30, 2015. The rule timeline for the intentional contamination proposal was not extended, although in November 2013 FDA was later granted a 20-day extension, until December 20, 2013, to publish the proposed rule on intentional contamination due to setbacks that were likely caused by the federal government shutdown in October 2013. Under a February 2014 agreement between FDA and the Center for Food Safety, the agency agreed to a new court-ordered schedule requiring that final FSMA regulations be issued by mid-2016. This schedule further pushed back the implementation dates for final FSMA regulations beyond the dates originally mandated by Congress in the enacted law. In late 2014, an FDA official indicated that full implementation of FSMA would likely take another 10 years, the amount of time needed to "reasonably expect all the rules to be working." Expected Compliance Post Rulemaking FDA's Operational Strategy for Implementing the FDA Food Safety Modernization Act (FSMA) was released in May 2014 and describes "the next phase of FSMA implementation by outlining broadly the drivers of change in FDA's approach to food safety and the operational strategy for implementing that change, as mandated and empowered by FSMA." Full implementation of the most FSMA regulations will be phased in over the next several years, mostly to provide flexibility to farms and food businesses to comply with the new requirements, as provided for in the enacted law. In addition, in September 2016, FDA further extended the compliance dates for many regulated facilities, especially small and very small businesses, within the main core regulations including Preventive Controls for Human and Animal Food, Produce Safety Standards, and the Foreign Supplier Verification Program (FSVP) for food imports. Table 1 provides summary information on FSMA phased-in general compliance schedule. Table 2 compares the compliance schedule for small and very small business compliance periods.

Congress passed comprehensive food safety legislation in December 2010 (FDA Food Safety Modernization Act, or FSMA, P.L. 111-353), representing the largest expansion and overhaul of U.S. food safety authorities since the 1930s. FSMA greatly expanded food safety oversight authority at the Food and Drug Administration (FDA) within the U.S. Department of Health and Human Services (HHS). Among its many provisions, FSMA expanded FDA's authority to conduct a mandatory recall of contaminated food products; enhanced surveillance systems to investigate foodborne illness outbreaks; established new preventive controls and food safety plans at some food processing facilities and farms; enhanced FDA's traceability capacity within the nation's food distribution channels; increased inspection frequencies of high-risk food facilities (both domestic and foreign facilities); and expanded FDA's authority and oversight capabilities with regard to foreign companies that supply food imports to the United States. Under FSMA, FDA is responsible for more than 50 regulations, guidelines, and studies. This included seven "foundational" rules required to fully implement FSMA covering: 1. Preventive Controls for Human Food: Requires that food facilities have safety plans that set forth how they will identify and minimize hazards. 2. Preventive Controls for Animal Food: Establishes Current Good Manufacturing Practices and preventive controls for food for animals. 3. Produce Safety: Establishes science-based standards for growing, harvesting, packing, and holding produce on domestic and foreign farms. 4. Foreign Supplier Verification Program: Importers will be required to verify that food imported into the United States has been produced in a manner that provides the same level of public health protection as that required of U.S. food producers. 5. Third Party Certification: Establishes a program for the accreditation of third-party auditors to conduct food safety audits and issue certifications of foreign facilities producing food for humans or animals. 6. Sanitary Transportation: Requires those who transport food to use sanitary practices to ensure the safety of food. 7. Intentional Adulteration: Requires domestic and foreign facilities to address vulnerable processes in their operations to prevent acts intended to cause large-scale public harm. These regulations were to have been proposed or, in some cases, finalized within one to two years of enactment (roughly January 2012 and January 2013); other rules were to have been submitted within 18 months of enactment (roughly mid-2012). However, many of these regulations did not become final until 2016. Other FDA actions under FSMA were also delayed. Several factors contributed to these delays, including the Office of Management and Budget's (OMB's) review process, extensions in the public comment and response period for many of FDA's proposed rules and the agency's re-proposal of key provisions of some major regulations, and also, according to FDA, limited agency resources and the lack of availability of discretionary appropriations. Delays in FDA's rulemaking process resulted in many FSMA regulations being released according to a court-ordered schedule under a federal lawsuit brought by the Center for Food Safety. Full implementation of the most FSMA regulations will be phased in over the next several years, mostly to provide flexibility to farms and food businesses to comply with the new requirements, as provided for in the enacted law. In addition, in September 2016, FDA further extended the compliance dates for many regulated facilities, especially small and very small businesses.

Introduction Border security has emerged as an area of concern for many, particularly after the September 11, 2001 terrorist attacks. Although recent concerns pertaining to border security may be attributed to the threat of potential terrorists coming into the country, past concerns that centered around drug and human smuggling and the illegal entry of migrants are still important issues. As the southwest border increasingly becomes a focal point due to its myriad of problems, an issue for Congress is how to successfully balance competing strategic goals while balancing the tactical policies to achieve these goals. The strategic concern rests in a complex question: How do we balance the need for more effective border control with the needs of free trade and economic growth? The tactical concerns focus on balancing increased resources such as an ever-expanding workforce at the border with the use of technology and intelligence without compromising the free flow of commerce and travel. As Congress and Administration policymakers seek to achieve balance between the strategic and tactical concerns the southwest border pose, they do so during an unprecedented time of illegal migration across the border. In an attempt to normalize the flow of needed workers across the border and address the economic imbalances in Mexico and other parts of Latin America that drive the push incentive structure of migration to the United States, several bills have been introduced that would overhaul the U.S. immigration system and tighten enforcement of U.S. immigration laws in the interior of the country. Traditionally, border management consists of securing the border at ports of entry through the inspections process as well as between ports of entry (POE) through the patrolling of the border by the border patrol. Increasingly, border management, particularly along the southwest border, also involves enforcing immigration and other laws well into the interior of the country. This report discusses border security-related programs and initiatives that have an impact on the southwest border. The programs and initiatives discussed are presented in a two-dimensional framework: (1) enforcement efforts at the POE, between the POE and within the interior of the United States; and (2) programs and initiatives that facilitate the flow of people and goods across the border versus those initiatives that are geared towards controlling and interdicting people and things that may be a threat to the national security. The report opens with a discussion of the differences between the southwest and northern border. It then details the relationship between the United States and Mexico, as it pertains to border security. Next, each major control point (i.e., inspections, border patrol and interior investigations) that has a border security-related component is discussed. The report then focuses on past and current congressional efforts to secure the southwest border. It concludes with a discussion of some of the issues that are crosscutting to the major areas covered in the report. An Appendix is provided for additional discussion of legislation. Differences Between the Southwest and Northern Borders The U.S. border with Mexico is approximately 2,000 miles long and is comprised of six Mexican and four U.S. states. It features large tracts of desert land where temperatures average more than 100 degrees for part of the year, includes mountain ranges and rugged terrain, as well as the waters of the Rio Grande River. The U.S. border with Canada, on the other hand, is more than twice as long as the southwest border and covers seven Canadian provinces and 10 U.S. states. Among the northern border's many challenging natural features are vast mountain ranges such as the Rockies, the Great Lakes, many different river systems, and heavy snow and bitter cold temperatures in the winter. Although smaller by some 2,000 miles than its northern counterpart, the southwest border exceeds the northern border with respect to the volume of travelers crossing it. For example, there were 173 million inspections conducted at southwest land ports of entry in FY2004, compared to 52 million at northern land ports of entry. In addition to the volume of traffic at southwest land ports of entry, the southwest border has a longstanding history of illegal migration and human and drug smuggling activities. On average, the southwest border accounts for over 94% of all illegal alien apprehensions each year. While efforts have been underway to strengthen both borders, the southwest border efforts focus primarily on stemming illegal migration and human smuggling and interdicting illegal drugs, while the northern border efforts focus on sharing information and streamlining policies between the United States and Canada as well as facilitating trade. Context of Overall United States-Mexico Relations Importance of Mexico and the Bilateral Relationship Sharing a 2,000-mile common border and extensive interconnections through the Gulf of Mexico, the United States and Mexico are so intricately linked together in a multiplicity of ways that President Bush and other U.S. officials have stated that no country is more important to the United States than Mexico. The southern neighbor is linked with the United States through trade and investment, migration and tourism, environment and health concerns, and family and cultural relationships. Mexico is the second most important trading partner of the United States, and this trade is critical to many U.S. industries and border communities. At the same time, Mexico is a major source of undocumented migrants and illicit drugs and a possible avenue for the entry of terrorists into the United States. As a result, cooperation with Mexico is essential in dealing with migration, drug trafficking, and border, terrorism, health, environment, and energy issues. With a population of 105 million people, Mexico is the most populous Spanish-speaking country in the world, and the third most populous country in the Western Hemisphere. This gives it a diplomatic weight in the hemisphere as a leader of Latin American and Caribbean countries and in the world as a leader of developing countries. With a gross domestic product (GDP) for 2004 of $657 billion, and worldwide turnover trade (exports and imports) for 2003 of $336 billion, Mexico is a leading trader in the world, principally through its partnership with Canada and the United States in NAFTA. In large part because of the United States, NAFTA is the world's largest free trade area, with about one-third of the world's total GDP, and it accounts for about 19% of global exports and 25% of global imports. Mexico is viewed by some as the least important member of NAFTA, although its population of over 100 million is more than three times Canada's 32 million, and its GDP is nearly equal to that of Canada ($757 billion). About 37% of the United States' trade with NAFTA countries is with Mexico. Under NAFTA, Mexico had total turnover trade (exports and imports) with the United States for 2004 of $266 billion, making it the second most important trading partner of the United States (following Canada), while the United States is Mexico's most important partner by far, providing the market for 88% of Mexico's exports and supplying 68% of Mexico's imports. Since NAFTA entered into force in 1994, total trilateral trade has more than doubled to $621 billion, while Mexico-U.S. trade more than tripled from $82 billion to $266 billion. However, the United States has experienced a generally growing trade deficit and critics argue that many U.S. jobs were lost in the process. United States foreign direct investment was encouraged by NAFTA as well, although the amount and proportion of U.S. direct investment in Mexico have declined from $20.4 billion (77% of total investment) in 2001 to $5.3 billion (56% of total investment) in 2003. Mechanisms for Mexico-U.S. Interactions The United State and Mexico have developed a wide variety of mechanisms for consultation and cooperation on the issue areas in which the countries interact—with some overlapping in the functioning of the various mechanisms. These include (1) periodic presidential meetings, (2) annual cabinet-level Binational Commission meetings with 10 Working Groups on major issues, (3) annual meetings of congressional delegations in the Mexico-United States Interparliamentary Group Conferences, (4) NAFTA-related trilateral meetings under various groups, and (5) bilateral border area cooperation meetings hosted by such entities as the Border Environment Cooperation Commission (BECC), the U.S.-Mexico Border Health Commission, and the Binational Group on Bridges and Border Crossings. Bilateral/Trilateral Migration and Border Security Agreements8 Turning to the central focus of this report, Presidents Bush and Fox have engaged regularly in a series of discussions and agreements on closely related migration and border security issues, and they were joined by Prime Minister Martin of Canada on March 23, 2005, for a trilateral meeting. These discussions and agreements have fallen predominantly under the rubrics of the Bilateral Migration Talks, the Bilateral Partnership for Prosperity, the Bilateral Border Partnership Agreement, and the Trilateral Security and Prosperity Partnership of North America. Bilateral Migration Talks When President Bush met with President Fox in February 2001, migration issues were among the main topics, with Mexican officials expressing concern about the number of migrants who die each year while seeking a non-sanctioned entry into the United States. For some time President Fox has been pressing proposals for legalizing undocumented Mexican workers in the United States through amnesty or guest worker arrangements as a way of protecting their human rights. In the Joint Communique following the Bush-Fox meeting, the two presidents agreed to instruct appropriate officials "to engage, at the earliest opportunity, in formal high level negotiations aimed at achieving short and long-term agreements that will allow us to constructively address migration and labor issues between our two countries." During President Fox's visit to Washington, DC, in 2001, the Presidents reviewed the progress made by the joint working group on migration chaired by the U.S. Secretary of State and Attorney General and the Mexican Secretaries of Government and Foreign Relations. The Presidents instructed the high-level working group "to reach mutually satisfactory results on border safety, a temporary worker program and the status of undocumented Mexicans in the United States ... as soon as possible." However, the talks stalled following the terrorist attacks upon the United States in September 2001, and U.S. executive and legislative action focused on strengthening border security and alien admission and tracking procedures. When President Bush met President Fox in 2002, they noted that "important progress has been made to enhance migrant safety ... by discouraging and reducing illegal crossings in dangerous terrain," and they charged the cabinet level migration group to continue the discussions under the previous instructions. In January 2003, President Fox designated Economy Minister Luis Ernesto Derbez as Mexico's new Foreign Minister, replacing Jorge Castaneda, who reportedly resigned, in part, out of frustration with the lack of progress on a migration accord with the United States. Around that time, disagreements were emerging between the countries over U.S. military action in Iraq, although Mexico ordered special troops to secure airports, border posts, and other access points to the United States when the military action began in March 2003. In mid-year, partly in reaction to deaths of migrants, both countries took more forceful measures against smugglers and increased warnings of the dangers of illegal entry into the United States. In January 2004, President Bush offered an outline to overhaul the U.S. immigration system to permit the matching of willing foreign workers with willing U.S. employers when no Americans can be found to fill available jobs. Under the President's outline, temporary legal status would be available to new foreign workers who have work offers in the United States and to undocumented workers already employed in the United States for a term of three years that could be renewed but would end at some point. The proposal included some incentives to encourage workers to return to their home countries, such as credit in the worker's national retirement system and tax-deferred savings accounts that could be collected upon their return. Bilateral Partnership for Prosperity During President Fox's official visit to Washington, DC., in early September 2001, the Presidents launched the Partnership for Prosperity (P4P), a public-private alliance of Mexican and U.S. governmental and business leaders, to promote economic development throughout Mexico, but particularly in regions where lagging economic growth has fueled out migration. In accordance with the instructions of the Presidents, a concrete plan of action was announced in March 2002 at the time of the Monterrey conference, focusing on lowering the cost of sending money home, promoting private investment in housing, promoting small and medium sized businesses to generate employment, strengthening farmers and infrastructure, sharing ideas and best practices, and linking institutions with shared goals. Since then, Entrepreneurial Workshops have been held in 2003 and 2004 to encourage networking between businesses, and reports on the Partnership were made to the Presidents at the time of the annual Binational Commission meetings in 2002, 2003, and 2004. Following the 2004 meetings, then Secretary Powell noted that P4P programs had lowered the fees for transferring funds from the United States to Mexico, brought together more than 1,400 business and government leaders from both countries, and developed innovative methods to finance infrastructure projects. Other major accomplishments were the establishment for the first time of a Peace Corps program in Mexico; and the recent establishment of the Overseas Private Investment Corporation (OPIC) in Mexico that is expected to provide over $600 million in financing and insurance to U.S. businesses in Mexico. Bilateral Border Partnership ("Smart Border") Agreement When President Bush met President Fox in 2002, the Presidents announced the U.S.-Mexico Border Partnership Agreement with a 22-point Action Plan. The agreement is also known as the "Smart Border Agreement" because it calls for enhancing security by utilizing technology to strengthen infrastructure while facilitating the transit of legitimate people and goods across the border. Under the first goal, to strengthen infrastructure, the countries pledged to take joint action to harmonize, protect, finance, and plan border operations. Under the second goal, to facilitate the secure flow of people, the countries agreed to advance mechanisms for pre-clearing regular automobile travelers, obtaining advanced airplane passenger information, saving endangered migrants, deterring alien smuggling, and sharing viewpoints and intelligence. Under the third goal, to ease the safe flow of goods, the countries pledged to encourage private sector involvement and to implement technology sharing programs to place nonintrusive inspection systems at cross-border rail lines and high-volume ports of entry. When the former Secretary of Homeland Security Tom Ridge and Secretary of Government Santiago Creel met in 2003, they noted progress under the Border Partnership (see discussion on U.S.-Mexico 22-point plan in " Monitoring the Border At Ports of Entry "). When the leaders met in 2004, they signed the U.S.-Mexico Action Plan for Cooperation and Border Safety for 2004, as well as a Memorandum of Understanding on the Safe, Orderly, Dignified and Humane Repatriation of Mexican Nationals that provides for the return of migrants to their home towns. Still later, following the 2004 Binational Commission meetings, former Secretary of State Colin Powell emphasized the growing bilateral cooperation on border security matters between the countries, including the creation of a new Working Group on Cyber-Security. Trilateral Security and Prosperity Partnership of North America In 2005, President Bush hosted meetings in Texas with President Fox and Canadian Prime Minister Martin, in which the leaders established the trilateral "Security and Prosperity Partnership (SPP) of North America," that seeks to advance the common security and the common prosperity of the countries through expanded cooperation and harmonization of policies. To implement this partnership the leaders established ministerial-led working groups that were to develop measurable and achievable goals and to report back to the leaders within 90 days and semi-annually thereafter. On June 27, 2005, Secretary of Homeland Security Chertoff and Secretary of Commerce Gutierrez met with their Canadian and Mexican counterparts in Ottawa, Canada, and released a Report to Leaders with initial results and proposed initiatives for the future under the Security and Prosperity Partnership (SPP) of North America. In the security area, the report discussed efforts to establish common approaches to security to protect against external and internal threats and to further streamline legitimate trade and travel. Among these efforts, the countries would implement common border security and bioprotection strategies, enhance infrastructure protection and emergency response plans, improve aviation and maritime security and intelligence cooperation against transnational threats, and continue to facilitate the legitimate flow of people and cargo at the borders. In the press conference, the ministers highlighted the agreement to develop and implement common methods of screening individuals and cargo, development of a unified trusted traveler program to expand upon the SENTRI and FAST programs, and development of a collective approach to protecting infrastructure and responding to various incidents. In the prosperity area, the report discussed efforts to enhance North American competitiveness and to improve the quality of life. To achieve this, the counties would improve productivity through regulatory cooperation and harmonization; enhance cross-border cooperation on health, food safety, and environmental protection projects; promote sectoral collaboration in energy, transportation, and financial services; and reduce the costs of trade by increasing the efficiency of the cross-border operations. In press statements, the ministers cited agreement on common principles for electronic commerce, liberalization of the rules of origin on household appliances and machinery, streamlining and harmonizing regulatory processes, and collaboration in the steel, automobile and energy sectors to enhance competitiveness. Monitoring the Border18 Prior to the creation of the Department of Homeland Security (DHS), many federal agencies and subagencies were responsible for some aspects of border security. Today, DHS is the primary agency that has border security-related responsibilities. DHS' Directorate of Border and Transportation Security includes the U.S. Coast Guard, the Bureau of Customs and Border Protection (CBP) and the Bureau of Immigration and Customs Enforcement (ICE), among other agencies. Within CBP is the U.S. Border Patrol, inspections activities of the former Immigration and Naturalization Service (INS), U.S. Customs Service and the U.S. Department of Agriculture. Within ICE are the investigative activities of the former INS and U.S. Customs Service; detention and removal activities of the former INS; the Federal Law Enforcement Training Center; the Transportation Security Administration; and the Federal Protective Service. Monitoring the Border At Ports of Entry20 In 1789, Congress passed legislation that authorized the collection of duties on imported goods. In a subsequent piece of legislation, Congress established the U.S. Customs Service, which was charged with collecting duties at U.S. ports of entry. The position of immigration inspectors was formally created in 1891 after Congress passed legislation that created the Bureau of Immigration in the Department of the Treasury. Due to the increasing complexity of regulating immigration, a new supervisory position was created in the then-Bureau of Immigration that oversaw the duties of the new immigration inspectors. Prior to the creation of this specialized group of inspectors that were charged with regulating immigration at U.S. ports of entry, customs inspectors were the only presence at the ports of entry. Inspectors regulate people and goods that present themselves for entry at a designated port of entry. While emphasis on the southwest border tends to be placed on who is seeking entry to the United States, in recent years there has been a growing concern over what is coming into the country. This section provides a description of the who and what that are present at southwest land ports of entry (POE). In doing so, the section is divided into two parts: people-related and goods-related inspections. While this may be a useful construct for the purpose of this report, it is important to note that since the consolidation of the immigration and customs inspections activities into CBP, efforts have been underway to present "one face at the border" and move away from looking at inspections in terms of separate organizational structures for immigration and customs inspections. People-Related Inspections There are 25 land POE along the southwest border, with over 800,000 people arriving from Mexico daily. Over recent years, the southwest border has seen the highest volume of travelers seeking entry into the United States. As Figure 1 illustrates, four of the top five busiest land POE in FY2004 were in the southwest, with the San Ysidro land POE consistently ranking the busiest of all land POE for passenger travel for several years. The majority of travelers seeking entry into the United States at a southwest land POE are Mexican nationals who possess a Mexican border crossing card (also known as Laser Visa). U.S. citizens and Legal Permanent Residents of the United States make up the next largest group of individuals who seek entry to the United States at a southwest land POE. Border Partnership ("Smart Border") Agreement As discussed above, on March 22, 2002 ,President Bush and President Fox of Mexico met and endorsed the U.S.-Mexico Border Partnership agreement that was signed by Santiago Creel, Secretary of Governance, and Colin Powell, former Secretary of State. The agreement was accompanied by a 22-point action plan that included several immigration-related border security items under the heading "Securing the Flow of People." Following is a description of these items: expanding the use of the Secure Electronic Network for Traveler's Rapid Inspection (SENTRI) program; establishing a mechanism to exchange advance passenger information for flights between Mexico and the United States; accelerating border safety collaboration to safeguard migrants who enter between official POE or are smuggled into the United States; and enhancing cooperative efforts to detect, screen and take appropriate measures to deal with dangerous third-country nationals. In addition to the aforementioned immigration-related border security items contained in the 22-point plan, both countries have agreed to several items that pertain to securing the common border infrastructure. According to the Administration, progress has been made with respect to some of the immigration-related border management items in the plan. For example, there are plans to expand SENTRI to an additional three POE in 2005 and add additional SENTRI designated lanes at the existing POE. Moreover, the United States is planning to establish a dedicated lane for pedestrians at the San Ysidro (California) border crossing, and Mexico has begun efforts to implement the Advanced Passenger Information System (APIS). Both governments also "plan to accelerate their border safety collaboration to safeguard migrants by placing additional personnel and life-saving equipment along the border...." Secure Electronic Network for Travelers' Rapid Inspection The Secure Electronic Network for Travelers' Rapid Inspection (SENTRI) program is used at several southwest land POE to facilitate the speedy passage of low-risk, frequent travelers. Unlike its northern counterpart, NEXUS, the SENTRI program is a unilateral initiative. Ports of entry are selected based on the following criteria: (1) they have an identifiable group of low-risk frequent border crossers; (2) the program will not significantly inhibit normal traffic flow; and (3) there is sufficient CBP staff to perform primary and secondary inspections. Travelers can participate in the program if (1) they are citizens or legal permanent residents of the United States, citizens of Mexico or Canada, or legal permanent residents of Canada; (2) they have submitted certain documentation and passed a background check; (3) they pay a user fee; and (4) they agree to abide by the program rules. Participants in the SENTRI program are given a radio transponder that triggers an automated system to review the Interagency Border Inspection System (a background check system) and other records related to the vehicle and its designated passengers once the vehicle enters a SENTRI lane. Since the partial implementation of entry/exit controls at U.S. ports of entry, there have been discussions on consolidating the SENTRI program and its northern counterpart (NEXUS). The National Commission on Terrorist Attacks Upon the United States (9/11 Commission) recommended consolidating frequent traveler programs into a single program and integrating it with the databases and data systems that comprise the US-VISIT program. Subsequent to the 9/11 Commission's recommendation, Congress mandated the integration of all databases and data systems that process or contain information on aliens in the Intelligence Reform and Terrorism Prevention Act of 2004. In addition to the integration of these databases and data systems, the act requires the Secretary to develop and implement a plan to expedite the processing of registered travelers through a single registered traveler program that can be integrated into the broader automated biometric entry and exit data system. Goods-Related Inspections38 While the majority of the focus at the southwest border is due to the volume of illegal migrants who attempt to cross the border, commercial trade coming across the southwest border also poses a potential risk. Similar to balancing enforcement without compromising the legitimate flow of travel across the border, DHS officials must also balance enforcement with the free flow of trade and commerce. In FY2003, there were over 4 million commercial crossings at the southwest border. The majority of the crossings were made by trucks (4,238,045), with rail crossings accounting for less than 1% of commercial crossings at southwest land POE. As Figure 2 depicts, southwest POE saw a substantial volume of commercial crossings during the period examined (2001-2003). The Laredo, TX POE consistently ranked number one in the southwest for 2001-2003, leading the Otay Mesa POE (the next busiest crossing) by an additional 657 thousand commercial crossings in 2003. Border Partnership ("Smart Border") Agreement The U.S.-Mexico Border Partnership Agreement includes several customs-related items under the heading "Securing the Flow of Goods." These goal-related actions include public/private sector cooperation : expand partnerships with private sector trade groups and importers/exporters to increase security and compliance of commercial shipments while expediting clearance processes; electronic exchange of information : continue to develop and implement joint mechanisms for the rapid exchange of customs data; secure in-transit shipments : continue to develop and implement a joint in-transit shipment tracking mechanism and implement the Container Security Initiative; technology sharing : develop a technology sharing program to allow deployment of high technology monitoring devices such as electronic seals and license plate readers; secure railways : continue to develop a joint rail imaging initiative at all rail crossing locations on the U.S.-Mexico border; combat fraud : expand the ongoing Bilateral Customs Fraud Task Force initiative to facilitate joint investigative activities; and contraband interdiction : continue joint efforts to combat contraband, including illegal drugs, drug proceeds, firearms, and other dangerous materials, and to prevent money laundering. On April 23, 2003, DHS issued a joint statement on progress achieved on the U.S.-Mexico Border Partnership. Three working groups have been created to develop and implement initiatives identified in the 22-point plan: the Border Working Group; the Enforcement Working Group; and the Technology and Customs Procedures Working Group. According to DHS these groups have been meeting on a quarterly basis, and their activities are coordinated by a central Coordinating Committee. These groups were working primarily on the following specific goods-related initiatives: harmonizing and extending the hours of service, in coordination with the trade communities, at the POE located at the border with Mexico; deploying gamma ray inspection machines at railroad crossings; expanding programs and partnerships with the private sector, such as the Business Anti-Smuggling Coalition (BASC), the Customs-Trade Partnership Against Terrorism (C-TPAT) and Mexico's Compliant Importer/Exporter Program (110 of the 300 largest traders, that account for 66% of the bilateral trade, had already been certified by this program as of the 2003 update); exchanging core data on every transaction occurring through the common border in an electronic environment; testing and implementing cutting-edge technology such as electronic seals; conducting joint investigations concerning fraudulent trade, which have led to significant seizures of illegally transshipped or undervalued goods; and developing systems to monitor in-transit shipments. DHS and the Mexican Department of the Interior released a further update on the progress of the U.S.-Mexico Border Partnership Agreement on January 17, 2005. In terms of the goods-related action items, updates on progress include rail securit y: capability to inspect 100% of rail cargo entering the United States by the end of 2005; harmonizing port operation schedules : at Otay Mesa, for example, both countries have agreed to extend operating hours at the port to better accommodate the flow of trade; exchange of information : information exchange on all shipments and increasing communications with the private sector to better secure the supply chain; and Free and Secure Trade (FAST) : FAST lanes have been implemented at the six largest POE along the southwestern border. Cargo Inspection Technology Cargo shipments may be targeted or randomly selected for a secondary inspection for both security and trade compliance purposes. CBP has deployed a number of non-intrusive inspection (NII) technologies at POE to assist customs inspectors with the inspection of cargos. Large scale NII technologies include a number of x-ray and gamma ray systems. The Vehicle and Cargo Inspection Systems (VACIS), which uses gamma rays to produce an image of the contents of a container for review by the CBP inspector, can be deployed in a mobile or stationary capacity depending upon the needs of the port. CBP has also deployed a rail VACIS system to screen railcars. Other large scale NII systems include truck x-ray systems, which like the VACIS can be deployed in either a stationary or mobile configuration; the Mobile Sea Container Examinations Systems; and the Pallet Gamma Ray System. CBP is also continuing to deploy nuclear and radiological detection equipment including personal radiation detectors, radiation portal monitors, and radiation isotope identifiers to POE. Various canine teams are also deployed at POE to assist in the inspection of cargo and passengers. CBP uses canine teams trained to detect several types of contraband including narcotics, explosives, chemicals, and currency. Many of the systems mentioned above are deployed at POE along the southern border. As a part of the U.S.-Mexico Border Partnership agreement, both CBP and Mexican Customs are deploying the Rail Vehicle and Cargo Inspection Systems (RVACIS). In 2005, when the eighth RVACIS becomes operational, CBP and Mexican Customs will have the capability to screen 100% of rail traffic crossing the U.S.-Mexico border. Several POE along the southern border have installed radiation portal monitors (RPM). RPMs are stationary devices that are passive detectors of radiation that might be emitted from the vehicles passing between them. The most recent RPM to become operational on the southern border is at the port of Calexico, CA, in January 2005. Customs-Trade Partnership Against Terrorism (C-TPAT) Initiated in April 2002, C-TPAT offers importers expedited processing of cargo if they comply with CBP requirements for securing their entire supply chain. Applicants who receive a certification from the CBP may benefit from fewer cargo inspections, as membership in C-TPAT reduces a company's overall risk score in the ATS. In developing C-TPAT, CBP consulted with the trade community to arrive at a set of security recommendations specific to the various segments of the supply chain: carriers, brokers, importers, manufacturers, warehouses, freight forwarders, and domestic ports. Eligibility for C-TPAT has rolled out in phases since the program's inception. Currently, C-TPAT is open to: all air, rail and sea carriers; brokers; freight forwarders; non-vessel operating common carriers; United States, Canadian and Mexican highway carriers; and port authorities and terminal operators. Beginning August 18, 2003, Mexican, and other CBP-invited foreign manufacturers became eligible to participate in C-TPAT. FAST The FAST program is a bilateral agreement between the United States and Mexico that seeks to "promote free and secure trade by using common risk management principles, supply chain security, industry partnership, and advanced technology to improve the efficiency of screening and clearing commercial traffic at the border." The objectives of the program include offering expedited clearance to carriers and importers enrolled in C-TPAT by reducing information requirements, dedicating or designating lanes of approach for FAST traffic, and physically examining cargo transported by low-risk participants with minimal frequency; streamlining and integrating the registration process for drivers, carriers, and importers; ensuring that only low-risk participants are enrolled; and providing a catalyst for both Customs administrations to participate in enhanced technologies, such as transponders. In order for a shipment to qualify as a FAST shipment and receive the expedited processing and clearance, the shipment must contain qualifying goods from a C-TPAT approved manufacturer; be transported to the border (FAST lane where available) by a C-TPAT certified highway carrier, in a truck with a driver carrying a FAST-Commercial Driver card; and be destined for a C-TPAT approved importer. In addition, manufacturers, importers, and carriers enrolled in the U.S.-Mexico FAST program are responsible for ensuring that all U.S.-bound loaded containers or trailers are secured with high security mechanical seals. FAST is currently operational at six POE on the southern border: Laredo, TX; Hidalgo/Pharr, TX; El Paso, TX; Otay Mesa, CA; Brownsville, TX; and Calexico, CA. Each of these six FAST ports has a dedicated FAST lane. CBP had plans to have FAST operational at the following additional eight POE by the summer of 2005: Tecate, CA; San Luis, AZ; Douglas, AZ; Nogales, AZ; Santa Teresa, NM; Del Rio, TX; Eagle Pass, TX; and Rio Grande City, TX. These FAST ports accounted for 92% of commercial traffic along the southern border; and as of January, 2005, 15% of U.S.-Mexico bilateral trade is being cleared through FAST lanes. Customs Mutual Assistance Agreements (CMAA) CBP has negotiated CMAAs with 49 countries since joining the international Customs Cooperation Council (CCC) in 1970. These agreements were based on the model bilateral convention on mutual assistance adopted by the CCC in 1967, and are recognized by domestic and foreign courts as a legal basis for cooperation. The agreements allow for the exchange of information, intelligence, and documents to assist in the prevention and investigation of customs offenses. Each agreement is tailored to the capacities and policies of the country's customs administration, and can therefore be of particular use to ICE and CBP foreign attache offices. CBP signed the CMAA with Mexico on September 30, 1976, which went into force January 20, 1977. This agreement was updated with the signing of a new CMAA on June 20, 2000. Selected Inspections Issues With respect to the inspections process at the southwest border, several issues are evident. While there continues to be debate over what and who should be inspected and the extent of the inspections (i.e., actual physical inspections versus a cursory review of the travel documentation), there is also considerable debate with respect to the inspection technology used at POE, in particular the entry/exit controls present at some POE. U.S.-VISIT54 In 1996, Congress first mandated that the former INS implement an automated entry and exit data system (now referred to as the U.S.-VISIT program) that would track the arrival and departure of every alien. The objective for an automated entry and exit data system was, in part, to develop a mechanism that would be able to track nonimmigrants who overstayed their visas as part of a broader emphasis on immigration control. Following the September 11, 2001 terrorist attacks, however, there was a marked shift in priority for implementing an automated entry and exit data system. While the tracking of nonimmigrants who overstayed their visas remains an important goal, border security has become the paramount concern. Initial concerns surrounding the implementation of U.S.-VISIT centered on the potential disruption in tourism and commerce. While these concerns have been abated by measures taken by the Administration, additional concerns with respect to the program's implementation still exist. Some observers believe that the cost of fully implementing such a system will outweigh the benefits. Others express concern about the inadequacy of current infrastructure. Many continue to question the purpose of such a system. Some argue that resources should be directed at immigration interior enforcement, rather than on an expensive system whose capability is not fully known. Despite these concerns, the Administration has reported successes in the program since its implementation. Laser Visas (Mexican Border Crossing Cards) Since 1953, the United States has made special accommodations for Mexican nationals who frequently visit and conduct business in border communities. While both governments benefit economically from the arrangement, critics have long complained about the difference in treatment of Mexican nationals at the border when compared to their Canadian counterparts. Mexican nationals applying for admission to the United States as visitors are required to obtain a visa or hold a Mexican border crossing card, now referred to as the Laser Visa. Canadian nationals, on the other hand, are waived from the documentary requirements. These waivers, including the passport requirement, may be made on the basis of unforeseen emergency in individual cases, on the basis of reciprocity with respect to nationals of foreign contiguous territory, and for other reasons specified in the law. Canadian citizens, except after a visit outside the Western Hemisphere, and American Indians born in Canada having at least 50% American Indian blood, are among those who currently are waived from the documentary requirements for admission. The Laser Visa is used by citizens of Mexico to gain short-term entry (up to six months) for business or tourism into the United States. The visa can be used for multiple entries and is valid for 10 years. Mexican citizens can get a laser visa from the Department of State (DOS) Bureau of Consular Affairs if they are otherwise admissible as B-1 (business) or B-2 (tourism) nonimmigrants. If the individual intends to go 25 miles or further inland and/or stay longer than 30 days, they are also required to obtain a Form I-94, Arrival/Departure Record. Upon departure, Mexican nationals who have to complete an I-94 form are to deposit them in boxes at POE. Critics contend that Mexican nationals should be treated the same as most Canadian nationals who also come into the country to shop or visit, but are not required to present travel documentation. Others assert, however, that some Mexican nationals who possess a border crossing card overstay the terms of the card, which was, in part, the impetus for §110 of IIRIRA (the entry/exit system requirement). Moreover, there had been additional concerns that the Mexican border crossing card was increasingly being used fraudulently by individuals who would not otherwise be eligible for admission to the United States They point to the 1996 Congressional requirement that Mexican border crossing cards contain biometrics before such a requirement was imposed on other travel documents in 2001. While the Administration has maintained that Mexican nationals who have a Laser Visa will not be subjected to the requirements of the U.S.-VISIT program, it is not clear if the administrative exception will be permanent. Because of the exclusion of Mexican nationals who possess a Laser Visa from the requirements of the program, anticipated concerns that the program would cause massive delays at the border have abated. However, security concerns have been raised with respect to the Administration's decision to exclude travelers who have a border crossing card from the requirements of the program (see discussion below). Biometric Verification System (BVS) As stated previously, Mexican nationals who plan to stay in the United States for a specified period of time, travel within a certain geographical distance from the border and have a Laser Visa will be exempt from the requirements of the US-VISIT program. The Administration exempted this category of individuals primarily due to the extensive background check that includes the querying of several criminal and watchlisting databases that are already being conducted on all Laser Visa applicants. The Administration also contends that the Laser Visa document is read and scanned at the time the Mexican national presents himself for entry to the United States at a POE, thus providing an extra layer of security. Observers contend, however, that the equipment necessary to read and scan the documents is not present at every POE. The POEs where the equipment is being piloted are reportedly in the secondary inspections area and do not operate 100% of the time. Moreover, the BVS is not integrated with other critical data systems and databases. One Face at the Border On September 3, 2003, CBP announced that it had developed a unified inspection force at the border comprised of immigration and customs inspectors. It was believed that by merging these inspection forces and cross-training the inspectors, the law enforcement responsibilities of the individual inspector would be greatly increased. These expanded responsibilities compete for the inspectors' attention and include such diverse areas as evaluating terrorist threats; enforcing customs rules relating to commerce; and enforcing immigration laws. Questions, however, have been raised with respect to this initiative, including Is the initiative working to its fullest potential, that is, are customs inspectors performing secondary immigration inspections duties and are immigration inspectors performing secondary customs inspections? Is there an equal or otherwise appropriate amount of training in both customs and immigration inspections? What types of measures are in place to evaluate whether the cross-training of inspectors is more efficient and produces a more secure border than the former system of having inspectors with detailed expertise concentrated on one area? Monitoring the Border Between Ports of Entry71 While the federal inspections process was codified by Congress in the 1700s and 1800s, it was 1924 when Congress recognized the need for enforcement measures to stem illegal entries between ports of entry and passed legislation that formally created the border patrol. Prior to the formal creation of a border patrol, the Bureau of Immigration in the Department of Labor had maintained a small force of mounted guards on the U.S.-Mexico border. Recently, the Office of Air and Marine Operations (AMO) was transferred to CBP. For the purpose of this report, AMO is placed with the border patrol as an entity that monitors the border between the ports of entry. Air and Marine Operations The Office of Air and Marine Operations is a component of CBP, whose mission is to "protect the American people and critical infrastructure by using an integrated and coordinated air and marine force to deter, interdict, and prevent acts of terrorism and smuggling arising from the threats of unlawful movement of people and goods across the borders of the United States." In addition to enforcement efforts in New York and Washington state, AMO has 12 Air and Marine branches, two Surveillance branches, 11 Air Units and 16 Marine units located across the southern tier of the United States and Puerto Rico. Threats According to AMO, their operations are threat driven and the threat environment is, to some extent, shaped by the operational successes and failures of the AMO itself, as well as other foreign and domestic counter-narcotic operations. According to AMO, this relationship can be seen, for example, where "interdiction successes in Central America, Mexico, and the Bahamas pushed smugglers from the air to the water." As evidence of this, AMO cites the Interagency Assessment of Cocaine Movement, which reports that 96% of cocaine movement from South America has a maritime component. AMO has noted that the adaptability and flexibility of smugglers and their organizations make the specific threat environment somewhat fluid. AMO briefing materials indicate that in northern Mexico air drug smuggling consists of both marijuana and cocaine transported from central and southern Mexico to the southwest border of the United States; and that 'go-fast' boats and fishing vessels move multi-ton loads in the eastern Pacific, while 'go-fast' vessels dominate the Caribbean in the marine environment. Rationalization of Air and Marine Assets, Border Patrol and AMO AMO was effectively transferred to CBP with the passage of the FY2005 DHS Appropriations Act ( P.L. 108-334 ), which moved the AMO funding lines from ICE to CBP. One of the outstanding questions posed by this transfer is the degree to which (if at all) AMO assets (aircraft, boats, and/or bases) will be consolidated with the air and marine assets of the border patrol. Another outstanding question is whether or not the missions of AMO and the border patrol are sufficiently similar to support this consolidation. U.S. Border Patrol (USBP) While the USBP patrols both the northern and southwestern borders, the border with Mexico has long been the flash point for illegal migration into the United States. Over the last seven years, 97% of all illegal alien apprehensions were made along the southwest border. As a result of the heavy concentration of illegal migration, the USBP currently deploys 90% of their agents along the border with Mexico. Operationally, the USBP divides the southwest border into nine sectors: two in California, two in Arizona, and five in Texas. The majority of illegal migration takes place between the ports of entry . As such, the border patrol plays a central role in securing the southwest border and is where the majority of the programs and initiatives are found. This section discusses the activities of the border patrol in some detail, particularly as it pertains to the southwest border, including (1) a discussion of the border patrol strategy; (2) the authority of the border patrol to stop and question individuals in vehicles that pass through one of its interior checkpoint stations; and (3) the authority of the border patrol to remove aliens from the United States without a formal court proceeding. The section concludes with an analysis of selected issues that have an impact on border security at the southwest border. Evolution of Border Patrol Strategy A 1993 study commissioned by the Office of National Drug Control Policy concluded that the southwest border was "being overrun." According to the study, every night 6,000 illegal immigrants attempted to enter the United States through a 7.5 mile stretch of the border near San Diego. Additionally, the study concluded that drug smuggling was a serious problem along the southwest border. Among several recommendations, the study concluded that the INS should change its border security focus from arresting illegal migrants within the United States to preventing their entry into the country. In 1994, the former INS began to implement a multi-year strategy, the National Strategic Plan (NSP), aimed at strengthening enforcement of U.S. immigration laws. The strategy placed an emphasis on decreasing the number of illegal immigrants coming into the United States by increasing controls at the nation's borders. By the United States fortifying more visible and popular urban entry points for illegal migrants, less desirable and remote areas became the focal point for the illegal migrants. The strategy had four phases that began with the border patrol sectors with the highest levels of illegal migration activity. Phase I: San Diego, CA and El Paso, TX sectors Phase II: Tucson, AZ, Del Rio, TX, Laredo, TX and McAllen, TX sectors Phase III: El Centro, CA, Yuma, AZ and Marfa, TX sectors Phase IV: The northern border, gulf coast and coastal waterways The focus of the NSP was an operational strategy known as "Prevention Through Deterrence." The strategy's goal was to place border patrol agents and resources directly on the border in order to deter the entry of illegal aliens, rather than attempting to arrest aliens after they have already entered the country. According to CBP, achieving optimum deterrence would mean that increasing the number of agents and resources in a sector would not necessarily result in an increase in the number of unauthorized migrants apprehended in that sector. The "Prevention Through Deterrence" policy was embraced by Congress, with both the House and Senate Appropriations Committees in 1996 directing the INS to hire new agents, reallocate border patrol agents stationed in the interior to front line duty, and staff the interior offices with investigative staff instead. As a result of the massive buildup in agents and resources precipitated by the NSP, about 90% of border patrol agents are deployed along the southwest border. The majority of these agents are concentrated in nine border corridors that encompass the major travel arteries in the region and account for over 80% of the illegal migrant traffic (in terms of apprehensions). This deployment reflects the border patrol's goal of rerouting the illegal border traffic from traditional urban routes to less populated and geographically harsher areas, providing border patrol agents with a tactical advantage over illegal border crossers and smugglers. The former INS had claimed success in improving the quality of life in border communities along the affected areas as a result of enforcement efforts. As the border patrol has increased its enforcement practices along the border, some evidence exists that border related crimes have diminished in border communities. The overall crime rate in communities bordering with Mexico was 30% higher than the national average in 1990, but only 12% higher in 2000. The majority of this improvement has come in San Diego and El Paso, which are the most populous communities along the border. San Diego and El Paso aside, however, most border counties' crime rates did not decline as much as the national average between 1990 and 2000. This means that, relative to the rest of the country, most border communities were actually more crime ridden in 2000 than in 1990. This reduction in the overall crime rate along the border is seen by some as tangible proof that the "Prevention Through Deterrence" policy is achieving its goal of reducing illegal immigration and the crime it engenders. Others point out that the policy has shifted illegal immigration away from population centers in order to explain why crime rates fell relative to the national average in San Diego and El Paso but increased in communities along the less populated stretches of the border. It is unclear, however, whether illegal migration has declined along the southwest border. The number of apprehensions typically increased in the areas that were targeted by the border patrol and subsequently decreased as enforcement ramped up. Some contend, however, that the increase in apprehension may simply be due to the concentration of manpower in these areas and subsequent decreases in apprehension can be attributed to the technological "hardening of the border" (e.g., the erection of fences, sensors and lighting). While this may be the case, it is also possible that the policy is indeed working, and simply shifting the illegal migration pattern to more severe terrain where more migrants may be getting through despite the arduous nature of the trip, as discussed below. According to the Administration, a consequence of the strategy has been a shift in illegal immigration to more open areas. For example, efforts to secure the San Diego and Tucson areas have led to increased illegal migration in the Western Arizona area, including the Tohono O'odham Nation and several federal land areas, as discussed below. Moreover, a possible unintended consequence of these initiatives is the danger posed by the shift of illegal migration away from urban areas to open, more sparsely populated areas that could be dangerous for the illegal immigrant. In some cases, illegal migrants have lost their lives or suffered injuries in an attempt to avoid being caught by border patrol agents. According to some critics, these illegal migrants cross rough terrain, exposing themselves to extreme weather, or swim through dangerous waters (i.e., the Rio Grande River in Texas) in an attempt to gain entry into the United States. As security efforts at official points of entry become more sophisticated and stringent, terrorists and other criminals may attempt to illegally enter the country between points of entry. In order to prevent and deter terrorist entry, the Border patrol, in conjunction with DHS' Immigration and Customs Enforcement's (ICE's) Anti-Smuggling Units and CBP's Office of Intelligence, focuses its intelligence and surveillance operations on known smuggling operations that have previously trafficked aliens from significant interest countries. Additionally, the agencies develop joint operations to target and disrupt these especially high-interest smuggling activities. It is important to note, however, that the increased emphasis on preventing terrorist entry into the United States has not changed the scope of the USBP's mission—preventing unauthorized aliens from entering the country. New National Border Patrol Strategy In March of 2005, the USBP released a new National Border Patrol Strategy (NS). The new national strategy has five main objectives: establish the substantial probability of apprehending terrorists and weapons of mass destruction between POE; deter illegal entries between POE through improved enforcement; detect, apprehend, and deter smugglers of humans, drugs, and other contraband; leverage "Smart Border" technology to multiply the enforcement effect of border patrol agents; and reduce crime in border communities, thereby improving the quality of life and economic well-being of those areas. The USBP's new NS also identifies different strategic focuses for each of the agency's theaters of operation. Regarding the Southwest border, the NS notes that while some observers categorize the aliens apprehended as economic migrants, "an ever present threat exists from the potential for terrorists to employ the same smuggling and transportation networks, infrastructure, drop houses, and other support and then use these masses of illegal aliens as 'cover' for a successful cross-border penetration." In order to combat this threat, the NS calls for the continuing expansion of the Prevention Through Deterrence strategy through the deployment of sensoring technologies, enhanced intelligence gathering, cooperation with other law enforcement agencies operating along the border, and the deployment of more mobile personnel and improved air support. Apprehension Rates Apprehension statistics have long been used as a performance measure by the USBP. However, the number of apprehensions may be a misleading statistic for several reasons, including the data's focus on events rather than people and the fact that there are no reliable estimates for how many aliens successfully evade capture. This makes it difficult to establish a firm correlation between the number of apprehensions in a given sector and the number of people attempting to enter through that sector. While caution should be taken when attempting to draw conclusions about the efficacy of policy measures based solely on apprehensions statistics, they remain the only way available at the moment to trace trends in illegal migration along the border. While Mexican nationals make up the majority of apprehensions at the southwest border (94% in FY2004), apprehensions of nationals from other countries have recently began to receive Congressional attention. Figure 3 shows that the total number of unauthorized aliens apprehended by the border patrol along the southwest border increased steadily through the late 1990's, reaching a peak of 1.65 million in FY2000. This increase in apprehensions occurred even as the number of personnel and resources deployed along the border more than doubled over that period. The increase in apprehensions may have been due to the increased presence of agents and resources along the border, or it may have been due to an increase in the number of aliens attempting to enter the United States in order to benefit from the rapidly growing economy during that period. Since FY2000, however, apprehensions have been declining, reaching a low of 905,065 in FY2003. This reduction could be attributed to a number of factors. For example, the decline could signify that the "Prevention through Deterrence" strategy succeeded in placing enough agents and resources directly on the border to effectively deter unauthorized migrants from entering the country. However, the reduction also occurred during a period of economic decline and mounting unemployment within the United States which may have contributed to the decrease in apprehensions during that time by discouraging would-be economic migrants. While Figure 3 shows that the level of apprehensions leveled off at around 900,000 in FY2002 and FY2003; apprehensions in FY2004 rose by almost 250,000. This is the first increase in apprehensions since FY1999-FY2000. This increase may suggest that despite the increase in manpower and resources along the southwest border, unauthorized migrants have not been deterred from attempting to illegally enter the country. However, analyzing border patrol apprehensions by sector complicates this analysis and sheds some light on the trends along the border. Figure 3 breaks down the southwest border apprehensions by sector. This analysis suggests that the "Prevention Through Deterrence" strategy has accomplished its goal of rerouting unauthorized migrant traffic from heavily populated areas to more remote areas. The data show that in the late 1990s apprehensions decreased significantly along the California and Texas sectors, instead pushing out into the harsh conditions of the Arizona desert along the Tucson sector. Apprehensions in the Tucson sector rose in the last years of the 1990s, even as they declined in the traditional hot-spots of San Diego, El Paso, and McAllen. Following their peak in FY2000, apprehensions in the Tucson sector declined from FY2001 through FY2003. In FY2004, however, apprehensions increased by over 140,000 in the Tucson sector and remain higher than they were before the NSP was instituted. Apprehensions in the Yuma sector followed a similar pattern; they also increased in FY2004 and remain above their pre-NSP levels. The data seem to suggest that the Prevention Through Deterrence strategy has succeeded in changing the focal point of illegal migration from heavily populated areas such as the San Diego sector to more remote and challenging areas such as the Tucson and Yuma sectors. Figure 3 showed that overall apprehensions have increased by over 240,000, or 27%, from FY2003 to FY2004. This could suggest that the deterrent effect of focusing resources directly along the border has waned somewhat, or that as the U.S. economy began to emerge from a sluggish period that more aliens than before are attempting to enter the country in order to benefit from the increase in opportunities. However, this analysis is tempered by the observation that 76% (184,818) of the overall increase in apprehensions occurred in the Tucson and Yuma sectors in Arizona. In 2004, these sectors participated in the Arizona Border Control (ABC) initiative which significantly increased manpower and resources along the Arizona border. This could suggest that the increase in apprehensions is attributable to the increase in enforcement in those sectors during the same period. Interestingly, the only other sector to exhibit a significant increase in apprehensions in FY2004 was the San Diego sector in California, which after seven years of decreases from FY1995 to FY2002 experienced back-to-back increases in apprehensions in FY2003 and FY2004. However, overall apprehensions in the San Diego sector remain far below their pre-NSP levels. Other Than Mexican Apprehensions94 In FY2004, the border patrol apprehended 1.1 million people. The majority (94%) of these apprehensions were Mexican nationals. Because the vast majority of people apprehended each year by the border patrol are Mexican, the agency distinguishes between Mexicans and Other Than Mexicans (OTM). The issue of non-Mexican nationals has received publicity recently due to Congressional testimony by DHS former acting Secretary Admiral James Loy that Al-Qaeda may be considering infiltrating the southwest border due to a belief that "illegal entry is more advantageous than legal entry for operational security reasons." Over the past three years, OTM apprehensions have more than doubled, from 37,316 in FY2002 to 75,389 in FY2004. Ninety eight percent of this increase came from five countries, in descending order: Honduras, El Salvador, Brazil, Guatemala, Nicaragua, and the Dominican Republic. The Peoples' Republic of China showed the sixth largest increase over the three-year span. Despite the recent concerns about terrorist infiltration, apprehensions from Middle Eastern countries have actually declined 27% from FY2002 to FY2004, from 465 persons to 341. Selected Issues Between Ports of Entry In recent years, the border patrol has received increased attention, primarily due to the growing concern over the number of aliens who illegally gain entry into the United States between official ports of entry. Consequently, several issues that are unique to the border patrol have gained prominence. Border Patrol Checkpoints97 In terms of securing the border, immigration checkpoints are viewed by the border patrol as the third layer of defense and generally entail the stopping of vehicles passing through a particular location, usually on a highway leading away from the border. The purpose of an inland immigration checkpoint is to verify the immigration and citizenship status of the persons in the passing vehicles. The border patrol conducts three types of inland traffic-checking operations: permanent checkpoints, temporary checkpoints, and roving patrols. These operations are conducted pursuant to statutory authorizations empowering border patrol agents to interrogate those believed to be aliens as to their right to be in the United States and to inspect vehicles for aliens. Under current regulations, the authority to place a checkpoint may be exercised anywhere within 100 air miles of the border. The Supreme Court has recognized that the maintenance of a traffic-checking program in the interior is permissible because the flow of illegal aliens cannot effectively be controlled solely at the border. Border Patrol Checkpoints in the Tucson Sector The Tucson Border Patrol Sector is the only sector that is prohibited from having permanently operating checkpoints. Since 2003, Congress has limited the Tucson Border Patrol Sector's ability to erect permanent checkpoints through annual Appropriation Acts. According to the DHS Appropriations Act for 2005, for example, CBP is required to relocate its tactical (fixed) checkpoints in the Tucson sector at least once every 14 days in a manner that prevents people subject to inspections from predicting the location of the checkpoint. Additionally, Congress requires CBP to submit to Congress "a plan for expenditure that includes location, design, costs, and benefits of each proposed Tucson sector permanent (i.e., fixed) checkpoint." Language in the DHS Appropriations Act for 2004 prohibited appropriated funds to be used toward site acquisition, design, or construction of any checkpoint in the Tucson sector and required the border patrol to relocate its checkpoints in the Tucson sector at least once every seven days . CBP asserts that these congressional restrictions impaired their ability to control the border. According to CBP, "closing and moving a checkpoint every seven days creates a national security vulnerability that allows smugglers of any kind to further their entry into the United States unabated." The constant movement of these checkpoints may also make the placement of the checkpoint within the categories discussed above (and thus, the suspicion level required for a stop or search) difficult to determine. A possible issue for Congress is how to balance the need for uncertainty in location (to keep illegal migrants from evading fixed points) against the administrative necessities of having some permanence both for management and legal requirements. CBP measures success of its checkpoints by the number of arrests made as a result of the measure. Similar to criticism that has been asserted with respect to the border patrol's apprehension rates, relying on the number of arrests made at these checkpoints as a reliable method to measure success may be problematic. The high arrest numbers may simply be due to the concentration of resources at these checkpoints. Moreover, there are no reliable estimates for how many aliens successfully evade capture. This makes it difficult to establish a firm correlation between the number of arrests at or near a checkpoint and the number of people attempting to enter through that checkpoint. Expedited Removal The likelihood of terrorists entering the United States through its vast land borders, especially with the help of human smuggling networks, was a concern of the 9/11 Commission and may have grown now that aliens are facing much higher scrutiny at official ports of entry. To address this concern, DHS announced in August of 2004 that border patrol officers would be allowed to exercise "expedited removal" authority at locations between the ports of entry. Expedited removal authority was originally established in §302 of the Illegal Immigration Reform and Immigrant Responsibility Act of 1996 (IIRIRA). It allows immigration officers to deny admission and order an alien removed, without a hearing before an immigration judge, if the alien arrives without proper documentation or by other fraudulent means. Aliens who indicate an intention to apply for asylum or who assert a fear of persecution or torture if returned home, however, are to be referred to an asylum officer and may a receive a hearing before an immigration judge. People removed from the United States under expedited removal are barred from re-entry for a period of five years but can apply for a waiver. Since 1997, expedited removal has traditionally only been used by immigration officers at air and sea ports of entry. In its 1997 implementing regulations, the Department of Justice announced that it would apply expedited removal proceedings only to "arriving aliens," because it wished to gain insight and experience by initially applying the new procedures on a more limited and controlled basis, but it reserved the right to apply the procedures to additional classes of aliens within the limits set by statute at any time. The INA allows expedited removal proceedings to be applied to two categories of aliens. First, §235(b)(1)(A)(i), requires that expedited removal proceedings be applied to aliens "arriving in the United States." "Arriving aliens" are defined in regulation (8 C.F.R. §1.1(q)) to mean "an applicant for admission coming or attempting to come into the United States at a port of entry...." Section 235(b)(1)(A)(iii), permits the Secretary to apply (by designation) expedited removal proceedings to aliens who arrive in, attempt to enter, or have entered the United States without having been admitted or paroled following inspection by an immigration officer at a port of entry, and who have not established to the satisfaction of the immigration officer that they have been physically present in the United States continuously for the two-year period immediately prior to the date of determination of inadmissibility. The use of expedited removal was recently extended to the border patrol. DHS has elected to assert and implement only that portion of the authority granted by the statute that bears close temporal and spatial proximity to illegal entries at or near the border. Accordingly, the expanded authority only applies to aliens encountered within fourteen days of entry without inspection and within 100 air miles of any U.S. international border. Furthermore, DHS plans, as a matter of prosecutorial discretion, to apply the new expedited removal authority only to (1) third-country nations (i.e., aliens other than Canadians or Mexicans) and (2) to Mexican and Canadian nationals with histories of criminal or immigration violations, such as smugglers or aliens who have made numerous illegal entries. Currently, non-Mexican nationals who are apprehended along the southern border cannot be returned to Mexico, and instead, are either voluntarily returned to their country of citizenship (via aircraft) or placed in formal removal proceedings. DHS claims that because of a lack of resources, non-Mexican nationals are often released in the United States with a notice to appear for removal proceedings. Many of these aliens subsequently fail to appear for their removal proceedings and stay in the United States illegally. Some view the limitations on the new expanded authority as making the procedures applicable only to a "minute fraction of the illegal flow." For example, of one million foreigners apprehended in the first 10 months of FY2005, all but 57,000 were Mexican; 3,000 of these other-than-Mexicans were from the Eastern hemisphere. Conversely, others are concerned about the lack of adequate training, deficiencies in previous applications at ports of entry, and minimal due process protections afforded. Others are especially concerned for asylum seekers under the new procedures, since their problems over the past seven years have been reportedly well-documented. Still, in spite of all these criticisms, DHS claims that expanding expedited removal between the ports of entry will deter unlawful entry and provide DHS officers with a tool to better secure and improve the security and safety of our nation's land borders. Physical Barriers119 As part of the "Prevention Through Deterrence" strategy, the USBP incorporated the construction of physical barriers directly on the border into their NSP in the early 1990s. In 1990, the border patrol chief in the San Diego sector began erecting physical barriers chiefly to deter drug smuggling. The ensuing fence covered 14 miles of the border and was constructed of 10 foot high welded steel. Congress expanded the existing fence by requiring the border patrol to construct a triple-layered fence along the same fourteen miles of the US-Mexico border near San Diego. Today, the border patrol maintains 96.7 miles of border fencing along the southwest border. A possible issue for Congress to consider concerns the potential tradeoff between preserving the environment in border regions and the requirements of domestic security. On the one hand are environmental activists who believe that the border fencing does not contribute significantly to national security but does degrade the environment in those regions. On the other hand are those who believe that the border fences have been an effective tool in discouraging aliens from crossing the border in those areas, and that the environmental damage caused by their construction is an unfortunate but necessary reality. Migrant Deaths An unintended consequence of the USBP's "Prevention Through Deterrence" strategy has been an increase in the number of accidental migrant deaths along the border. This is viewed as due to the border patrol's focus on pushing illegal migration away from population centers, which has led unauthorized migrants to attempt to cross the border in remote desert regions. The issue of migrant deaths along the border gained national prominence due to a succession of tragic events, including the discovery of 19 dead migrant workers in an airless truck trailer in Texas in May, 2003. The border patrol began collecting data on migrant deaths in 1998. Prior to 1998, the best data available was compiled by the University of Houston's Center for Immigration Research (CIR) from a census of local medical investigators' and examiners' offices in every county along the US-Mexico border. Regardless of which entity collected the data, however, it may not be accurate due to the large number of different federal, state, and local jurisdictions represented along the border. Additionally, the border patrol's data does not include information from the Mexican side of the border, which probably means it undercounts the number of fatalities. Figure 4 incorporates CIR and USBP data. The CIR data show that migrant deaths decreased steadily from a high of 344 in 1988 to a low of 171 in 1994. With the advent of the "Prevention Through Deterrence" strategy in 1995, migrant deaths appear to have increased sharply. USBP data shows a peak of 383 migrant deaths in FY2000. While migrant deaths decreased slightly to 340 in FY2003, the 11% reduction in deaths over this period is significantly lower than the 44% decline in apprehensions over the same period. This means that the overall mortality rate (or, the number of deaths per attempted border crossing) seems to have increased despite the overall reduction in deaths. This evidence seems to support the supposition that border crossings have become more hazardous since the "Prevention through Deterrence" policy went into effect in 1995, resulting in an increase in illegal migrant deaths along the southwest border. Another way to visualize the increasing hazard for unauthorized migrants may be to analyze the ratio between migrant deaths and border patrol apprehensions. This ratio shows how many unauthorized immigrant fatalities there are for every apprehension made by a border patrol agent along the Southwest border. Figure 6 shows that the mortality rate per apprehension more than doubled in five years, from1.6 deaths per 10,000 apprehensions in FY1999 to 3.7 deaths per 10,000 apprehensions in FY2003. However, in FY2004 the ratio declined to 2.8 deaths per 10,000 apprehensions, marking the first decrease since FY1998-FY1999. The decline may be due to special measures to mitigate deaths emanating from several sources. Nevertheless, it appears that as the pattern of unauthorized migration has shifted away from population centers to remote border regions that the migrant fatality rate has increased significantly from 1999. The border patrol has drawn criticism from human rights activists who claim that the agency's migrant death count understates the number of fatalities. Some contend that the Border patrol undercounts fatalities by excluding skeletal remains, victims in car accidents, and corpses discovered by other agencies or local law enforcement officers. Others point to inconsistencies in how the agency counts migrant deaths, with some sectors counting smugglers and guides who perish, but others excluding them, even though official USBP policy is to include all deaths in the 43 counties within a 100 miles of the US-Mexico border. Border patrol officials counter that local law enforcement agencies often do not inform the border patrol when they encounter dead migrants, and that deaths that occur outside the 100 mile belt or on the Mexican side of the border are outside their operational purview. Border Safety Initiative Regardless of the debate over numbers, the USBP has taken several steps to address the problem of migrant deaths in recent years, including the Border Safety Initiative (BSI). In June 1998, the USBP launched BSI in part to address concerns about the increasing number of migrant deaths along the border. The BSI is a collaborative campaign with the Mexican government that focuses on decreasing the life-threatening dangers involved in crossing the border. As part of the BSI, the USBP produces television, radio, and print advertisements warning would-be migrants about the dangers involved in crossing the border. Additionally, the USBP maintains some water stations and rescue beacons in the desert and has increased border patrol agents in the areas that have been greatly impacted. As part of the collaboration with Mexico, the USBP has trained over 1,320 Mexican firefighters and law enforcement personnel in sophisticated search and rescue techniques and cooperates with the Mexican government to disrupt smuggling routes. Border Patrol Search, Trauma, and Rescue (BORSTAR) teams form an important part of the BSI. These specialized rescue teams are composed of agents who volunteer to undergo a rigorous training regimen that includes physical fitness, emergency medical skills, technical rescue, navigation, communication, swift-water rescue, and air operation rescues. BORSTAR's primary mission is to respond to all incidents involving distressed people along the border. While the individuals rescued are typically illegal aliens, BORSTAR teams have also rescued American citizens who reside along the border as well as border patrol agents. In the almost three years the initiative has been operational, border patrol agents have rescued 3,977 people along the southwest border. There are currently nine BORSTAR teams comprised of 141 specially trained border patrol agents. Civilian Humanitarian Groups Believing that the border patrol's response to the issue of migrant deaths along the border is inadequate, some humanitarian organizations, such as Humane Borders, Samaritan Patrol, and the Border Action Network, have begun providing services to unauthorized migrants in order to decrease the dangers associated with the border crossing. These services include maintaining water stations in the desert and providing medical supplies to aliens. Humane Borders, for example, maintains 50 water stations throughout the Arizona desert, while a sister organization maintains 133 water stations in California's Imperial Valley. Additionally, a network of faith-based organizations recently instituted the "No More Deaths" campaign. This campaign works toward reducing fatalities along the border by maintaining two 24-hour camps, called "Arks of the Covenant," in southern Arizona where unauthorized migrants can receive food, water, and medical attention. According to the campaign's spokesperson, the USBP and the U.S. Attorney's Office have confirmed that providing humanitarian aid to migrants is legal and that the camps they operate are within the law. These kinds of activities concern those who believe that the humanitarian aid, no matter how well intentioned, assists unauthorized immigrants in their efforts to subvert immigration laws and enter the country. Others believe that the number of migrant deaths along the border is unacceptably high, and that these organizations are saving lives through their humanitarian aid. Still others fear that if migrants believe that water is readily available in the desert more will perish as they attempt to cross without carrying adequate amounts of water. Civilian Patrol Groups A related issue that has gained attention in the past two years has involved civilian patrol groups attempting to assist the border patrol in its enforcement efforts through a variety of means, reportedly including sometimes apprehending unauthorized aliens along the border. One such group, American Border Patrol, recently gained notoriety by launching an unmanned plane that uses cameras and GPS technology to identify unauthorized aliens attempting to cross the border. These groups have increasingly been targeted by human rights organizations for the tactics they allegedly use, including threatening border crossers with firearms and wearing uniforms similar to those worn by the border patrol. In the summer of 2003, two such groups, Ranch Rescue and Citizen Border Patrol, curtailed their activities on the Arizona border due to mounting publicity and concern about their practices, including allegations that they were dressing like border patrol agents. More recently, the Minuteman Project in Arizona drew national media attention to the problem of unauthorized migration. The Minuteman Project drew hundreds of volunteers from across the United States to monitor a stretch of the eastern Arizona border with Mexico near Douglas, in the Tucson Sector. According to the Minuteman organizers, the project succeeded in dramatically reducing the flow of illegal immigration in Arizona. The USBP contests this claim, noting that while apprehensions in eastern Arizona declined from 24,842 in April of 2004 to 11,128 in April of 2005, apprehensions in western Arizona increased from 18,052 in 2004 to 25,475 in 2005. USBP officials also stated that the volunteers were disrupting their operations by unwittingly tripping sensors deployed along the border, forcing agents to respond to false alarms. Others believe that the decrease in eastern Arizona is attributable to increased patrolling on the Mexican side of the border by Mexican police and military authorities. There is some debate about the relative impact that these groups have on securing the border. Some argue that these groups are vigilante organizations that are taking the law into their own hands, and that their operations can conflict with those of border patrol agents. Others counter by contending that these groups are harmless and provide valuable assistance to the border patrol by identifying and sometimes capturing unauthorized migrants. In congressional testimony, some Border Patrol officials have discounted the overall impact of vigilantes along the border. It is not clear if or to what extent the operations of these civilian patrolling groups present an obstacle to the Border Patrol or a danger to unauthorized migrants. Illegal Migration and Indian Country Several Indian reservations are located near the U.S.-Mexican border, and a few—including the Tohono O'odham Reservation in Arizona and the Kickapoo Reservation in Texas—are directly connected to the border. While federal authorities routinely patrol the border in these areas, the Indian tribes' quasi-sovereign status presents some unique challenges to those guarding the border. The question of which law enforcement authorities—state, federal, or tribal—have adjudicatory jurisdiction in Indian country is not easy to answer, as the answer can change according to the civil/criminal nature of the offense, the seriousness of the offense, the tribal status of those involved, and the state in which the offense is committed. For example, the Supreme Court ruled in the landmark 1978 case, Oliphant v. Suquamish Indian Tribe , that Indian tribes do not possess criminal jurisdiction over non-Indians. As the Court put it, "By submitting to the overriding sovereignty of the United States, the tribes ... necessarily give up their power to try non-Indian citizens of the United States except in a manner acceptable to Congress." As a result of Oliphant , several federal statutes, and other Supreme Court cases reigning in tribal civil jurisdiction, tribal adjudicatory jurisdiction is very limited, in many instances forced to yield to the power of state and federal authorities. Oliphant in particular has led some to question the authority of tribal police to arrest and detain non-Indians. For practical purposes in the border patrol context, however, tribal law enforcement authorities are not as constrained as they may be in other areas. One reason for this is that, as part of their limited sovereignty, tribes possess the authority to expel non-members from Reservations for violations of tribal trespassing restrictions. In addition, while tribal courts may lack the power to try non-Indians, tribal police possess the power to detain suspected offenders for pick-up by state or federal authorities, and tribal authorities on reservations on or near the U.S.-Mexico border routinely detain undocumented aliens (UDAs) with that purpose in mind. Still, because they possess only limited authority, many tribal law enforcement groups also lack the resources, funding, and training of state and federal officials. In addition, many reservations—particularly those in the southwest—are in remote locations far from the nearest police or border patrol station. One method that has been used sparingly to get around these difficulties is the cross-commission of tribal officials by state or federal authorities, so that these officials may arrest non-Indian criminal suspects under state or federal law. Similarly, in at least one instance—on the Tohono O'odham Reservation in southern Arizona—federal authorities have created a special unit made up entirely of American Indians to assist in patrolling the U.S.-Mexican border. The Reservation is home to a special unit of CBP Customs Patrol Officers, commonly known as the "Shadow Wolves." These officers—numbering between 20-23 individuals—are all American Indians that patrol the 76 miles of international border that bisects the Tohono O'odham Reservation. Formed in 1972, the Shadow Wolves' original mission centered around drug interdiction but, in the years since the 9/11 attacks, the group has focused more on immigration issues. The Tohono O'odham Reservation presents particularly thorny problems for border patrol authorities, in that, not only is it the second-largest Indian reservation in the country, but it also extends across the border into Mexico. As a result, some Tohono O'odham members are U.S. citizens, while others have Mexican citizenship. Until relatively recently, members were allowed to cross the border (within the Reservation) with ease, regardless of their nationality. In the mid-1980s, however, the federal government erected a fence along the border to stem the tide of drug smugglers that were taking advantage of the Reservation's location, and border-crossing by members continues to be a difficult issue for authorities patrolling the border on the Reservation. Impact of Illegal Migration on Federal Protected Land153 Five federal agencies oversee federally protected land that either sits on the border or is adjacent to the border. Because the areas are remote and isolated from more populated areas and are in close proximity to the international border, they have become a popular route for illegal migration and smuggling operations. Of concern is the volume of illegal migrants who cross federal land and contribute to the environmental damage of the land and place themselves at risk. In addition to the migrants who cross the land, of equal concern is the border patrol's use of the land to conduct its operations. While a vast portion of the land in question is located in southeast Arizona and represents only 8% of the entire U.S.-Mexico border, the impact to the land caused by the migrants is significant. In an effort to address these concerns, the USBP entered into a Memorandum of Understanding (MOU) on March 20, 2001 with the Natural Resources Conservation Service and the Environmental Protection Agency. The purpose of the MOU is threefold: provide general procedures for the border patrol's use of public land to conduct its routine operations of search and rescue, training, and apprehensions of undocumented aliens, while protecting the public's right to use public land; develop and implement a plan to mitigate environmental degradation caused by undocumented aliens crossing federal lands in Arizona and New Mexico; provide and encourage opportunities for all parties to operate more effectively and achieve their missions. In addition to the MOU, a plan was implemented by the Department of the Interior to mitigate the environmental and other impacts caused by the migrants. Despite these initiatives, a report by the Government Accountability Office (GAO) concluded that coordination between federal agencies appears to be insufficient. Interior Enforcement The Bureau of Immigration and Custom Enforcement's (ICE) is the investigative arm of DHS. ICE is charged with immigration and customs-related investigations in the interior of the country, which includes enforcing policy initiatives aimed at apprehending and deporting foreign nationals who are not authorized to be in the United States as well as interdicting illegal substances and contraband that was brought into the United States from another country. The activities of ICE are an extension of the activities that are conducted at and between ports of entry. ICE has 22 field offices that are located throughout the country, with seven located in the southwest. In addition to the immigration and customs-related investigative activities, ICE also contains the former INS detention and removal program, the Federal Air Marshal Service and the Federal Protective Service. This section discusses selected ICE investigative activities, including its initiative to thwart terrorist activities and other illegal acts. Other investigative activities such as countering human and drug smuggling are also discussed as well as ICE's detention and removal function. ICE Investigations ICE investigates various immigration, customs and criminal-related matters. ICE's immigration-related investigations include investigating aliens who violate the INA and other related laws. Prior to September 11, 2001, the main categories of crimes that were investigated by immigration and customs investigators included the following suspected activities: activities that could threaten national security; criminal acts; fraudulent activities (i.e., possessing or manufacturing fraudulent immigration documents); smuggling of aliens and illegal substances; work-site violations, most frequently involving aliens who work without permission and employers who knowingly hire illegal aliens; money laundering and other suspected financial crimes; and cyber crimes. While the terrorist attacks prompted DHS to reassign many investigators to work on terrorism-related investigations, the traditional investigative categories continue to be a focus of ICE. Arizona Border Control (ABC) Initiative The ABC Initiative, unveiled on March 16, 2004, is a DHS initiative involving local, state, and federal law enforcement officials in Arizona aimed at detecting and deterring terrorist activity and smuggling operations. Several agencies coordinate efforts and resources as part of the ABC, including ICE, CBP, and the Transportation Security Administration, as well as the Department of the Interior, the Tohono O'Odham Nation, the U.S. Attorney's Office, and other law enforcement agencies. In order to execute the mission, 200 additional permanent border patrol agents and 60 special operations agents trained for search and rescue operations were assigned to the Tucson sector over the summer of 2004, raising the number of agents assigned there to over 2,000. Additionally, two Unmanned Aerial Vehicles (UAV) and four additional helicopters were deployed to the Arizona border. While ABC is an administrative initiative, Congress has expressed strong support for the initiative through the appropriations process. According to ICE, in the first six months of the ABC, apprehension of unauthorized aliens increased 56% from apprehensions during the same period of the previous year. From March 16, 2004 to September 7, 2004, 351,700 unauthorized aliens were apprehended compared to 225,108 unauthorized aliens during the same period in 2003. ABC agents uncovered 225 drop houses both on the border and in the cities of Phoenix and Tucson, and initiated investigations which led to the prosecution of 1,431 felony and 2,955 misdemeanor cases, an increase of 47 and 144% respectively over FY2003. Also as part of the ABC initiative, in FY2004, agents confiscated over 388,000 pounds of marijuana, a 105% increase over FY2003, and 5,242 pounds of cocaine. The data show that the ABC initiative has yielded results on the enforcement side, with increases in the number of aliens apprehended and drugs confiscated, as well as felony and misdemeanor prosecutions initiated. However, despite the deployment of 60 additional BORSTAR agents to the region migrant deaths increased by 7% in FY2004 from 132 in FY2003 to 141. Human Smuggling Most alien smuggling into the United States reportedly occurs along the U.S.-Mexico border. Mexico is a staging area for aliens from Mexico and other parts of the world to attempt to illegally enter the United States. According to DHS, alien smuggling of persons into the United States constitutes a significant risk to national security and public safety. In addition, smuggling pipelines which are used by unauthorized aliens and criminals seeking to enter the United States could also be used by terrorists. It is estimated that the international alien smuggling and sex trafficking trade generates $9.5 billion for criminal organizations worldwide, and the profits are used to finance additional criminal enterprises, such as the trafficking of drugs, weapons, other contraband or even terrorist acts. Nonetheless, it is not known how many people are smuggled into the United States in a year. As the border patrol makes it more difficult for smugglers to cross at one point along the border, the smugglers move their operations elsewhere. The success of Operation Gatekeeper in San Diego and Operation Hold the Line in El Paso, have been cited as one of the causes for the increase in smuggling in the Arizona corridor. In addition, smuggling organizations are attracted to the Arizona corridor due to the following: (1) the terrain is challenging for law enforcement; (2) the area is a major transportation hub with a highly developed highway system and an international airport for getting into the interior quickly and easily; (3) the corridor has an extensive staging area comprised of homes, hotels and apartments; and (4) the area has a robust financial services infrastructure. Often alien smuggling can lead to collateral crimes including kidnaping, homicide, assault, rape, robbery, auto theft, high speed flight, identity theft, and the manufacturing and distribution of fraudulent documents. For example, smugglers may hold an alien hostage to extort a ransom from the alien's family. In addition, smugglers often establish "safe houses" (also called "drop houses") where aliens are kept until they can be moved into the interior of the United States. The often squalid conditions of these "safe houses" endanger the lives of the aliens and creates health and safety issues for people living in the community. Also, some have noted an increase in motor vehicle casualties due to the unsafe condition of vehicles used by smugglers. (Often smugglers rig the vehicles to hide as many aliens as possible, often making the vehicle unsafe to operate.) Furthermore, a proportion of border deaths is tied to smuggling, as some smugglers mislead their charges about how far it is to the United States, and how much water is needed to make the journey. Drug/Contraband Smuggling For several decades, the federal government and Congress have created and legislated initiatives as well as dedicated resources to tackle the illicit drug trade. The illicit drug trade is a billion-dollar business that often involves the perpetration of violent crimes. Although not a new concern, the potential for terrorists to exploit the illicit drug market as a means to facilitate their cause has received heightened attention since the 2001 terrorist attacks. Because Mexico is a major corridor for the transport of illicit drugs to the United States, several initiatives are specific to the southwest border region, as discussed below. DHS' anti-drug trafficking efforts are directed at and along the border in addition to efforts that are carried out in the interior by ICE agents. According to DHS, more than 56,321 drug seizures were made at and between POEs in FY2004, which totaled to over two million pounds of illicit drugs estimated to be worth over two billion dollars. While the majority of seizures take place at POEs, larger quantities of illicit drugs are seized by the border patrol between POEs as well as by ICE agents in the interior. At the southwest border, 15,526 drug seizures were made at and between POEs in FY2004, which totaled to over 1.9 million pounds of illicit drugs. DHS Anti-Smuggling/Trafficking Strategy For many years, the former INS (and now ICE) has worked to identify and dismantle large scale transnational smuggling organizations and have done so in collaboration with other law enforcement agencies, both foreign and domestic. ICE places a significant emphasis on targeting alien smuggling organizations that pose a threat to national security, recognizing the possibility that terrorists could align themselves with alien smuggling networks to obtain undetected entry into the United States. ICE Storm To counter some of the crime related to alien smuggling, DHS created Operation ICE Storm, a multi-agency initiative led by ICE's Office of Investigations which aims to dismantle the finances of violent smuggling organizations responsible for transporting illegal aliens into the United States along the southwest border. Specifically, ICE Storm seeks to eliminate violent crime in Phoenix, Arizona caused by organizations, which smuggle unauthorized migrants across the U.S.-Mexico border. Reportedly, 50 agents from ICE have been assigned to Phoenix as part of ICE Storm. During the first quarter of ICE Storm the Phoenix Police Department reported 30 fewer homicides than the previous quarter. As of March 3, 2004, ICE Storm had resulted in more than 1,526 criminal and administrative arrests. In addition, as of May 18, 2004 ICE Storm had resulted in the prosecution of more than 190 defendants for human smuggling, kidnaping, money-laundering, and weapons and drug violations, the seizure of over 100 weapons and over $5.2 million. ICE Storm became a component of the ABC on March 16, 2004. Department of Justice Efforts The Department of Justice (DOJ) has a presence in the southwest, particularly due to the long-standing problem of drug trafficking across the border. Several task forces led by DOJ agencies that are aimed at stemming the flow of illegal substances across the border are discussed below. Organized Crime Drug Enforcement Task Force (OCDETF)180 The OCDETF program was created during President Reagan's Administration in 1982 to pursue major drug trafficking organizations. The OCDETF is a collaborative effort among several DOJ agencies, the Internal Revenue Service, ICE and the U.S. Coast Guard. OCDETF also utilizes the support of state and local law enforcement agencies. According to the President's 2006 budget proposal, the OCDETF program faces several internal challenges. For example, due to the composition of OCDETF (several agencies within and outside of DOJ comprise OCDETF), "each member agency has mandated its own priorities for carrying out its part of the fight against illegal drugs." As a result, OCDETF lacks a single mission. Another concern that is somewhat related to the aforementioned issue is the need for a consolidated budget. Agencies within DOJ as well as DHS' ICE and the Department of the Treasury's Internal Revenue Service all receive appropriations for OCDETF-related activities. The Administration contends that a consolidated budget is "critical to OCDETF's ability to effectively manage the program, to ensure proper use of OCDETF resources and to monitor performance." In FY2004 and FY2005, Congress consolidated all of OCDETF's appropriations into a single appropriation. The congressional committee that has jurisdiction over OCDETF expressed concern with respect to funding DHS and the Department of the Treasury OCDETF-related activities. Both of these issues raise questions about management and control of OCDETF funds and resources as well as the identification and coordination of program priorities. This issue will probably continue to be a target of congressional oversight. Southwest Border Prosecution Initiative (SWBPI) The SWBPI funds local prosecution offices in the four southwest border states for the prosecution of selected drug cases. The program also funds the pre-trial detention costs for selected cases. SWBPI supports the enforcement of both federal and state laws through coordination in enforcing and prosecuting foreign nationals and citizens involved in border criminal enterprises. A similar program, the Southwest Border Initiative (SWBI), was initiated in 1994 and is a cooperative effort among several divisions and agencies within DOJ and DHS. SWBI specifically targets Mexican trafficking organizations that operate along the southwest border. High Intensity Drug Trafficking Area (HIDTA)188 The HIDTA program was established by the Anti-Drug Abuse Act of 1988. The Office of National Drug Control Policy (ONDCP) designates areas within the United States that are known to have problems with drug trafficking. The HIDTA program develops partnerships among federal, state and local law enforcement agencies and coordinates drug control efforts among the partnering agencies. The HIDTA program provides federal resources to the identified areas to assist with eliminating drug trafficking. There are HIDTA sites in southern California, Arizona, New Mexico, and west and south Texas, collectively referred to as the Southwest Border HIDTA. The HIDTA program was faced with similar challenges to those of the OCDETF. The President's FY2006 budget, however, proposes to move HIDTA to DOJ (from the ONDCP), in an effort to better enable law enforcement to target the drug trade. Detention and Removal ICE's responsibilities under the detention and removal activity include overseeing the custody of aliens who are detained and facilitating their release or deportation. The INA requires the detention of several classes of aliens, including those who are inadmissible or deportable on criminal, terrorist, or national security grounds; those who have arrived in the United States without proper documents and have requested asylum (pending a determination of their asylum claims); and those who have final orders of deportation. ICE measures its successes in terms of how many aliens are located and removed. Following is an analysis of ICE's activities of locating and removing aliens. While the border patrol apprehends more deportable aliens than ICE investigations, ICE apprehends a sizeable number of aliens. ICE has a combined total of 5,500 interior investigators, compared to over 9,500 Border Patrol agents. ICE's investigators are stationed throughout the United States, compared to border patrol agents who are located at the border with the majority at the southwest border. In FY2000, ICE located a total of 138,291 aliens, of which 57,131 (or 41%) were located in southwest jurisdictions (see Figure ). By FY2003, the number of aliens that were located by ICE decreased slightly, by 1%. Throughout the years examined (FY2001 to FY2003), ICE units in the southwest led all ICE units in locating deportable aliens. In FY2004, ICE removed a total of 160,284 aliens, of which 84,433 (or 53%) were criminal aliens and 75,851 (or 47%) were non-criminal aliens. Of the total number of aliens ICE removed in FY2003, 72% were removed by one of its units in the southwest (see Figure 8 ). As is the case with the border patrol's apprehension numbers, the majority of foreign nationals who are removed by ICE are Mexican nationals. For FY2001 to FY2003, over 90% of aliens removed were from Mexico. In FY2001, ICE expelled over one million aliens, of which 91% were removed by one of ICE's southwest units (see Figure 8 ). In FY2002, the number of aliens expelled by ICE dropped by nearly 50% as a result of greater targeting on terrorism issues. In FY2003, however, the number of aliens expelled by ICE increased by 52% from FY2002. Throughout the years examined, ICE units in the southwest led all others with aliens removals. Selected ICE Issues Some of the major issues facing ICE stem from the growing number of illegal aliens present in the United States. While the issues discussed below are not specifically unique to the southwest border region, the southwest border receives a great deal of attention due to the sheer number of illegal migrants that cross it every day and because some of the border communities in the southwest have a large percentage of foreign nationals. Because of this distinction, issues facing ICE (as well as CBP) are usually focused in the southwest. ICE Resources Since 1996, Congress has authorized and appropriated funding to increase the number of immigration investigators; and due to the 9/11 terrorist attacks, Congress has specifically authorized increases in the number of ICE investigators. Despite congressional action directed at increasing the number of interior investigators, since the merger of the former INS' interior enforcement activities with those of the U.S. Customs Service, the number of interior investigators has remained approximately the same. Customs Patrol Agents (Shadow Wolves) As discussed previously, in 1972, the U.S. Customs Service created a specialized investigative unit to patrol the portion of the international border that runs through the Tohono O'odham Indian Reservation. The Customs Patrol Agents (Shadow Wolves) unit is comprised solely of Native Americans who are registered with an official Indian tribe. The primary mission of the unit was to investigate drug smuggling operations on the reservation and interdict illegal substances. In 2003, however, DHS merged the Shadow Wolves with the border patrol and changed their mission (they were previously a part of ICE). The group is now primarily responsible for interdicting illegal migrants who cross the border on the reservation. During a three-year period (2002-2004), the Shadow Wolves seized an average of 75,443 pounds of marijuana. Since the merger of the Shadow Wolves with the border patrol, the only investigative presence on the reservation is ICE. ICE currently has one field office located in Sells, Arizona, which is on the reservation. Previously, there was an additional ICE field office within close proximity to the reservation located in Ajo, Arizona; that office has since been closed. Of concern is the potential for terrorists to exploit the porous southwest border. The portions of the border that are on the reservation pose a security risk, as evident in the amount of drug trafficking taking place on the reservation. Congress faces the question of whether there are sufficient resources on the reservation to combat drug trafficking. The House has already considered this issue in the Department of Homeland Security Authorization Act for FY2006 ( H.R. 1817 ), passed on May 18, 2005. An amendment to H.R. 1817 was adopted by the House during the floor debate of the bill. In essence, the amendment would transfer the Shadow Wolves back to ICE. State and Local Law Enforcement198 Increasingly, the enforcement of U.S. immigration law is being played out in the interior of the country. Nowhere is this more evident than at the southwest border, particularly in Arizona. While the border patrol's primary responsibility is to prevent illegal people and things from crossing the border between ports of entry, its authority is limited with respect to its geographical boundaries. Moreover, DHS has a limited number of interior investigators who are charged with enforcing immigration, customs and other federal law within the interior of the country, compared to over 600,000 state and local law enforcement officers. In an effort to carry out the country's anti-terrorism mission and strengthen the interior enforcement of immigration law, DHS has entered into agreements (Memoranda of Understanding) with several localities that include the deputizing of local law enforcement officers to assist the federal government with enforcing certain aspects of immigration law. The policy, however, faces a divided reception. Memoranda of Understanding As mentioned above, IIRIRA amended the INA by authorizing the Attorney General to enter into written agreements with states or political subdivisions of a state so that qualified officers could perform specified immigration-related duties. This authority was given new urgency following the terrorist attacks in September 2001. In 2002, the Attorney General proposed an initiative to enter into such agreements in an effort to carry out the country's antiterrorism mission. Under the agreement, state and local law enforcement officers could be deputized to assist the federal government with enforcing certain aspects of immigration law. To date, Florida, Alabama, and the Los Angeles County Sheriff's Department have entered into such an agreement. Moreover, some jurisdictions located in the southwest are either considering utilizing their law enforcement officers in a similar manner or are in discussions with federal authorities to enter into such an agreement. Proponents of these agreements argue that the initiative assists DHS to enforce the immigration law deeper into the interior of the United States. They contend that state and local law enforcement agencies bring additional resources to assist the federal government with enforcing immigration law. Also, they assert that the initiative would make it easier to arrest more potential terrorists and foreign-born criminals, thus providing an elevated level of security for the nation. Opponents, on the other hand, argue that these agreements undermine the relationship between local law enforcement agencies and the communities they serve. For example, potential witnesses and victims of crime who are immigrants and may be illegally present in the United States may be reluctant to come forward to report crimes in fear of immigration action that might be taken against them by DHS. They contend that the initiative could result in the reduction of local law enforcement resources as well as the inconsistent application of immigration law across jurisdictions. The issue of using state and local law enforcement to enforce immigration law remains a controversial subject. Legislation has already been introduced in the 109 th Congress that would define the proper role of state and local law enforcement officials in enforcing immigration law. Detention Bed Space207 The Immigration and Nationality Act gives the Secretary of Homeland Security the authority to issue a warrant to arrest and detain any alien in the United States while awaiting a determination of whether the alien should be removed from the country. While the majority of aliens that are detained by DHS have committed a crime, have served their criminal sentence and are detained while undergoing their deportation proceedings, other aliens are detained due to attempting to fraudulently enter the United States or attempting to enter the country without proper documentation. The sheer number of aliens that are detained or who are eligible to be detained has posed a problem for DHS officials. The apparent shortage of bed space, which results in many illegal migrants being released into the interior of the country, has increasingly concerned lawmakers. In FY2003, there were 231,500 aliens detained, of which nearly 50% were criminal aliens. The majority of aliens detained tend to be Mexican nationals, which accounted for 52% of the detention population in FY2003. While officials at DHS have asserted that they lack detention space, they have also asserted that those aliens who should be detained are, in fact, detained. Critics, on the other hand, contend that the increase in the number of classes of aliens subject to mandatory detention has impacted the availability of detention space for lower priority detainees. There are reportedly 300,000 noncitizens in the United States who have been ordered deported and have not left the country. Some argue that these 300,000 people would have left the country if they had been detained once they were ordered deported. A study done by DOJ's Inspector General found that almost 94% of those detained with final orders of removal were deported while only 11% of those not detained who were issued final orders of removals actually left the country. Concerns have been raised that the decisions on which aliens to release and when to release them may be based on the amount of detention space, not on the merits of individual cases, and that the amount of space may vary by area of the country leading to inequities and disparate policies in different geographic areas. Selected Crosscutting Issues While each of the areas above have presented specific policy issues, there are other issues that transcend subject area and apply to the entirety of border security on the southwest border. Systems Integration and Interoperability The Enhanced Border Security and Visa Entry Reform Act of 2002 mandated the integration of immigration databases. In addition to integrating data systems that contain federal law enforcement and intelligence information relevant to making decisions on visa admissibility and the removal of aliens, the act also mandated that immigration databases be integrated with other relevant data systems. CBP officials use several data systems and databases that assist them with identifying aliens who are potentially inadmissible under the INA or otherwise may pose a threat to the country. CBP officials also utilize several data systems and databases with respect to identifying high-risk commercial goods that warrant further inspection or review. ICE officials also query several different data systems and databases in the course of their duties. Of concern are the numerous data systems and databases that are not integrated or not readily accessible. Recently enacted legislation called for the integration of most of these databases and data systems; and the 9/11 Commission also called for similar integration. Several questions are raised when assessing the integration of various data systems and databases: What are the potential difficulties with integrating the various data systems and databases and how can these difficulties be reduced? Who should have access to the integrated data system and what is the appropriate level of access? How will the privacy of information contained in the integrated data system be safeguarded? Technology and Staffing Much of the area along the southwest border lacks direct surveillance by border patrol personnel. Recognizing the vulnerabilities posed on the southwest border, starting in 1994, Congress authorized several increases in the number of border patrol agents as well as appropriated funding to enhance technology deployed at the border. Since the terrorist attacks, both the border patrol and inspectors saw a boost in their resources. Despite the concentration of funding and resources at the border, critics contend that more should be done. For example, concerns about the lack of personnel at the border were expressed in a January 2003 Government Accountability Office (GAO) report. GAO noted that the former INS would need additional staffing and resources in order to gain control of the southwest border. According to the border patrol, a needs assessment was conducted and it was determined that 22,000 border patrol agents were needed to secure the border, which would increase the border patrol twofold. Regarding the staffing of the customs functions of CBP, in 1998 the former Customs Service commissioned PricewaterhouseCoopers to develop a resource allocation model (RAM) to determine the most effective deployment of its inspectors and canine enforcement officers at more than 300 international ports of entry. The RAM report concluded that in order to meet its multifaceted mission in FY2002, Customs staffing needed to be increased by 14,776 positions over the FY1998 base (19,428), to bring the total Customs staffing to 34,204 positions. The largest increase would be in the inspector (6,481), special agent (2,041) and canine enforcement officer (650) positions. While GAO testified in April 2000 that it found some weaknesses (data reliability issues) with the RAM study, it remains the most comprehensive staffing analysis to date. Since the inspections function of the U.S. Customs Service was merged with the immigration inspections function from the former INS, it is not known what the appropriate staffing level should be for the various missions under CBP. As Congress continues to exercise its oversight role, the issue of staffing and resources may continue to be of interest. An option includes requiring that a study be conducted to examine the proper staffing level and amount and type of resources necessary to secure the border. Port of Entry Infrastructure The adequacy of infrastructure at ports of entry has been a long-standing concern. The Data Management Improvement Act (DMIA) Task Force examined infrastructure at land ports of entry in 2002 and 2003 as a part of its report to Congress on the entry and exit data system. The DMIA Task Force asserted in its report that "resources to expand and improve the infrastructure to support growth in workload and staffing have not kept pace, creating infrastructure weaknesses." In 2003, the DMIA Task Force reported the following with respect to the federal inspections area at land ports of entry: 64 ports have less than 25% of required space; 40 ports have between 25 and 50% of required space; and 13 ports have between 50 and 75% of the space required. Improving the infrastructure at land ports of entry, however, may prove to be challenging. For example, the majority of facilities at the nation's land border have limited space. In most cases, the federal government cannot immediately expand existing facilities due to the adjacent land being owned by other entities. In addition to the spatial limitations, the federal government faces environmental challenges when it seeks to expand port infrastructure. According to the DMIA Task Force, "the U.S. Environmental Protection Agency environmental impact and review processes can make build-out lengthy, expensive, and burdensome." Other issues such as insufficient roadways and lack of coordination among the various agencies that have a stake in the process also hamper efforts to expand port infrastructure. Finally, as resources become more scarce, CBP officials in charge of infrastructure projects at the northern and southwest border may find themselves competing for resources. Past Congresses exercised an oversight role by requiring studies on port infrastructure. The 109 th Congress may choose to follow-up on these studies. Repatriation The repatriation of some Mexican nationals has been a long-standing practice, dating back to the former INS. In the first part of the 20 th century, there was an active campaign to repatriate Mexican nationals who illegally entered the United States. Typically, U.S. immigration officials would turn back qualified Mexican nationals to the Mexican side of the border. More recently, however, DHS has piloted two different types of repatriation programs, both aimed at making it more difficult for the illegal alien to return to the United States. (See discussion below.) Lateral Repatriation In an attempt to discourage unauthorized migrants from attempting to re-cross the border when they are returned to Mexico, in September 2003 the border patrol instituted a pilot program that airlifted aliens from the Arizona border to Texas. The border patrol originally had attempted to reach an agreement with Mexico to repatriate aliens to the interior of the country, but when the Mexican government declined to participate, the agency instead began to involuntarily repatriate aliens laterally from Arizona to Texas. The Texas border poses a challenge for would-be border crossers due to the Rio Grande river and the number of border patrol agents stationed along it. The border patrol chartered two airplanes in Tucson for the pilot program, with an overall cost of $1.3 million. The lateral repatriation program ran for 24 days in September of 2003 and repatriated over 6,200 unauthorized migrants apprehended in Arizona to four cities along the Texas border: El Paso, Del Rio, Laredo, and McAllen. According to CBP, the pilot program led to an 18% decline in apprehensions in the Tucson sector and led to only one migrant death during the period, compared with 10 migrant deaths during the same period in 2002. Proponents of the program point to the reduction in apprehensions and the low incidence of migrant deaths in Arizona during its operation as proof that the lateral repatriation program is an effective way to discourage unauthorized aliens from immediately attempting to re-enter the country while simultaneously saving lives. The Mexican government objected to the program, claiming that the cities on the Mexican side of the border in Texas were not equipped to handle the influx of returnees. Additionally, some U.S. lawmakers held that the program wasted taxpayer dollars because it did not solve the problem of unauthorized migration but instead shifted Arizona's problem to Texas. Reportedly, CBP is no longer conducting lateral repatriations. Interior Repatriation In 1996, Congress authorized the INS to create an interior repatriation program to return apprehended unauthorized Mexican aliens to the interior of their country. Eight years later, on June 9, 2004, the White House announced it had reached agreement with the Mexican government to begin implementing the interior repatriation program. This agreement grew out of the previously mentioned lateral repatriation program, which was unpopular in Mexico and featured the involuntary repatriation of Mexicans apprehended along the Arizona border to the Texas border. The interior repatriation program is a departure from the current practice of returning aliens to the Mexican side of the border, and is aimed at reducing the number of aliens who immediately try to cross back into the United States. Due to constitutional constraints in Mexico, the apprehended aliens' return to the interior must be voluntary and the willingness of their participation will be certified by Mexican consular officers. During the pilot phase of the program, which ran through September 2004, 14,058 aliens were repatriated at a cost of approximately $15.4 million. It remains to be seen whether this program will reduce the recidivism rate of the illegal aliens returned to Mexico. DHS has requested $39 million to fund this program in FY2006 within the ICE appropriation. ICE's Role in Repatriation As discussed above, the border patrol has the authority to repatriate certain Mexican nationals. In its classic form, repatriation was usually done by the border patrol by simply turning the Mexican national back to the Mexican side of the border. With the implementation of both the lateral and interior repatriation programs, resources were drawn from ICE. Unlike CBP, ICE has the resources to detain illegal aliens until they can be repatriated to Mexico. Moreover, because ICE already has a removal program in place, it also has the resources to transport illegal aliens to their home countries. Organizational Issues Recent concerns have emerged over the apparent organizational issues in at least one of DHS' agencies. In recent months, ICE has been faced with a budget shortfall and reports of low morale and persisting conflicts over territory. Similar issues that are now facing ICE were evident in at least one of the legacy agencies that was transferred to ICE. The former INS was heavily criticized for not fully enforcing the immigration law, having poor management practices, and lacking accountability, among other things. In addition to the organizational concerns, questions continue to be raised with respect to the activities of CBP and ICE. While a clear distinction can be made regarding the border functions of CBP and the interior functions of ICE, both functions represent a continuum of activities that are interrelated. Certainly questions have been raised pertaining to the feasibility of combining these two functions. Several proposals to restructure ICE and CBP have been advanced and include creating a new agency that would contain the immigration enforcement functions; and consolidating ICE and CBP into one bureau. Critics of the status quo contend that by consolidating CBP and ICE, coordination and sharing of efforts between the two bureaus would be better facilitated. Moreover, the ease of obtaining information from the counterpart bureau would be strengthened. These organizational concerns impact the southwest border. For example, CBP and ICE are dependent upon each other to carry out the various initiatives that are unique to the southwest border (e.g., the ABC initiative and the interior and lateral repatriation programs). As Congress considers the challenges facing ICE and CBP and whether another reorganization is necessary, it is faced with the issue of whether a reorganization would improve some of the bureau's inherited longstanding systemic issues, or whether it would mean further unsettling of agencies that are still struggling to obtain stability. Overall Effectiveness of Current Policies In the past, concerns pertaining to the southwest border centered on the flow of illegal drugs and contraband being smuggled into the country. While illegal migration has always been an issue at the southwest border, concerns heightened after the September 2001 terrorist attacks due to the potential of terrorists exploiting the border. The concern regarding the possibility of terrorists exploiting the southwest border is noteworthy. However, the data suggest that the vast majority of illegal migrants apprehended at the southwest border are Mexican nationals who are either seeking employment in the United States or reunification with their families. Congress and the nation have begun a debate on whether current immigration policy is effective in stemming the flow of illegal migration to the United States. Several themes emerge in the discussion. Some believe that the best way to address the flow of illegal migration at the southwest border is to change immigration policy to allow more illegal aliens present in the United States to attain legal status. Proponents of this view contend that the majority of illegal aliens who enter the country do so to work. For several years, legislation has been introduced that would provide a legal alternative for prospective foreign workers. Supporters argue that such an alternative would help reduce unauthorized migration. Moreover, some employers are eager to have low-cost labor. Critics, however, contend that such a program would likely exacerbate the problem of illegal migration and point to the growth in unauthorized migration following the Immigration Reform and Control Act of 1986 that legalized illegal aliens and reformed the guest worker program. Regardless of where one stands on the issue, there appears to be a consensus that immigration interior enforcement, including worksite enforcement, should be an integral part of the policy. Prior to the 2001 terrorist attacks, immigration interior enforcement received under 30% of the former-INS resources. Since the terrorist attacks, ICE's resources have increased, partly due to the counterterrorism emphasis and the consolidation of other agencies such as the U.S. Customs Service. Another critical piece to stemming the flow of illegal migration to the United States is the Mexican economy, especially in the "sending regions" of the country. Several studies have shown that the majority of the illegal migrants from Mexico come from several economically deprived regions of the country. While the United States has entered into partnerships with Mexico to strengthen their economic growth (see above discussion on U.S.-Mexico Relations), many believe that more needs to be done to stabilize these communities. While the discussion in this section and throughout the report has focused on the problems at the southwest border, it is important to note that the same types of issues do not exist at the northern border, primarily due to Canada and the United States not having the same "push-pull" factors because of the economies being somewhat equivalent. In conclusion, as the number of illegal aliens that are present in the United States continues to grow, attention will likely continue to be directed at the border and the enforcement of immigration laws within the interior of the country. DHS has launched several initiatives aimed at apprehending illegal aliens and dismantling human and drug smuggling organizations. Despite these efforts, the flow of illegal migration continues. Issues such as enforcement of immigration laws and organizational issues such as inter- and intra-agency cooperation, coordination and information sharing continue to be debated. In the view of some, a more comprehensive approach that addresses the "push factors" of the sending countries and the "pull factors" of the United States, coupled with more effective enforcement of current laws in the interior of the country may once again merit examination. Appendix. Legislation Affecting the Southwest Border Since 1993, Congress has passed legislation that authorized and appropriated funding to increase border personnel at and along the southwest border. Congress has also passed legislation that was aimed at strengthening resources and technology at the southwest border. Following is a discussion of legislation that has been enacted into law since 1993. 103 rd Congress The Violent Crime Control and Law Enforcement Act of 1994 Title XIII, §13006 of the Violent Crime Control and Law Enforcement Act of 1994 ( P.L. 103-322 ) authorized appropriations for FY1995-FY1998 to increase the resources for the then-Immigration and Naturalization Service's (INS) border patrol, inspections and deportation programs with respect to apprehending illegal aliens. The act also authorized appropriations to increase the number of border patrol agents up to1,000 for FY1995-FY1998. 104 th Congress The Illegal Immigration Reform and Immigrant Responsibility Act of 1996 (IIRIRA) Congress began addressing the need for greater border security in the 104 th Congress when it passed the Illegal Immigration Reform and Immigrant Responsibility Act of 1996 (IIRIRA). IIRIRA's border security provisions were concentrated at the southwest border and increased border enforcement by authorizing the hiring of 1,000 new border patrol agents each year for FY1997 through FY2001. The act called for the deployment of additional border patrol agents to areas that were in proportion to the level of illegal crossings. The act also authorized an increase in border patrol support personnel by 300 a year for FY1997 through FY2001. IIRIRA sought to facilitate legitimate travel to the United States by addressing the long delays at the ports of entry by authorizing the hiring of inspectors to a level adequate to assure full staffing during peak crossing hours for FY1997 and FY1998. The act also authorized the Attorney General to establish six inspection projects wherein a fee could be charged. Under the act, the projects could be dedicated commuter lanes at ports of entry that would facilitate the speedy passage of frequent border crossers. In an effort to stem illegal immigration, IIRIRA authorized the expansion of border barriers and authorized the Attorney General to acquire and use any federal equipment that was available for transfer in order to detect, interdict and reduce illegal immigration into the United States. It also authorized appropriations to expand the Automated Biometric Fingerprint Identification System (commonly referred to as IDENT) nationwide to include the fingerprints of illegal or criminal aliens who were apprehended. IIRIRA also had a provision that for the first time required biometrics in one type of travel document. The act required the Secretary of State to issue border crossing cards that have a biometric identifier that is machine readable. The act required that the biometric identifier must match the biometric characteristic of the card holder in order for the alien to enter the United States. Automated Entry and Exit Data System (US-VISIT) Section 110 of IIRIRA required the Attorney General to develop an automated data system to record the entry and exit of every alien arriving in and departing from the United States by September 30, 1998. Many expressed concern about the potential for such a system to cause long delays at ports of entry. Consequently, Congress amended §110 of IIRIRA in the FY1999 Omnibus Consolidated Appropriations Act ( P.L. 105-277 ) by extending the deadline for the implementation of an automated entry and exit data system and by prohibiting significant disruption of trade, tourism, or other legitimate cross-border traffic once the data system was in place. In June 2000, Congress further amended §110 in the INS Data Management and Improvement Act of 2000 ( P.L. 106-215 ) by delaying the immediate implementation of the automated entry and exit data system at all ports of entry and requiring the development of a data system that uses available data to record alien arrivals and departures, without establishing additional documentary requirements. Following the September 11, 2001 terrorist attacks, however, Congress requested that resources be directed to the immediate development and implementation of an automated entry and exit control system at all ports of entry, as discussed below. 107 th Congress In direct response to the September 11 attacks, Congress passed several pieces of legislation that impacted border security, including border security at the southwest border. The USA PATRIOT Act The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act; P.L. 107-56 ) called for the immediate implementation of the integrated entry and exit data system and that it be interoperable with other law enforcement data systems. The act required the Attorney General and the Secretary of State to develop and certify a technology standard that can be used to verify the identity of persons seeking a visa to enter the United States. Both of these mandates (implementation of an integrated entry and exit data system and the requirement that travel documents contain a biometric identifier) have direct implications for most foreign nationals seeking entry to the United States at a southwest land port of entry. The Enhanced Border Security and Visa Entry Reform Act of 2002 The Enhanced Border Security and Visa Entry Reform Act of 2002 ( P.L. 107-173 ) further required the Attorney General (now the Secretary of Homeland Security) to implement an integrated entry and exit data system. The act required biometric data readers and scanners at all ports of entry and extended the deadline for border crossing identification cards (Laser Visas) to contain a biometric identifier that matches the biometric characteristic of the card holder. The act also authorized an increase in the number of immigration inspectors and support staff by 200 per group for each fiscal year from FY2002 through FY2006. 108 th Congress The Intelligence Reform and Terrorism Prevention Act of 2004 In an effort to implement selected 9/11 Commission recommendations, Congress passed the Intelligence Reform and Terrorism Prevention Act of 2004 ( P.L. 108-458 ). The act calls for the Secretary of DHS to develop a plan to accelerate the full implementation of an automated biometric entry and exit data system and submit a report to Congress on the plan by July 17, 2005. The act requires the integration of the entry and exit data system with other databases and data systems. It also requires the Secretary of DHS to develop and implement a plan to expedite the processing of registered travelers through a single registered traveler program that can be integrated into the broader automated biometric entry and exit data system. With respect to resources, the act authorizes 2,000 additional border patrol agents each year, FY2006 through FY2010. 109 th Congress The REAL ID Act of 2005 ( P.L. 109-13 ) The REAL ID Act of 2005 ( P.L. 109-13 ) contains several provisions that would have an impact on border security-related issues at the southwest border. In addition to its more general immigration-related border security provisions, the act contains two provisions that are specific to the southwest border. Title III of the act directs the Under Secretary of Homeland Security for Border and Transportation Security to conduct a study on "the technology, equipment, and personnel needed to address security vulnerabilities ... for each CBP field office that has responsibility for U.S. borders with Canada and Mexico." Another provision would permit the Secretary of Homeland Security to waive " all laws as necessary" to expedite the construction of barriers and roads along the border. The impetus for this provision is the construction of a fence in the San Diego Sector of the southwest border that has been delayed due to legal issues that have been advanced by the State of California.

Border security has emerged as an area of public concern, particularly after the September 11, 2001 terrorist attacks. Although recent public concerns pertaining to border security may be attributed to the threat of potential terrorists coming into the country, past concerns that centered around drug and human smuggling and the illegal entry of migrants remain important issues. As Congress passes legislation to enhance border security (e.g., P.L. 109-13) and the Administration puts into place procedures to tighten border enforcement, concerns over terrorists exploiting the porous southwest border continue to grow. The U.S. border with Mexico is some 2,000 miles long, with more than 800,000 people arriving from Mexico daily and more than 4 million commercial crossings annually. The United States and Mexico are linked together in various ways, including through trade, investment, migration, tourism, environment, and familial relationships. Mexico is the second most important trading partner of the United States and this trade is critical to many U.S. industries and border communities. In an effort to facilitate the legitimate flow of travel and trade, the governments of the United States and Mexico signed the U.S.-Mexico Border Partnership agreement. The agreement was accompanied by a 22-point action plan that included several immigration and customs-related border security items. While the northern and southwest borders share common issues, the southwest border has issues that are unique. For example, the US-VISIT program was reportedly implemented at selected southwest land ports of entry. Concerns about Mexican nationals who have Mexican border crossing cards being excluded from the requirements of the program have been raised. Additional issues such as the system used to verify Mexican border crossing cards (Biometric Verification System) and the consolidation of immigration and customs inspectors have also raised concerns. Arguably, the most pressing concern at the southwest border is the number of undocumented aliens who still manage to cross the border every day, the majority of which are Mexican nationals. As the number of illegal aliens that are present in the United States continues to grow, attention is directed at the border patrol and the enforcement of immigration laws within the interior of the country. The Department of Homeland Security's (DHS's) Customs and Border Protection (CBP) and Immigration and Customs Enforcement (ICE) units have launched several initiatives aimed at apprehending illegal aliens and dismantling human and drug smuggling organizations. Despite these efforts, the flow of illegal migration continues. Issues such as enforcement of immigration laws and organizational issues such as inter- and intra-agency cooperation, coordination and information sharing continue to be debated. In the view of some, a more comprehensive approach that addresses the "push factors" of the sending countries and the "pull factors" of the United States, coupled with more effective enforcement of current laws in the interior of the country may once again merit examination. This report will not be updated.

Introduction Levels of pay for congressional staff are a source of recurring questions among Members of Congress, congressional staff, and the public. In House committees, the chair and ranking member set the terms and conditions of employment for majority and minority staff, respectively. This includes job titles and descriptions; rates of pay, subject to maximum levels; and resources available to carry out their official duties. There may be interest in congressional pay data from multiple perspectives, including assessment of the costs of congressional operations; guidance in setting pay levels for staff in committee offices; or comparison of congressional staff pay levels with those of other federal government pay systems. Publicly available information sources do not provide aggregated congressional staff pay data in a readily retrievable form. Pay information in this report is based on the House Statement of Disbursements (SOD), published quarterly by the Chief Administrative Officer, as collated by LegiStorm, a private entity that provides some congressional data by subscription. Data in this report are based on official House reports, which afford the opportunity to use consistently collected data from a single source. Additionally, this report provides annual data, which allows for observations about the nature of House committee staff compensation over time. This report provides pay data for 11 staff position titles that are used in House committees, and for which sufficient data could be identified. Position titles and the years for which data are available since 2001 are provided in Table 1 . Titles were identified through a two-step process. The first step identified 358 job titles used in House committees in 2014. Of those titles, 282, or 78.8%, were filled by only one staff member, and were excluded. In the second step, the remaining 76 titles were assessed to determine how many of the House committees for which data were available employed staff with each title. Fifty-nine position titles that were used by six or fewer panels (five for minority positions) were excluded. Pay data were then collected for the remaining 17 positions. In order to be included, annual pay data for staff in each position needed to be available from at least five committees (four for minority positions). This eliminated another 6 positions, leaving 11. When committees had more than one staff member with the same job title, data for no more than two staff per committee were collected. House committee staff had to hold a position with the same job title in the same committee for the entire year examined, and not receive pay from any other congressional employing authority for their data to be included. Every recorded payment ascribed in the LegiStorm data to those staff for the fiscal year is tabulated. Data collected for this report may differ from an employee's stated annual salary due to the inclusion of overtime, bonuses, or other payments in addition to base salary paid in the course of a year. Pay data for staff working in Senate committee offices are available in CRS Report R44325, Staff Pay Levels for Selected Positions in Senate Committees, FY2001-FY2014 . Data describing the pay of congressional staff working in the personal offices of Senators and Members of the House are available in CRS Report R44324, Staff Pay Levels for Selected Positions in Senators' Offices, FY2001-FY2014 , and CRS Report R44323, Staff Pay Levels for Selected Positions in House Member Offices, 2001-2014 , respectively. Data Concerns Data presented here are subject to some challenges that could affect findings presented or their interpretation. Some of the concerns include the following: Given the large number of positions with titles held by one House employee, data provided here almost certainly do not represent all of the jobs carried out by House committee staff. The manner in which staff titles are assigned might have implications about the representativeness of the data provided. Of positions for which data were collected, two broad categories emerge. The first category identifies position titles that usually apply to one staff member per committee. Since almost all available data were collected for those positions, pay information provided is likely to be highly representative of what House committees pay staff in those positions. The second category includes positions for which committees might hire two or more staff members. Since pay data were collected for no more than two staff per committee for each position, it is more likely that data for those positions are a sample of staff in those positions rather than nearly complete data, and therefore may be less closely representative of what all staff in those positions are paid. Pay data provide no insight into the education, work experience, position tenure, full- or part-time status of staff, or other potential explanations for levels of compensation. Potential differences might exist in the job duties of positions with the same title. Aggregation of pay by job title rests on the assumption that staff with the same title carry out the same or similar tasks. Given the wide discretion congressional employing authorities have in setting the terms and conditions of employment, there may be differences in the duties of similarly titled staff that could have effects on their levels of pay. Data Tables and Visualizations Tables in this section provide background information on House pay practices, comparative data for each position, and detailed data and visualizations for each position. Table 2 provides the maximum payable rates for House committee staff since 2001 in both nominal (current) and constant 2016 dollars. Constant dollar calculations throughout the report are based on the Consumer Price Index for All Urban Consumers (CPI-U), various years, expressed in 2016 dollars. Table 3 provides the available cumulative percentage changes in pay in constant 2016 dollars for each of the 11 positions, Members of Congress, and federal civilian workers paid under the General Schedule in Washington, DC, and surrounding areas. Table 4 - Table 14 provide tabular pay data for each House committee staff position. The numbers of staff whose data were counted are identified as observations in the data tables. Graphic displays are also included, providing representations of pay from three perspectives, including the following: a line graph showing change in pay, depending on data availability, in nominal (current) and constant 2016 dollars; a comparison at 5-, 10-, and 15-year intervals from 2015, depending on data availability, of the cumulative percentage change of pay for that position, in constant 2016 dollars, to changes in pay of Members of Congress and federal civilian workers paid under the General Schedule in Washington, DC, and surrounding areas; and distributions of 2015 pay in 2016 dollars, in $10,000 increments. Between 2011 and 2015, the change in median pay, in constant 2016 dollars, ranged from a 14.96% increase for communications directors to a -12.24% decrease for subcommittee staff directors. Of the eight staff positions for which data were available, two positions saw pay increases while six saw declines. This may be compared to changes to the pay of Members of Congress, -5.10%, and General Schedule, DC, -3.19%, over the same period. Between 2006 and 2015, all of the seven staff positions for which data were available saw decreases. The change in median pay, in constant 2016 dollars, ranged from a -4.78% decrease for counsels to a -31.06% decrease for professional staff members. This may be compared to changes to the pay of Members of Congress, -10.41%, and General Schedule, DC, -0.13%, over the same period. Between 2001 and 2015, all of the five staff positions for which data were available saw decreases. The change in median pay, in constant 2016 dollars, ranged from a -9.22% decrease for counsels to a -22.32% decrease for professional staff members. This may be compared to changes to the pay of Members of Congress, -10.40%, and General Schedule, DC, 7.36%, over the same period.

The level of pay for congressional staff is a source of recurring questions among Members of Congress, congressional staff, and the public. There may be interest in congressional pay data from multiple perspectives, including assessment of the costs of congressional operations; guidance in setting pay levels for staff in committee offices; or comparison of congressional staff pay levels with those of other federal government pay systems. This report provides pay data for 11 staff position titles that are used in House committees, and include the following: Chief Counsel; Communications Director; Counsel; Deputy Staff Director; Minority Professional Staff Member; Minority Staff Director; Professional Staff Member; Senior Professional Staff Member; Staff Assistant; Staff Director; and Subcommittee Staff Director. Tables provide tabular pay data for each House committee staff position. Graphic displays are also included, providing representations of pay from three perspectives, including the following: a line graph showing change in pay, depending on data availability; a comparison at 5-, 10-, and 15-year intervals from 2015, depending on data availability, of the cumulative percentage change of pay of that position, to changes in pay of Members of Congress and federal civilian workers paid under the General Schedule in Washington, DC, and surrounding areas; and distributions of 2015 pay, in $10,000 increments. In the past five years (2011-2015), the change in median pay, in constant 2016 dollars, ranged from a 14.96% increase for communications directors to a -12.24% decrease for subcommittee staff directors. Of the eight staff positions for which data are available, two positions saw pay increases while six saw declines from 2011 to 2015. This may be compared to changes to the pay of Members of Congress, -5.10%, and General Schedule, DC, -3.19%, over the same period. Pay data for staff working in Senate committee offices are available in CRS Report R44325, Staff Pay Levels for Selected Positions in Senate Committees, FY2001-FY2014. Data describing the pay of congressional staff working in the personal offices of Senators and Members of the House are available in CRS Report R44324, Staff Pay Levels for Selected Positions in Senators' Offices, FY2001-FY2014, and CRS Report R44323, Staff Pay Levels for Selected Positions in House Member Offices, 2001-2014, respectively. Information about the duration of staff employment is available in CRS Report R44683, Staff Tenure in Selected Positions in House Committees, 2006-2016, CRS Report R44685, Staff Tenure in Selected Positions in Senate Committees, 2006-2016, CRS Report R44682, Staff Tenure in Selected Positions in House Member Offices, 2006-2016, and CRS Report R44684, Staff Tenure in Selected Positions in Senators' Offices, 2006-2016.

Introduction On October 6, 2015, the Court of Justice of the European Union (CJEU) delivered a judgment that invalidated the Safe Harbor Agreement between the United States and the 28-member European Union (EU). Safe Harbor was a 15-year-old accord, under which personal data could legally be transferred between EU member countries and the United States for commercial purposes. The negotiation of Safe Harbor was largely driven by the EU's 1995 Data Protection Directive (DPD) and European concerns that the U.S. approach to data privacy did not guarantee a sufficient level of protection for European citizens' personal data. The Safe Harbor Agreement applied to a wide range of businesses and organizations that collect and hold personal data. When the parties concluded the Safe Harbor Agreement in 2000, however, the Internet was still in its infancy, and the range of public and private actors engaged in the mass processing of personal data, including across borders, was much more limited than today. The CJEU's decision gave added impetus to U.S.-EU negotiations underway since late 2013 aimed at "making Safe Harbor safer." These discussions were part of several initiatives seeking to restore transatlantic trust in the security of U.S.-EU data flows following the so-called "Snowden leaks." On February 2, 2016, U.S. and EU officials announced an agreement, "in principle," on a replacement to Safe Harbor—the U.S.-EU Privacy Shield, which would allow companies to continue to transfer EU citizen's personal data to the United States while complying with the requirements outlined by the CJEU when it declared Safe Harbor invalid in October 2015. The text of the new agreement was released on February 29, 2016; it must still be approved by the European Commission. U.S. and EU officials claim that Privacy Shield will contain significantly stronger privacy protections and oversight mechanisms, multiple redress possibilities, and new safeguards related to U.S. government access to personal data. Nevertheless, questions exist about whether Privacy Shield will go far enough in addressing broader EU data privacy and protection concerns, and whether it will be able to stand up to future legal challenges against it that will likely be brought before the CJEU. Many U.S. officials and business leaders hope that the recently concluded (but not yet finalized) U.S.-EU Data Privacy and Protection Agreement (DPPA)—an "umbrella" accord aimed at better protecting personal information exchanged in a law enforcement context—and the newly enacted U.S. Judicial Redress Act ( H.R. 1428 / S. 1600 , P.L. 114-126 )—which extends the core of the judicial redress provisions in the U.S. Privacy Act of 1974 to EU citizens—could help ameliorate European concerns about U.S. data protection standards and bolster confidence in the newly proposed Privacy Shield Agreement. Data Privacy and Protection in the EU and the United States Both the United States and EU assert that they are committed to upholding individual privacy rights and ensuring the protection of personal data, including electronic data. Nevertheless, data privacy and data protection issues have long been sticking points in U.S.-EU economic and security relations, in large part due to fundamental differences between the United States and EU in their approaches to data protection and data privacy laws. For instance, in the United States, what the European Commission (the EU's executive) refers to as the "collecting and processing of personal data" is allowed unless it causes harm or is expressly limited by U.S. law. In Europe, by contrast, processing of personal data is prohibited unless there is an explicit legal basis that allows it. The EU Approach and the 1995 Data Protection Directive (DPD) The EU considers the privacy of communications and the protection of personal data to be fundamental human rights, as incorporated into Articles 7 and 8 of the 2000 Charter of Fundamental Rights of the European Union and made binding on all EU members through the 2007 Treaty of Lisbon (which took effect in 2009). Europe's past history with fascist and totalitarian regimes clearly informs its views on data protection and contributes to the demands from European politicians and publics for strict data privacy controls. In October 1995, the EU agreed on a Data Protection Directive (DPD) to harmonize differing national legislation on data privacy protection and establish a comprehensive EU-wide framework. The DPD sets out common rules for public and private entities in all EU member states that hold or transmit personal data. The DPD governs how information about European citizens may be collected and used across all industries, with each EU member state responsible for implementing the Directive through its own national laws. The EU hoped that the DPD would facilitate information flows within the EU, strengthen the EU's internal market, and foster the development of an information-based economy. EU member states were given three years to implement the DPD. The DPD provides that the transfer of personal data to a country outside of the EU may occur only if the European Commission determines that the country provides an adequate level of protection of personal data. The adequacy of the level of protection is assessed in the light of all the circumstances surrounding the data transfer; with particular consideration given to the nature of the data, the purpose and duration of the proposed processing operations, the countries of origin, and final destination of the data, and that country's laws, rules, and security measures. The DPD applies to all organizations, public and private, operating in the EU, including affiliates of U.S. corporations. It covers the processing of all personal data, whether done automatically or manually. There is no exception for public records, such as telephone directory listings. Only information compiled for private, personal household use is excluded. Under the DPD, data may be collected and used only for specified, explicit, and legitimate purposes. Security and accuracy must be guaranteed. Individuals not only have the right to access their personal information and the right to correct errors, but also the right to seek remedial measures and compensation, if necessary. The transfer of data to third parties may occur only under similarly strict requirements. More stringent rules apply to the processing of sensitive data, including data relating to race; ethnic origin; political, religious, or philosophical beliefs; and health status or sex life. The DPD requires the creation of "Data Protection Agencies" (DPAs) in each EU member state, registration of databases with these authorities, and, sometimes, prior DPA approval before organizations or firms may begin data processing. Although the 1995 Data Protection Directive has since been complemented by other EU legal instruments (such as the 2002 "e-Privacy" Directive for the communications sector), the DPD currently remains the EU's main data protection instrument. In 2012, the European Commission proposed a new legislative package aimed at modernizing the DPD and introducing other data protection reforms in order to take into account the changes in data processing brought about by the widespread use of the Internet. In December 2015, EU member states (acting in the Council of the European Union) and the directly-elected European Parliament (which represents the citizens of the EU) reached political agreement on new data protection rules; these were formally adopted in April 2016 and will take effect in 2018. The U.S. Approach In the United States, respect for privacy is broadly enshrined in our Constitution. Unlike the EU, however, the United States does not have a single, overarching data privacy and protection framework. Many describe U.S. data privacy laws as a "patchwork" of federal and state statutes. For example, concerns about how the federal government manages personal information in its possession led to the enactment of the U.S. Privacy Act of 1974 , while the Electronic Communications Privacy Act of 1986 , extended government restrictions on telephone wire taps to include computer transmissions of electronic data. Meanwhile, federal consumer privacy laws in the United States are largely industry specific and vary by sector, with different laws governing the collection and disclosure of financial data, health-related data, student information, and motor vehicle records. U.S. states have also enacted a variety of digital privacy and data protection laws over the years. Many U.S. officials and industry representatives maintain that the U.S. approach to data privacy is more nimble than what they view as the EU's "one-size-fits-all" approach. They also contend that the U.S. approach helps to promote and sustain U.S. technological innovation. Nevertheless, some U.S. privacy advocates argue that there are significant gaps in this "patchwork" approach, especially in terms of data collection online, and have long urged Congress to enact comprehensive data protection legislation. Transatlantic Data Flows The transatlantic flow of data is a form of international trade and is of critical importance for the U.S. and European economies. The United States and the EU remain each other's largest trade and investment partners. In 2013, total U.S.-EU trade in goods and services amounted to $1 trillion and U.S. FDI in EU totaled $2.4 trillion (or about 56%) of total U.S. direct investment abroad. Conversely, EU companies accounted for $1.7 trillion (or about 62%) of direct investment in the United States. According to a 2014 study, cross-border data flows between the United States and Europe are the highest in the world—almost double the data flows between the United States and Latin America and 50% higher than data flows between the United States and Asia. Reports indicate that data protection standards are not part of the ongoing negotiations for the Transatlantic Trade and Investment Partnership (T-TIP), because the EU views its data privacy laws and protection standards as fundamental rights that are nonnegotiable. However, both U.S. and European officials recognize that a successful T-TIP agreement requires the ability to transfer data between the United States and EU member countries in a legally sound and cost-effective manner. As noted by U.S. Under Secretary for Economic Growth, Energy, and the Environment Catherine A. Novelli: The U.S. and the EU are the two largest net exporters of digital goods and services to the rest of the world. In 2012, the United States' $151 billion trade surplus in digital services was surpassed only by the EU's $168 billion surplus. Many observers expect the negotiations to address digital trade issues. U.S. business interests have reportedly been advocating for measures in T-TIP that would prevent restrictions on cross-border data flows, and for new mechanisms that would provide alternative ways for U.S. companies to comply with EU data privacy rules beyond those that already exist. This issue could become even more important in T-TIP negotiations in light of the CJEU's judgment on Safe Harbor. The Safe Harbor Agreement As discussed above, the European Union and the United States have fundamentally different attitudes towards the protection of personal data. EU and U.S. officials recognized that, following the passage of the DPD in 1995, the substantial differences between the U.S. and EU data protection regimes threatened to disrupt or prevent the transfer of personal data between the EU and the United States. They worried that these differences in approach could negatively affect many businesses and industries on both sides of the Atlantic, and potentially impact the U.S.-EU trade and investment relationship. Following negotiations between the United States and the EU, the parties agreed on a mechanism that would allow U.S. companies to meet the "adequate level of protection" required by the DPD. In 2000, the U.S. Department of Commerce issued the Safe Harbor Privacy Principles, which were subsequently recognized by the European Commission. However, according to the Commission's Decision, the Safe Harbor principles could be limited to the extent necessary for national security, public interest, or law enforcement requirements. Under Safe Harbor, a U.S. company could self-certify annually to the Department of Commerce that it had complied with the seven basic principles and related requirements that have been deemed to meet the data privacy adequacy standard of the EU. The seven basic principles, in edited and abridged form, were as follows. Notice. An organization must inform individuals about the purposes for which it collects and uses information, how to contact the organization with inquiries or complaints, and the types of third parties to which it discloses the information. Choice. An organization must offer individuals the opportunity to choose ( opt-out ) whether their personal information is (a) to be disclosed to a third party or (b) to be used for a purpose that is incompatible with the purpose(s) for which it was originally collected or subsequently authorized by the individual. For sensitive information , individuals must explicitly opt-in when personal data is to be transferred to a third party or used for a purpose other than the one for which it was originally collected or subsequently authorized. Sensitive information includes information about medical or health conditions, racial or ethnic origin, political opinions, religious or philosophical beliefs, trade union membership, or information regarding the individual's sex life. Onward Transfer . In transferring information to a third party, organizations must apply the Notice and Choice Principles. Third parties acting as agents must provide the same level of privacy protection either by subscribing to Safe Harbor, adhering to the Directive or another adequacy finding, or entering into a contract that specifies equivalent privacy protections. Security. Organizations creating, maintaining, using or disseminating personal information must take reasonable precautions to protect it from loss, misuse and unauthorized access, disclosure, alteration and destruction. Data Integrity . Personal information must be relevant for the purposes for which it is to be used. An organization should take reasonable steps to ensure that data is reliable for its intended use, accurate, complete, and current. Access . Individuals must have access to the information about them that an organization holds and must be able to correct, amend, or delete that information where it is inaccurate, except where the burden or expense would be disproportionate to the risks to the individual's privacy or where the rights of others would be violated. Furthermore, the Safe Harbor principles may be limited to the extent necessary for national security, public interest, or law enforcement requirements. Enforcement . Effective privacy protection must include mechanisms for verifying compliance, provide readily available and affordable independent recourse mechanisms in cases of noncompliance, and include remedial measures for the organization when the Principles are not followed. Sanctions must be rigorous enough to ensure compliance. Participation in Safe Harbor was open to any U.S. organization subject to regulation by the Federal Trade Commission (FTC), which enforces a variety of consumer protection laws, including those related to unfair and deceptive practices, and to United States air carriers and ticket agents that are subject to regulation by the Department of Transportation (DOT). Some 4,500 companies were on the Safe Harbor list. To qualify, organizations were required to self-certify annually in a letter to the DOC that they adhered to the Safe Harbor principles. The FTC asserted that it was committed to reviewing all referrals of potential violations from EU member state authorities. Both private sector entities and federal and state authorities that enforce unfair and deceptive practices laws were required to enforce the Safe Harbor Agreement. Private sector enforcement consisted of three components: verification; dispute resolution; and remedies. Persistent failure to comply would result in withdrawal of "Safe Harbor" status, a fact that would be indicated on the "Safe Harbor" website, and also, potentially, by regulatory action. To date, the FTC has charged 40 companies with violations of the Safe Harbor framework. Organizations that did not fall under the jurisdiction of the FTC and the DOT were not eligible for "Safe Harbor." Notably, this included U.S. financial firms and telecommunications carriers. Following the CJEU decision, however, the FTC announced that it would no longer enforce Safe Harbor. The CJEU Decision On October 6, 2015, the CJEU (see text box) issued a decision that invalidated Safe Harbor (effective immediately), as currently implemented. The CJEU decision stemmed from a complaint brought to the Irish DPA by an Austrian national, Maximillian Schrems, concerning Facebook's transfer of some or all of his data from Facebook's EU-based servers in Ireland to its servers located in the United States in light of the unauthorized disclosures in June 2013 of U.S. surveillance activities. The Irish DPA dismissed the complaint, finding that it had no basis to evaluate the complaint since Facebook adhered to the Safe Harbor Agreement and the Irish DPA was thus bound by the 2000 decision by the European Commission recognizing that Safe Harbor provided an "adequate level of protection" as required by the DPD. Upon request by the Irish High Court, the CJEU considered whether the Irish DPA could conduct an investigation into Facebook's data protection practices to assess their adequacy or whether the Irish DPA had to defer to the European Commission's earlier approval of the Safe Harbor framework. The October 6, 2015, decision issued several findings. Foremost, perhaps, the CJEU found that the existence of the Commission Decision on the Safe Harbor Agreement does not eliminate or reduce the powers available to the national DPAs. The CJEU found that national DPAs "must be able to examine, with complete independence, any claim concerning the protection of a person's rights and freedoms in regard to the processing of personal data relating to him" and assess their compliance with the DPD and the EU's Charter of Fundamental Rights. Turning to the Safe Harbor Agreement specifically, the CJEU found Safe Harbor to be invalid. The CJEU found that according to Article 25 of the DPD, the European Commission is required to examine the domestic laws or international commitments of a third country prior to making a determination on the adequacy of their data privacy protection. Since the 2000 Commission Decision recognizing the Safe Harbor Agreement did not make any such finding, that Decision is now invalid. Safe Harbor no longer provides a legal basis for U.S.-EU data transfers, although other methods such as Standard Contractual Clauses or Binding Corporate Rules (see below) can be used. In addition, the CJEU ruling found that U.S. national security, public interest, and law enforcement requirements have "primacy" over the Safe Harbor principles, and that U.S. undertakings are bound to disregard, without limitation, the protective rules laid down by that scheme where they conflict with such requirements. Consequently, the CJEU concluded that the Safe Harbor scheme "enables interference" by U.S. authorities "with the fundamental rights of the persons whose personal data is or could be transferred from the European Union to the United States." Furthermore, the CJEU noted that the 2000 Commission's Decision on Safe Harbor does not refer to either the existence of U.S. rules or effective U.S. legal protections intended to limit such interference, such as the possibility of judicial redress. U.S. and European Responses In an October 6, 2015, press release, Secretary of Commerce Penny Pritzker said the Obama Administration was "deeply disappointed" in the CJEU decision and that it "necessitates release of the updated Safe Harbor Framework as soon as possible." Since late 2013, the European Commission and U.S. officials had been working on revising the Safe Harbor Agreement to take into account European concerns about U.S. data privacy and protection standards, especially in the wake of the so-called "Snowden leaks." Following the CJEU ruling, European Commission officials echoed U.S. calls to conclude a new and improved Safe Harbor Agreement and announced three broad priorities for managing U.S.-EU data flows in the meantime: (1) protecting personal data transferred across the Atlantic; (2) ensuring the continuation of transatlantic data flows (using other mechanisms available under the DPD); and (3) working with the national data protection authorities to deliver a coordinated response on alternative ways to transfer data to the United States (deemed by many as crucial to avoid potentially contradictory decisions by national authorities and provide predictability for citizens and businesses alike). Following the CJEU decision, a working party of EU DPAs (the Article 29 Working Party) reaffirmed that data transfers taking place under Safe Harbor were now unlawful and expressed broad concern about the impact of the CJEU's findings on other data-sharing "transfer tools" such as Standard Contractual Clauses or Binding Corporate Rules. The Article 29 Working Party called on the EU to "open discussions with U.S. authorities in order to find political, legal, and technical solutions" to enable data transfers to the United States "that respect fundamental rights," and noted that a re-negotiated and revised Safe Harbor Agreement "could be a part of the solution." According to their press release: If by the end of January 2016, no appropriate solution is found with the US authorities and depending on the assessment of the transfer tools by the Working Party, EU data protection authorities are committed to take all necessary and appropriate actions, which may include coordinated enforcement actions. Thus, the Article 29 Working Party effectively set a deadline of January 31, 2016 for U.S. and EU negotiators to reach agreement on a revised Safe Harbor Agreement. The New EU-U.S. Privacy Shield Agreement U.S.-EU discussions on revising and updating the Safe Harbor Agreement began in late 2013 in response to growing European concerns about the NSA surveillance programs and subsequent allegations of other U.S. intelligence collection operations in Europe. Even preceding the so-called "Snowden leaks," some European privacy advocates had long contended that the Safe Harbor Agreement contained significant data protection loopholes. Those of this view asserted, for example, that some companies did not fully implement the Safe Harbor requirements because annual compliance checks were not mandatory, and that hundreds of companies over the years had made false claims about belonging to the accord. Others characterized U.S. enforcement of Safe Harbor as meager, pointing out that the FTC brought action against only ten companies during the first 13 years of the agreement's existence. In addition, critics argued that Safe Harbor, negotiated in the late 1990s when the Internet was in its infancy, was long over-due for re-evaluation. In light of such existing criticisms and amid allegations that some U.S. companies such as Google and Microsoft (among others that participated in Safe Harbor) may have been involved in U.S. surveillance activities, some European data protection officials and Members of the European Parliament (MEPs) called on the European Commission to suspend Safe Harbor. The European Commission rejected doing so because of concerns that suspending Safe Harbor would adversely affect EU business interests and the transatlantic economy. The European Commission agreed, however, that there were a number of weaknesses in the Safe Harbor scheme. In November 2013, the European Commission issued 13 recommendations to "make Safe Harbor safer," centered on four broad priorities: enhancing transparency; ensuring redress; strengthening enforcement; and limiting the access of U.S. authorities to data transferred under Safe Harbor. Throughout the negotiations (both before and after the CJEU judgment), the Safe Harbor Agreement's national security exemptions and EU demands to ensure only limited access to Safe Harbor data for national security purposes were reportedly key sticking points. On February 2, 2016, two days after the January 31 deadline established by the Article 29 Working Group, U.S. and EU officials announced their agreement, "in principle," on a replacement to Safe Harbor—the EU-U.S. Privacy Shield, which if approved by the European Commission, would allow companies to continue to transfer EU citizen's personal data to the United States while complying with the requirements outlined by the CJEU when it declared Safe Harbor invalid in October 2015. On February 29, 2016, U.S. and EU officials released the full text of the agreement and supporting documentation. The new framework is substantially longer and more detailed than Safe Harbor. The Privacy Shield principles entail seven distinct categories: notice, choice, accountability for onward transfer, security, data integrity and purpose limitation, access, and recourse, enforcement, and liability. The Privacy Shield also includes a supplemental set of principles that includes provisions around sensitive data, secondary liability, the role of data protection authorities, human resources data, pharmaceutical and medical products, and publicly available data. In contrast to Safe Harbor, Privacy Shield contains commitments from U.S. national security officials, as well as letters from U.S. government officials, concerning the protections afforded by Privacy Shield to data from EU citizens. Also new to Privacy Shield is a model for arbitrating disputes. According to U.S. and EU officials, the Privacy Shield addresses the concerns raised by the CJEU through: Enhanced commitments. U.S. companies wishing to import personal data from Europe will need to commit to robust obligations on how personal data is processed and European data subject rights are guaranteed. These include detailed notice obligations, data retention limits, prescriptive access rights, tightened conditions for onward transfers and liability regime, more stringent data integrity and purpose limitation principles, and strengthened security requirements. Stronger Enforcement. The Department of Commerce will monitor compliance pursuant to FTC enforcement. Companies that fail to meet their obligations will face sanctions or will lose their eligibility to use the Privacy Shield to legitimize their cross-border data transfer flows. Clear safeguards and transparency obligations. The United States Department of Justice and the Office of the Director of National Intelligence have given written assurances that the access of U.S. authorities to EU personal data will be subject to clear limitations, safeguards and oversight mechanisms. U.S. authorities have also, reportedly, ruled out indiscriminate mass surveillance on the personal data transferred to the United States under the new arrangement. There will be an annual joint review, which will also include the issue of national security access, to regularly monitor the functioning of the arrangement. The European Commission and the Department of Commerce will conduct the review and invite national intelligence experts from the United States and European DPAs to participate. Effective protection of EU citizens' rights with several redress possibilities. Any citizen who considers that their data has been compromised under the new arrangement will have multiple redress possibilities, beginning with deadlines for companies to respond to individual complaints. Individuals will be able to complain: (i) directly to companies, which will have 45 days to resolve the complaint; or (ii) directly to EU DPAs, which will be able to refer unresolved complaints to the FTC. Furthermore, claimants would be provided with a free alternative dispute resolution mechanism in the event that the FTC does not pursue an individual's case. For complaints on possible access by national intelligence agencies, a new special ombudsman will be created in the U.S. State Department. This office will be independent of the intelligence agencies, but will have clearance to review issues on the referral of EU DPAs. Department of Commerce Under Secretary Catherine Novelli, who also serves as the Senior Coordinator for International Information Technology Diplomacy, has been designated as the Privacy Shield Ombudsman by Secretary of State John Kerry. Following the release of the Privacy Shield agreement, the Article 29 Working Party of European DPAs reviewed the agreement and on April 13, published an opinion on the Agreement. The Article 29 Working Party's Opinion recognizes "significant improvements," noting that "many of the shortcomings" of Safe Harbor had been addressed by negotiators. At the same time, the Working Party expressed "strong concerns" regarding key commercial and national security aspects of the Privacy Shield agreement. These include, for example: 1. No clear obligation on organizations to delete personal data once it is no longer required for the purpose for which it was collected. 2. Insufficiently protections regarding the onward transfer of data to a third country. 3. Overly complex redress mechanisms. 4. Assurances from U.S. officials that bulk data access is subject to clear limits, safeguards, and oversight are not sufficient, according to the Working Party to meet the EU standard for privacy protection in the context of surveillance by public authorities. 5. In light of the EU's formal adoption of the new General Data Protection Regulation (GDPR) in April 2016, Privacy Shield should contain provisions to allow it to be adjusted to the GDPR's higher standards for data protection (compared to the EU Data Protection Directive 95/46/EC) when they become effective in Spring 2018. Stefan Selig, U.S. Undersecretary of Commerce for International Trade, said the United States would evaluate the Working Party's opinion very carefully, but noted that they are "chary" about re-opening the Privacy Shield Agreement and "upsetting what was a delicate balance that was achieved when we negotiated the original text" While the Working Party's opinion is non-binding, some experts contend that if the European Commission were to push for an adequacy decision without sufficiently addressing the Working Party's concerns, one or more of the European DPAs might likely challenge the Privacy Shield adequacy decision before the CJEU. Furthermore, some analysts suggest that recent changes to the Federal Rules of Criminal Procedure may also complicate the Privacy Shield Agreement. On April 28, 2016, the Supreme Court of the United States published amended rules that when they take effect on December 1, 2016, will allow federal judges to grant warrants to search and seize electronic media located outside of their districts when the physical location of the information is "concealed through technological means." Congress has the option of either accepting by non-action; rejecting; or delaying the rule pursuant to the Rules Enabling Act (P.L. 73-415). On May 19, 2016, Senator Ron Wyden announced that he was introducing legislation, the Stopping Mass Hacking (SMH) Act , to prevent the proposed amendments to the Federal Rules of Criminal Procedure from taking effect. Next Steps The European Commission must still approve an adequacy decision, which would designate the U.S.-EU Privacy Shield as a valid data transfer mechanism under the existing European Data Protection Directive. As noted above, the Article 29 Working Party has given its opinion and advice. The adequacy decision on Privacy Shield must now be reviewed by the representatives of the EU member states (known as the Article 31 Committee), whose opinion has a binding effect. The adequacy decision must then be formally adopted by the full European Commission (the so-called College of Commissioners) in order for Privacy Shield to take effect. In the United States, officials are making the necessary arrangements to set up the office of the new Ombudsman at the State Department and put in place the new framework and monitoring mechanisms. The Privacy Shield Agreement, like the original Safe Harbor Agreement, is not a treaty and thus requires no special congressional consideration. Instead, the agreement would be reached by letters of commitment between U.S. and EU officials. It is expected that the Privacy Shield would operate in a similar way to the Safe Harbor Agreement, with companies registering their commitment to the agreement with the Department of Commerce. Future Prospects U.S. and EU officials claim that Privacy Shield contains significantly stronger privacy protections and oversight mechanisms, multiple redress possibilities, and new safeguards related to U.S. government access to personal data. Secretary of Commerce Pritzker asserted that "this historic agreement is a major achievement for privacy and for businesses...it provides certainty that will help grow the digital economy" and "underscores the strength of the U.S.-EU relationship." Business groups, technology firms, and industry leaders on both sides of the Atlantic have welcomed the substantial progress made by the United States and the EU toward finalizing and concluding the Privacy Shield Agreement. Nevertheless, concerns exist about whether Privacy Shield goes far enough in addressing EU data privacy and protection concerns, and specifically whether it will be able to stand up to future legal challenges that will likely be brought before the CJEU. As discussed above, the Article 29 Working Party still has concerns about the current U.S. legal framework on privacy protections and intelligence activities, especially regarding scope and remedies. Some critics of the proposed Privacy Shield Agreement claim that the privacy guarantees are largely based on U.S. promises rather than legal enforcement mechanisms; Jan Philipp Albrecht, a leading Member of the European Parliament on data privacy issues, reportedly asserted that "The proposal foresees no legally binding improvements. Instead, it merely relies on a declaration by the U.S. authorities on their interpretation of the legal situation regarding surveillance by U.S. secret services." Many U.S. officials and industry leaders hope that recent Congressional efforts to provide a limited right of judicial redress to EU citizens—undertaken initially to help conclude a separate U.S.-EU umbrella accord for law enforcement, known as the Data Privacy and Protection Agreement (DPPA) —could help ease at least some European concerns about U.S. data protection standards and the new Privacy Shield agreement as well. In March 2015, Representative Jim Sensenbrenner and Representative John Conyers introduced H.R. 1428 , known as the "Judicial Redress Act" in order to help meet EU demands for U.S. judicial redress in the DPPA negotiations. An identical measure, S. 1600 was introduced by Senator Chris Murphy and Senator Orrin Hatch in June 2015. As introduced, both H.R. 1428 and S. 1600 essentially sought to extend the core of the judicial redress provisions in the U.S. Privacy Act of 1974 to citizens of covered countries or regional organizations (such as the EU) with whom the United States has entered into an agreement "that provides for appropriate privacy protections for information shared for the purpose of preventing, investigating, detecting, or prosecuting criminal offenses" (such as the DPPA). H.R. 1428 passed the House on October 20, 2015, and was approved by the Senate Judiciary Committee on January 28, 2016, with an amendment introduced by Senator John Cornyn. The Cornyn amendment included additional provisions mandating that the Judicial Redress Act would be applicable only to citizens of countries or regional organizations that also permit the transfer of personal data for commercial purposes to the United States and whose data transfer policies "do not materially impede the national security interests of the United States." The amended H.R. 1428 passed the Senate on February 9, 2015, the House on February 10, 2016, and was signed into law by President Obama on February 24, 2016 ( P.L. 114-126 ). Many U.S. officials and industry leaders view the Judicial Redress Act as a concrete indication of the U.S. commitment to addressing EU data protection concerns and hope that it will help boost confidence in U.S. data protection standards and the new Privacy Shield accord. The enactment of the Judicial Redress Act was warmly welcomed by the EU. The European Commission asserted, "The signature of the Judicial Redress Act by President Obama is a historic achievement in our efforts to restore trust in transatlantic data flows," and that it would pave the way for the signature of the DPPA. Once signed, the European Parliament and the member states must then approve the DPPA for it to take effect, a process that could take several months. Others note that it remains unclear to what extent the Judicial Redress Act might help the United States meet EU data protection "adequacy" standards more broadly or ease concerns about U.S. government access to personal data in the commercial sector. They point out that the scope of the judicial redress in U.S. legislation is not exactly equivalent to what U.S. persons and residents enjoy under the Privacy Act, is relatively limited, and relates specifically to information transferred in a law enforcement context. As such, many experts doubt that the Judicial Redress Act will be considered an overall "fix" to the concerns about U.S. data protection standards raised by EU authorities and the CJEU. Options for Affected Companies in the Interim Until the new U.S.-EU Privacy Shield Agreement is formally concluded and implemented, companies engaged in transatlantic data transfers must employ other means to legitimize such transfers. As noted above, Safe Harbor was one of several mechanisms used as a legal basis for U.S.-EU data transfers. Furthermore, Safe Harbor was limited to FTC-regulated sectors. Others, such as financial services, were never covered by Safe Harbor. None of the alternative available mechanisms, however, are viewed as a complete alternative to a comprehensive transatlantic accord like Safe Harbor or the envisioned Privacy Shield. For example: Model Contract Clauses. The European Commission has decided that certain standard contractual clauses offer sufficient data protection. These require organizations to have a data processing agreement based on the model clauses in place with any entity with which data is exchanged. This can be time consuming and expensive for many companies. While many large corporations such has Salesforce, Microsoft, and Google are employing model contract clauses, they may be challenging for small- and medium-sized enterprises (SMEs), which make up around 60% of Safe Harbor companies. Binding Corporate Rules (BCRs). These are a set of rules, based on European data standards, which a company can implement and have approved by national DPAs. A constraint with BCRs is that they only cover intra-company data transfers. Furthermore, implementing BCRs is a complex and time-consuming process that can take up to two years. Consent. Explicit consent agreements are another option, which may be useful in some business-to-consumer situations. Under the DPD, for a business to rely on consent as a valid ground for processing personal data, the consent must have been unambiguously given, 'freely' given and not given under compulsion or as a result of an act of deceit, and constitute a 'specific and informed indication' of a person's wishes for data to be processed. This may be a high threshold for many companies to meet for each data transaction, especially human resources-related companies, which comprise 50% of the Safe Harbor companies. Issues for Congress The CJEU's invalidation of Safe Harbor and the newly proposed EU-U.S. Privacy Shield Agreement raise issues for Members of Congress. These include implications for the following: U.S. and EU E conomies . As noted earlier, the United States and the EU remain each other's largest trade and investment partners and the transatlantic flow of data is of critical importance for the U.S. and European economies. Members may further explore the economic costs of a prolonged disruption of transatlantic data flows. T-TIP Negotiations . Although negotiations on a revised Safe Harbor agreement have been progressing on a track separate from the T-TIP negotiations, the CJEU decision may influence the ongoing T-TIP negotiations. U.S. companies have been advocating for measures in T-TIP that would prevent restrictions on cross-border data flows and for new mechanisms that would provide alternative ways for U.S. companies to comply with EU data privacy rules beyond those that already exist. There may also be resistance in Europe to any T-TIP outcome perceived to adversely affect EU data protection and consumer privacy rules. U.S. Judicial Redress Legislation. Members may also wish to explore the European response to the passage of U.S. legislation ( P.L. 114-126 ). There remains debate whether the U.S. redress legislation will be sufficient to satisfy European critics. For example, the current legislation does not provide citizens of EU countries with redress that is exactly on par with that which U.S. persons enjoy under the Privacy Act. One area of particular concern is that the legislation currently being discussed does not extend privacy protections to records pertaining to non-U.S. persons collected by all U.S. agencies. Personal information collected by non-law enforcement agencies (such as the Department of Health and Human Services, for example) would not be covered. Acceptability of Alternative Data Transfer Arrangements . It appears that many of the European data protection agencies, including those of the United Kingdom, Estonia, the Netherlands and Sweden are recommending that companies use standard contractual clauses or binding corporate rules and will not rush to evaluate complaints while the process to finalize its replacement remains ongoing. Other countries, such as France, appear to already be investigating complaints. Furthermore, there is still the possibility that these alternative arrangements mentioned above could be challenged by European DPAs, civil liberty groups, or individual citizens. Other U.S.-EU Information-sharing Agreements. Some analysts contend that the sweeping nature of the CJEU's decision could have implications for other U.S.-EU data-sharing arrangements, especially in the law enforcement field. These include the U.S.-EU Passenger Name Record (PNR) agreement on sharing airline data, the U.S.-EU accord on tracking financial data (often referred to as the SWIFT agreement) as part of the U.S. Department of the Treasury's Terrorist Finance Tracking Program (TFTP), and the proposed "umbrella" Data Privacy and Protection Agreement. Congress has strongly supported the PNR and SWIFT agreements as key U.S. counterterrorism tools. Like Safe Harbor, however, both the PNR and SWIFT agreements have received increased scrutiny in the EU since the "Snowden leaks." Some Members of the European Parliament have raised questions about the security of PNR data and called for the suspension of the SWIFT agreement. Many U.S. officials hope that the intelligence safeguards proposed in the new Privacy Shield Agreement (along with the DPPA and the Judicial Redress Act) will help to assuage some of the broader EU concerns about U.S. data protection standards and data sharing for law enforcement purposes.

Both the United States and the European Union (EU) maintain that they are committed to upholding individual privacy rights and ensuring the protection of personal data. Nevertheless, data privacy and protection issues have long been sticking points in U.S.-EU economic and security relations, in part because of differences in U.S. and EU data privacy approaches and legal regimes. In the late 1990s, the United States and the EU negotiated the Safe Harbor Agreement of 2000 to allow U.S. companies and organizations to meet EU data protection requirements and permit the legal transfer of personal data between EU member countries and the United States. The unauthorized disclosures in June 2013 of U.S. National Security Agency (NSA) surveillance programs and subsequent allegations of other U.S. intelligence activities in Europe renewed and exacerbated European concerns about U.S. data privacy and protection standards. The alleged involvement of some U.S. Internet and telecommunications companies in the NSA programs also elevated European worries about how U.S. technology firms use personal data and the extent of U.S. government access to such data. As a result, a number of U.S.-EU data-sharing accords in both the commercial and law enforcement sectors have come under intense scrutiny in Europe. In October 2015, the Court of Justice of the European Union (CJEU, which is also known as the European Court of Justice, or ECJ) invalidated the Safe Harbor Agreement. The CJEU essentially found that Safe Harbor failed to meet EU data protection standards, in large part because of the U.S. surveillance programs. Given that some 4,500 U.S. companies were using Safe Harbor to legitimize transatlantic data transfers, U.S. officials and business leaders were deeply dismayed by the CJEU's ruling. Companies that had been using Safe Harbor as the legal basis for U.S.-EU data transfers were required to immediately implement alternative measures. Experts claimed that the CJEU decision created legal uncertainty for many U.S. companies and feared that it could negatively impact U.S.-EU trade and investment ties. On February 2, 2016, U.S. and EU officials announced an agreement, "in principle," on a revised Safe Harbor accord, to be known as Privacy Shield; the full text of the agreement was released on February 29, 2016. U.S. and EU officials assert that the new accord will address the CJEU's concerns. In particular, they stress that it contains significantly stronger privacy protections as well as safeguards related to U.S. government access to personal data. Some analysts question, however, whether Privacy Shield will sufficiently address the broader issues about the U.S. data protection framework raised by the CJEU decision, and thus be able to withstand future legal challenges. Many U.S. policymakers and trade groups hope that the recently concluded U.S.-EU "umbrella" Data Privacy and Protection Agreement (DPPA)—which seeks to better protect personal information exchanged in a law enforcement context—and the newly enacted U.S. Judicial Redress Act (H.R. 1428 / S. 1600, P.L. 114-126)—which extends the core of the judicial redress provisions in the U.S. Privacy Act of 1974 to EU citizens—could help ease at least some concerns about U.S. data protection standards and boost confidence in Privacy Shield. This report provides background on U.S. and EU data protection policies and the Safe Harbor Agreement, discusses the CJEU ruling, and reviews the key elements of the newly-proposed Privacy Shield. It also explores various issues for Congress, including implications for U.S. firms of Safe Harbor's invalidation and the role of the Judicial Redress Act in helping to ameliorate U.S.-EU tensions on data privacy and protection issues.

Introduction The city of Sacramento is located northeast of San Francisco Bay in California at the confluence of the American and Sacramento Rivers. The city's location puts it among the U.S. cities most vulnerable to significant flooding. Potential flood losses grow as development in the area places more lives and properties in harm's way. As illustrated by disasters like Hurricane Katrina, flood damage reduction infrastructure cannot protect all areas, control all floods, and be completely reliable. To reduce flooding risks in Sacramento, local, state, and federal entities have built dams, levees, and other structures, including the federally constructed Folsom Dam on the American River. These entities currently are studying and pursuing ways to improve the reliability, capacity, and operations of the existing infrastructure as well as construction activities to modify and build flood damage reduction infrastructure. Whether and how to combine nonstructural methods (e.g., building restrictions and codes, insurance premiums) and structural methods (e.g., levee strengthening, dam modification, new dam construction) for managing flood risks is the subject of some dispute among stakeholders. Following a significant flood threat in 1986, Congress in 1987 authorized the U.S. Army Corps of Engineers (Corps) to study additional flood damage reduction measures (e.g., dam and levee improvements, construction of new structures, adoption of operational improvements). Since then, Congress has authorized and appropriated funding for studies and construction of specific flood damage reduction measures. This report outlines the status of these studies and measures, with particular attention to measures at Folsom Dam. Historical Efforts to Reduce Flood Vulnerability Sacramento has historically been prone to flooding. As shown in Figure 1 , the American River descends the Sierra Nevada crest from the northeast down to the city of Sacramento, where it meets the largest river in California, the Sacramento River. On occasion, warm and wet West Coast storm patterns deliver rain in the nearby mountains, which can create very large flows on the American River; the American River water then combines with the formidable flows of the Sacramento River, producing a high flood threat to the greater Sacramento area. Sacramento historically suffered significant damage during these storms. Soon after the city's founding in 1839, local efforts were undertaken to reduce the city's flood damages. A complex set of levees, dams, and related facilities were built near and within the city on both the Sacramento and American Rivers. Levees were built to keep flood waters confined to the river, and out of the floodplain where the city is located. Figure 1 shows levees lining both sides of the American River from its intersection with the Sacramento River upstream for 17 miles. Levees also completely surround the Natomas Basin, a historically agricultural area just north of Sacramento and east of the Sacramento River. These levees work in combination with Folsom Dam, which operates to capture flood waters and for other purposes (e.g., hydropower, irrigation, and municipal/industrial uses). Congress authorized construction of Folsom Dam 29 miles northeast of Sacramento, at the confluence of the North and South Forks of the American River (shown in Figure 1 ), in the Flood Control Act of 1944 (P.L. 78-534). The Corps completed construction of the 340-foot high structure in 1956. The dam was designed to regulate floodwaters by capturing heavy inflows from the upper American River watershed in the dam's reservoir. After construction, dam operations were transferred to the Bureau of Reclamation (Bureau) as part of the Central Valley Project. Other major multipurpose dams considered along the American River included Auburn Dam on the American River (see Figure 1 ). After decades of study by state and federal agencies, a dam at the Auburn site and substantial distribution facilities (commonly known as the Auburn-Folsom South Unit) were authorized in 1965 (P.L. 89-161). Although the primary purpose of the dam as authorized was to provide new and supplemental water supply for irrigation and municipal and industrial needs, another long-sought purpose of the project was to provide flood control benefits for the lower American River. Construction on the dam began in 1965, and was halted in 1975 due to seismic safety concerns. Some stakeholders continue to promote discussion of a dam at the Auburn site as an attractive alternative for managing floodwaters on the American River. Efforts to authorize construction of such a dam were unsuccessful in 1992, 1996, and 1999. (For more information, see " Studies " and " Other Considerations ," below; for some history of Auburn Dam, see out-of-print CRS Report 96-447 ENR, Auburn Dam on the American River: Fact Sheet , by [author name scrubbed], Steve Hughes, and Shelley Price, available upon request from the authors.) Evolving Understanding of Flood Risk Sacramento is facing a problem confronting communities nationwide as they update their flood hazard maps for the National Flood Insurance Program. Local agencies responsible for flood control have to demonstrate that their protection meets the 1% threshold (i.e., a greater than 1% annual probability of a flood). The 1% standard is used for imposing building restrictions and insurance requirements under the National Flood Insurance Program. Sacramento's flood risk has been periodically reevaluated as understanding and factors affecting its components change. Flood risk is the composite of three factors: threat of an event (e.g., probability of flood flows of different sizes affecting the region); consequence of an event (e.g., property damage, loss of life, economic loss, environmental damage, reduced health and safety); and vulnerability that allows a threat to cause consequences (e.g., level of protection provided by levees and dams, and their reliability). In designing Folsom Dam and other flood control projects to reduce Sacramento's vulnerability to flooding, Corps engineers used historic rainfall records, river flows, runoff data, land use information, and statistical tools available at the time. The initial design of Folsom Dam was for a dam with levees to protect against the threat of the largest documented flood in the watershed, which at the time was the flood of 1862; that design was soon adjusted to protect against a higher threat. Large storms in 1955, 1964, 1986, and 1996 produced rainfall in excess of any previous storm on record for the region. The floods in 1950 and 1955 and additional analysis following construction suggested that the dam and levees would provide less protection than originally estimated; in 1961, the Corps lowered its estimate of the city's protection level to protection from a 120-year event (i.e., a storm creating floodwaters that have a 0.83% annual probability of occurring). Then in 1986 (and again in 1996), the volume of flood waters came within 90% of Folsom Dam's flood operation capacity. The 1986 storm produced record inflows into Folsom Dam's reservoir, resulting in dam operators releasing floodwaters into the American River at a rate exceeding 115,000 cfs (cubic feet per second), which is the safe conveyance capacity for outflow on the river's channel below the dam. Portions of the city were nearly flooded as the American River came within inches of overtopping the levees; a major disaster for threatened areas was avoided only by abating storm conditions. A subsequent National Research Council report concluded that operational carelessness led to errors in dam operation during the 1986 flood that contributed to the flood threat that the city was exposed to. Recent studies using a more comprehensive picture of the city's flood risk place the city's flood protection at less than the 100-year level (i.e., a greater than 1% annual probability of a flood affecting the city). This revised estimate of protection is based on an improved understanding of the city's vulnerability that considers both the level of protection provided by levees and dams and the reliability of those structures. In particular, decreased confidence in levee reliability contributes to higher flood vulnerability estimates (i.e., lower estimates of the level of flood protection); confidence that levees can perform up to their full design capacity has decreased in the wake of levee failures in the region and weaknesses (using current standards) identified in levee construction and foundations. Some observers raise additional concerns about the city's level of protection; they note that storm and climate variability, as well as runoff patterns that can result from land use changes such as conversion of agricultural land to residential and urban land uses, may contribute to a higher flood threat than is currently assumed. Large storms could have a particularly catastrophic impact on Sacramento. A decade-old estimate of damages from an over 500,000 cfs peak inflow into Folsom Dam reservoir (400-year flood, or 0.25% modeled annual likelihood) indicated that Sacramento would suffer $16 billion in residential, commercial, industrial, and public property damage, in addition to the disruption of government and transportation networks, and the loss of lives. Recent growth in the Sacramento area may increase flooding damages. Recent Efforts to Reduce Flood Vulnerability Following the 1986 storm, the Corps, the California Reclamation Board, and the Sacramento Area Flood Control Agency (SAFCA) formed a partnership to find ways to reduce flood vulnerability and losses. Since 1992, Congress has authorized construction of physical modification projects to improve flood protection around Sacramento and Folsom Dam, including (1) the Common Features Project that consists of levee improvements on the American and Sacramento Rivers; (2) the Folsom Dam Modification that entails changes to the flood gates and spillway of Folsom Dam; and (3) the Folsom Dam Raise that elevates the concrete and earth portions of the dam, provides for the construction of a permanent bridge, and authorizes other related measures. Construction of the Common Features, the Dam Modifications, and the Dam Raise as currently planned would raise the flood protection for Sacramento to a 1 in 233-year flood (0.4% annual chance of flooding). These projects would improve levee reliability and permit higher releases from Folsom Dam. The non-federal partners for these projects are the State of California and the Sacramento Area Flood Control Agency. It should also be noted that Congress has authorized several operational changes to Folsom Dam, including forecast-based operations and variable storage. Re-operation is important in achieving the shared goals of the federal, state, and local partners. Forecast-based operations, authorized in the Department of Defense Appropriations Act of FY1993 ( P.L. 102-396 ), allow for the release of waters from Folsom Dam in advance of anticipated floodwaters. Variable storage was originally authorized in the Water Resources and Development Act of 1996 (WRDA 1996, P.L. 104-303 ), and provides for additional flood storage capacity in Folsom Reservoir depending on the levels of other reservoirs in the American River watershed. Depending on the results of analyses underway, implementing re-operation may require congressional action. Since the focus of this report is on structural modifications to flood control structures, operational changes will receive little additional treatment here. Studies After Sacramento nearly flooded in 1986, the Corps with state and local partners initiated a reconnaissance study of the need to provide additional flood protection to the city. Based on the reconnaissance study, a feasibility study was authorized in Continuing Appropriations for 1987 ( P.L. 99-591 ). The feasibility study was directed to define flood risks and develop potential projects to increase flood protection in the American River watershed. The Corps' resulting 1991 Feasibility Report analyzed six flood protection options designed to protect the region from flood levels produced by 100 to 400 year events. The report recommended building a 508-foot dry dam on the American River at Auburn, CA. A dry dam is a dam built for use only in a flood; the Auburn Dam that was halted in 1975 was not a dry detention dam, but a multi-purpose facility with a permanent reservoir. The Administration did not support the Corps' proposal, and Congress instead authorized construction of levee improvements in the Natomas Basin in 1993. Congress also requested additional information on flood prevention alternatives in a supplemental report. The resulting Corps 1996 Supplemental Report identified three separate plans for greater flood protection in the Sacramento region: (1) the Folsom Modification Plan; (2) the Stepped Release Plan; and (3) the Detention Dam Plan at the Auburn site. The first two plans modified Folsom Dam's release and storage capacity, while the third plan called for a dry dam at the Auburn site. While the Folsom Dam alternatives had lower federal costs than the Auburn site alternative, their estimated flood damage reduction benefits were lower because they would provide lower flood protection levels than a detention dam at the Auburn site. Estimates at the time indicated that the Folsom Modification Plan would provide 180-year flood protection (0.55% chance of flooding annually) and the Stepped Release Plan would provide 250-year protection (0.4% chance); the detention dam at the Auburn site was estimated to provide 400-year protection (0.25% chance). Common Features Recognizing the contentious nature of the three proposed plans, Congress approved in §101 of the Water Resources Development Act (WRDA) of 1996 ( P.L. 104-303 ), a basic set of levee improvements on the American and Sacramento Rivers that were common to all three plans. Congress subsequently authorized several miles of additional levee improvements, as well as an increase in the federal funding cap, in §366 of WRDA 1999 ( P.L. 106-53 ). Figure 1 shows the location of the levee improvements relative to existing levees. Together, the 1996 and 1999 WRDA levee improvements became known as the Common Features Project; these improvements primarily consisted of constructing cut-off walls to increase the reliability of the flood protection structures in the Sacramento area. The fortified levee system would allow for increased conveyance capacity of the river channel, thus permitting larger releases from Folsom Dam during a flood. Modification Plan Section 101 of WRDA 1999 authorized the Folsom Dam Modification Project. The modification project would increase the maximum safe releases from the dam while also allowing increased storage at Folsom Reservoir (shown above in Figure 2 ) by four feet (720,000 acre-feet). It would do this primarily by expanding existing dam outlets and replacing emergency gates. At the time of passage, these improvements were thought to raise flood protection levels to the 140- to 160-year level. Selected components of the Folsom Dam Modification Project having to do with alterations to the dam are shown below in Figure 3 . Additional studies to improve flood storage capacity were authorized in §566 of WRDA 1999. Dam Raise Based on studies to expand the flood storage capacity authorized in WRDA 1999, in 2002, the Corps recommended the Folsom Dam Raise Plan. Congress authorized the raise in §129 of the Energy and Water Development Appropriations Act of FY2004 ( P.L. 108-137 ). The current plan shown in Figure 4 would raise the concrete part of Folsom Dam approximately seven feet. It also would raise the eight dikes around Folsom Reservoir and other dam infrastructure. Additionally, the dam raise plan also includes measures related to ecosystem restoration and environmental protection on the lower American River floodplain. The construction of a permanent bridge below the dam is a related component of the plan authorized in the Energy and Water Development Appropriations Act for FY2004. Current Status Status of Authorized Projects A summary of the authorized construction projects is provided in Table 1 . The table shows that the Corps has undertaken construction on many of the Common Features improvements on the American River and Sacramento Basin levees, but has not yet begun construction on the other authorized construction projects. As of May 2006, the Corps estimated a completion date of 2007 for the American River components of the Common Features Project. However, the Natomas Basin levee improvements portion of the project is under reevaluation because of structural problems with the levees, which have thrown into question how to proceed, what will be the cost of addressing the problems, and if there is sufficient authority to conduct the repairs. The Dam Modification Project is currently on hold. After pre-construction engineering and design was complete in 2005, private sector estimates of the construction costs were significantly higher than the Corps' initial estimates. Because these revised estimates involved changes to the previous benefit-cost analysis of the project, they precipitated a Reevaluation Report and a Post-Authorization Change report by the Corps for the dam modification project. The Folsom Dam Raise project remains in the pre-construction engineering and design stage. Elements of the plan could be delayed, depending on the status of the Dam Modification Plan. Currently, design of the dam raise is scheduled to take place through 2011, with construction occurring from 2011 to 2017. Notably, the Folsom Bridge component of the project is progressing on an expedited schedule due to traffic congestion and the need for a connection to replace the old road over Folsom Dam, which has been closed since 2003 because of security concerns. The estimated construction schedule for the bridge shows completion by December 2008. Other Considerations Ongoing problems with currently authorized projects have led to the consideration of several other options relating to Folsom Dam and flood control for Sacramento. While it is unclear whether Congress will consider any of the projects in this section for authorization, recent developments suggest that they may be part of the congressional debate in the future. Proposed Auxiliary Spillway The aforementioned revisions to cost estimates for the authorized dam modifications presented the Corps with several problems which it is attempting to address. The normal process precipitated by the cost revisions would involve a Reevaluation Report, which generally takes three to five years to complete, before a final Post-Authorization Change Report could be presented to Congress. This would have significantly delayed construction of the dam modifications. Therefore, instead of conducting the Reevaluation Report, the Corps decided in the fall of 2005 to jointly evaluate with the Bureau of Reclamation five alternatives that exceeded or met current project objectives for both agencies through a Project Alternative Solutions Study (PASS). The first PASS report (PASS I) identified a 1,700-foot concrete auxiliary spillway on the south side of the dam (shown in Figure 5 ) and related actions as the most promising of the five potential options, and the second PASS Report (PASS II) has estimated this option to have a lower cost ($1.36 billion compared to $1.73 billion), with construction complete by 2017 instead of 2023. Currently, it remains to be seen whether the spillway and the related actions laid out in the PASS II report will be adopted by the Corps. This will be determined when the Corps issues its Post-Authorization Change (PAC) Report, scheduled for completion in May 2007. The Corps has indicated that its PAC Report will compare current federally-authorized projects with additional potential alternatives such as the auxiliary spillway, and recommend a preferred option. Depending on which is the preferred alternative, current authorizations may be sufficient or additional congressional authorization may be necessary before proceeding with construction. Auburn Dam Renewed Debate The congressional debate over Sacramento flood protection continues to include Auburn Dam. Congress approved additional appropriations in the Energy and Water Development Appropriations Act of FY2006 for an updated study on Auburn Dam (often referred to as the Auburn-Folsom South Unit), reviving debate on this subject. In §209, Congress appropriated $1.0 million to the Bureau of Reclamation to complete an updated cost-benefit analysis of Auburn Dam. Whether to pursue a dry dam or a multi-purpose storage facility at the Auburn site continues to be discussed in debates over the Corps' annual appropriations. Current issue in the debate over the utility, urgency and feasibility of Auburn Dam is the identification of a non-federal sponsor to share the project's cost. Because of its large size and cost, potential environmental and recreational effects, and seismic history, discussion of continuing construction on Auburn Dam or authorizing another dam at the Auburn site continues to be controversial. Concluding Remarks How to reduce flood risks in developed and developing areas is a problem being faced by communities nationwide, and is receiving increased attention as the reliability of existing infrastructure is reevaluated in the aftermath of Hurricane Katrina. In the last half century, the dam and levee system around Sacramento has proved crucial in protecting the city from flooding. The Folsom Dam is an important component in this flood protection. Recently, the federal government has authorized three major flood protection improvement projects in the Sacramento area. These include improvements to Folsom Dam's operational rules, improvements to the American and Sacramento Rivers and Natomas Basin levees, as well as modifications to Folsom Dam's flood gates and a raise of the dam itself. Some of the federally authorized improvements involving fortification of the American and Sacramento River levees are under construction or completed, while others are undergoing reevaluation. Other plans, which would increase the capacity and flow levels at Folsom Dam and improve its ability to provide flood protection, remain in the pre-construction engineering and design stage, and have encountered setbacks to construction because of high cost estimates. A recent plan jointly authored by the Corps and the Bureau suggests that an auxiliary spillway to the south of Folsom Dam could achieve the objectives of prior authorizations on an enhanced timetable and at a reduced cost, but this option has not yet been officially endorsed by the Corps. A revised course of action will be suggested in the Corps' PAC Report, due in December 2006. Additional congressional authorization may be required if Congress chooses to adopt the auxiliary spillway alternative. Issues for Congress include whether, and if so, how, to modify authorization and appropriations for improvements to the management of floodwaters at Folsom Dam and in the American River Basin. In reconsidering these, Congress has a range of options; for example, it may consider less expensive alternatives to current projects, such as the auxiliary spillway, or undertake a full review of Sacramento flood control policy, including unauthorized alternatives such as Auburn Dam.

Sacramento, California, is among the U.S. cities most vulnerable to flooding, and regional growth is increasing the potential losses from flooding. A major flood could inundate developed and agricultural areas, disrupting the economy and damaging infrastructure and property. How to reduce flood risks in developed and developing areas is a problem faced by communities nationwide, and is receiving increased attention as the reliability of existing infrastructure is reevaluated in the aftermath of Hurricane Katrina. Sacramento's flood protection system, which includes levees on the American and Sacramento Rivers as well as Folsom Dam on the American River, has been crucial in protecting the city over the last 50 years. Storms in 1986 and 1996 prompted increased attention to Sacramento flood concerns from the federal government, which subsequently has contributed efforts to reduce the city's flood vulnerability. Beginning in 1987, Congress authorized and appropriated funds for several studies by the U.S. Army Corps of Engineers (Corps) to investigate flood protection in the Sacramento area. These studies showed that the city's flood damage reduction system provided less than 100-year flood protection (i.e., a greater than 1% annual chance of flooding). The studies suggested a number of options to augment flood protection, including improvements to local levees, various changes and additions to the federally constructed Folsom Dam, and a dam upstream from Folsom Dam on the American River (Auburn Dam). Since 1992, Congress has authorized a variety of actions, including improving levees and modifying Folsom Dam. Although Congress authorized plans to expand Folsom Dam's capacity to regulate larger floods, some planned activities have become problematic due to changes in cost estimates. Current studies are exploring additional potential options addressing flood control in the area. Congress is likely to revisit issues relating to authorization, cost, and oversight of Sacramento flood protection projects. Reconsideration of Auburn Dam on the American River (also known as the Auburn-Folsom South Unit) or another dam near the Auburn site also may be debated. In addition to structural changes at Folsom Dam, Congress also has authorized and implemented dam operational changes. Some actions to rehabilitate and improve levees on the American and Sacramento Rivers are currently under construction; others have been delayed and are undergoing reevaluation. This report briefly outlines recent major federal involvement in flood control in the Sacramento region of California, with particular attention to recent changes and developments in the construction of projects at Folsom Dam. It outlines recent congressional and agency actions intended to strengthen flood control in this region, and provides an update on the status of these actions.

Introduction This report provides background information and potential issues for Congress regarding the growing strategic competition between China and India—the world's two most populous nations—in South Asia and the Indian Ocean Region (IOR). The issue for Congress is how the United States should respond to this strategic rivalry and what role Congress might play in shaping that response. Sino-Indian strategic competition in the IOR poses several specific policy and oversight issues for Congress. Decisions that Congress makes on these issues could affect numerous aspects of U.S. policy, including U.S. relations with India, China, and other countries in the region; U.S. defense programs and spending levels; U.S. arms sales and foreign assistance programs; and U.S. trade and energy policy. Other CRS reports cover related issues, such as U.S.-China relations, U.S-India relations, U.S. relations with other countries in the IOR, China's military forces, and other specific issues relating to U.S. policy and this part of the world. Background U.S. Strategy and the Indian Ocean Region Overview of U.S. Strategic Goals, Objectives, and Assets Indian Ocean Region in U.S. Strategy A central long-term tenet of U.S. strategic thinking has been that the United States cannot allow any one power, or coalition of powers, to dominate the Eurasian land mass, as such a power or coalition would have the ability to significantly threaten the United States and its interests. Geopolitical thinkers have long debated the importance of the Eurasian littoral in influencing the strategic direction of the Eurasian landmass. (For more on geopolitics and geo-economics, see Appendix A .) South Asia and the Indian Ocean littoral are a significant part of this broad strategic geography. As such, it is of strategic importance to the United States to understand the evolving power dynamics related to China-India rivalry in the IOR. The world's geo-economic shift toward Asia, and the related increase in Indian Ocean trade and investment, is increasing the strategic importance of the Indian Ocean Region to many nations. Further, the rapid development of China's economic and military capabilities in the IOR is a source of rivalry and tension. The Indian Ocean is the world's busiest trade corridor, carrying two thirds of global oil shipments and a third of bulk cargo. Approximately 80% of China's, 90% of South Korea's, and 90% of Japan's oil passes through the Indian Ocean. This economic dependence on energy and trade transiting the Indian Ocean has become a strategic vulnerability for these states at a time when the United States is becoming less dependent on imported energy. U.S. Goals and Objectives Under several past administrations, U.S. policy toward the Indo-Pacific has included the following goals and objectives: Shape the strategic dynamics in the IOR as needed to prevent Asia from being dominated by a single hegemon or coalition of powers that could threaten the United States; Support U.S. friends and allies in the region and develop strategic and defense relationships with regional partners to strengthen the U.S strategic standing in the region; Promote a rules-based order and norms that support regional stability; Protect U.S. access to energy supplies; Help maintain freedom of navigation on the high seas and through the strategic choke points of the Indo-Pacific to facilitate the flow of U.S. and global trade and energy resources and the transit of U.S. naval forces; Prevent the region from being used by terrorists as bases of operations; Prevent the proliferation of Weapons of Mass Destruction from the region to state and non-state actors; Prevent large scale conflicts, such as between India and Pakistan, to preserve regional stability and trade; Keep the United States engaged in the dominant economic and strategic architectures of the region to promote U.S. economic interests; Continue to work with like-minded partners to support open societies and promote shared values including the rule of law, human rights, democracy and religious freedom; Conduct counterpiracy operations; and Work with China, India and regional states to address the threat of climate change in bilateral, multilateral, and global contexts. Under the Trump Administration, some of these assumptions and policy positions, such as the importance of climate change, have changed. U.S. Assets The United States has significant military assets in the Indian Ocean Region including Camp Lemonnier in Djibouti , which is the primary base of operations for U.S. Africa Command in the Horn of Africa, supports approximately 4,000 U.S. and allied military and civilian personnel. A U.S. Navy Support Facility is located on the British Indian Ocean Territory of Diego Garcia in the Indian Ocean south of India. The facility "provides logistic support to forces forward deployed to the Indian Ocean and Persian Gulf areas of responsibility (AOR)." There are approximately 2,500 U.S. and allied military and civilian personnel on Diego Garcia. Naval Support Activity Bahrain is home to U.S. Naval Forces Central Command (CENTCOM) and the U.S. Fifth Fleet. Naval Support Activity Bahrain provides operational support to U.S. and coalition forces in the CENTCOM AOR. In addition to much of Central Asia and the Middle East, CENTCOM's AOR includes the Persian Gulf, the Red Sea, and the Arabian Sea. The U.S. Pacific Command's (PACOM) AOR extends across much of the Indian Ocean. The United States is also developing a rotational presence of up to 2,500 marines and aircraft near Darwin, on Australia's northern coast, as part of its alliance relationship with Australia. 2017 U.S. National Security Strategy and 2018 U.S. National Defense Strategy 2017 U.S. National Security Strategy15 The 2017 National Security Strategy (NSS) of the Trump Administration declares that "great power competition [has] returned" and places significant emphasis on the Indo-Pacific while describing China, along with Russia, as a revisionist power and competitor challenging "American power, influence and interests" while "attempting to erode American security and prosperity." One observer states that, "The biggest departure from previous NSS documents is the placement of the Indo-Pacific discussion—at the very top of the regions considered, above Europe and the Middle East." The NSS states that "China seeks to displace the United States in the Indo-Pacific region, expand the reaches of its state-driven economic model, and reorder the region in its favor." It identifies "a geopolitical competition between free and repressive visions of world order" in the Indo-Pacific. The document also states that "China's infrastructure investments and trade strategies reinforce its geopolitical aspirations." The NSS lists the "Indo-Pacific" as the first of six regional contexts it discusses and states that, "we welcome India's emergence as a leading global power and stronger strategic and defense partner." It goes on to say that the United States will expand and deepen its security cooperation and strategic partnership with India while supporting India's leadership role in the Indian Ocean region. The NSS also states: "We will seek to increase quadrilateral cooperation with Japan, Australia, and India." The NSS takes the view that past assumptions that engagement with rivals through international fora and commerce would turn them into benign partners have, for the most part, turned out to be false. 2018 National Defense Strategy The 2018 National Defense Strategy views the reemergence of long-term, strategic competition by revisionist powers as the central challenge to the United States' prosperity and security. Within this context it states China is leveraging military modernization, influence operations, and predatory economics to coerce neighboring countries to reorder the Indo-Pacific region to their advantage. ... it will continue to pursue a military modernization program that seeks Indo-Pacific regional hegemony in the near term and displacement of the United States to achieve global preeminence in the future. The Defense Strategy prioritizes expanding Indo-Pacific alliances and partnerships to achieve a "networked security architecture capable of deterring aggression, maintaining stability, and ensuring free access to common domains ... and preserve the free and open international system." Concept of a Free and Open Indo-Pacific On October 18, 2017, in a speech described as seeking to establish a foundation for U.S.-India relations over the next century, then-Secretary of State Rex Tillerson stressed the importance of the United States' developing a strategic partnership with India by stating that, "The Trump administration is determined to dramatically deepen ways ... to further this partnership." Tillerson pointed to the annual Malabar naval exercises and growing bilateral defense ties before observing, "The United States and India are increasingly global partners with growing strategic convergence.... The emerging Delhi-Washington strategic partnership stands upon a shared commitment upholding the rule of law, freedom of navigation, universal values, and free trade." In discussing developing ties with India, Tillerson described China's rise as at times undermining the international, rules-based order even as countries like India operate within a framework that protects other nations' sovereignty. China's provocative actions in the South China Sea directly challenge the international law and norms that the United States and India both stand for. The United States seeks constructive relations with China, but we will not shrink from China's challenges to the rules-based order and where China subverts the sovereignty of neighboring countries and disadvantages the U.S. and our friends. In this period of uncertainty and somewhat angst, India needs a reliable partner on the world stage. I want to make clear: with our shared values and vision for global stability, peace, and prosperity, the United States is that partner. Former Secretary Tillerson also raised the issue of "predatory economics" and the related need to counter China's financing mechanisms by providing alternative financing to states. India lauded Tillerson's remarks while China was more critical. Tillerson's affirmation of the strategic partnership between the United States and India builds on bilateral developments of the past several years, over various U.S. administrations. The U.S.-India Joint Strategic Vision for the Asia-Pacific and the Indian Ocean Region of 2015, released under President Barack Obama, affirmed a growing partnership between the two countries: As the leaders of the world's two largest democracies that bridge the Asia-Pacific and Indian Ocean region and reflecting our agreement that a closer partnership between the United States and India is indispensable to promoting peace, prosperity and stability in those regions, we have agreed on a Joint Strategic Vision for the region. Bilateral cooperation is also taking on a more practical aspect. For example, in January 2017 the United States and India were reportedly "jointly tracking Chinese naval movements in the Indian Ocean." The Trump Administration has called for an "America First Foreign Policy" and emphasized the need for "Making Our Military Strong Again." The Administration has highlighted that "Our navy has shrunk from more than 500 ships in 1991 to 275 in 2016. Our Air Force is roughly one third smaller than in 1991." An understanding of strategic dynamics between India and China may help inform congressional decisionmakers as they make military procurement decisions related to the Administration's policies and U.S. interests. To this end, Congress can help the Administration to define more clearly what U.S. interests, objectives, and strategy are relative to India and China in an Indian Ocean context. Some Members of Congress have observed the increasing importance of the Indo-Pacific. H.R. 2621 , "Strengthening Security in the Indo-Asia-Pacific Act," introduced in May 2017 and referred to the Subcommittee on Asia and the Pacific in June 2017, is one example. It would declare that It is the sense of Congress that (1) the security, stability, and prosperity of the Indo-Asia-Pacific region is vital to the national interests of the United States; (2) the United States should maintain a military capability in the region that is able to project power, deter acts of aggression, and respond, if necessary, to regional threats. The proposed legislation also states: "Continued United States engagement in the Indo-Asia-Pacific region is fundamental to maintaining security and stability in the region, and the United States should expand and optimize cooperative relationships with and among allies and partners in the region." Congressional interest in the region was also demonstrated by the House Armed Services Committee's February 14, 2018, hearing on "The Military Posture and Security Challenges in the Indo-Asia-Pacific Region." Admiral Harry Harris, Commander, U.S. Pacific Command, testified that "The U.S. has a lasting national interest in the Indo-Pacific," adding, "To be blunt, the stability of the Indo-Pacific matters to America. And the region needs a strong America, just as America needs a vibrant, thriving Indo-Pacific that remains both politically and economically free." During the hearing, Harris noted that the current naval modernization program of the People's Liberation Army Navy (PLA Navy) has China on track to surpass Russia and become the world's second largest navy by 2020. U.S Perspectives on China's Rise30 How U.S. policymakers view China-India rivalry in the IOR will in part be shaped by U.S. perspectives on China's rise, which one source has described as falling into one of three broad perspectives: China's rise is a direct threat to U.S. national interests. Beijing seeks to weaken the U.S. alliance system in the Asia Pacific. China has no strategic plan to supplant the United States in the region. Beijing's assertiveness arises from insecurity and opportunism as a consequence of the perceived U.S. threat. It is too early to know China's endgame objectives. Nevertheless, the United States needs to prepare for all eventualities. Former Principal Deputy Assistant Secretary of Defense for Asian and Pacific Affairs Kelly Magsamen described U.S.-China competition as the United States' most consequential challenge and India as the United States' biggest strategic opportunity during an April 2017 Senate Armed Services Committee hearing on Policy and Strategy in the Asia-Pacific. Many analysts and policymakers increasingly view China as a rising competitor seeking to challenge the West and the existing rules-based order. Within this context, many U.S. strategic analysts view India's rise as a positive development for economic and strategic reasons. One observer states Only a strong confident India can take a more prominent diplomatic and, if necessary, military role in the world. A strong India can help moderate China's more extreme international behavior, for example, by pushing back on China's encroachment into the Indian Ocean and over the two countries' Himalayan border. Growing U.S. Energy Independence The United States energy dynamic has been fundamentally altered by new U.S. domestic sources of energy derived from new extractive technologies such as hydraulic fracturing or "fracking." As a result, the United States surpassed Russia and Saudi Arabia to become the world's largest energy producer in 2013. The United States' reliance on imported oil peaked in 2005 at 60% of supply. Natural gas production in the United States is projected by some analysts to grow by 6% a year from 2017 to 2020. In 2016, U.S. net imports of petroleum equaled 25% of U.S. petroleum consumption. "This percentage was up slightly from 24% in 2015, which was the lowest level since 1970." Despite growing U.S. energy independence, the IOR may remain of key strategic significance to the United States. While the United States is now considerably less dependent on imported energy than in the past, it will likely import energy for years to come. Some assert that "the strategic arguments that rationalized the Carter Doctrine (see below) remain valid today," even as the Soviet Union is no longer. Many U.S. friends and allies, as well as China, rely on energy and trade that transits the Indian Ocean. In 2013 testimony before the House Energy and Commerce Committee's Subcommittee on Energy and Power Daniel Yergin, author of The Quest: Energy, Security and the Remaking of the Modern World , observed that despite the rapid increases in U.S. energy production the United States would remain an energy importer for some time even as the Western Hemisphere and North America are headed towards energy self-sufficiency. A February 2018 projection had the United States becoming a net energy exporter by 2022. That said, it is also expected that the United States will continue to import 6.5 million to 8 million barrels of crude oil per day through 2050. The United States' geostrategic focus on the Persian Gulf and IOR can be traced to the Carter Doctrine articulated by President Jimmy Carter in his 1980 State of the Union Address. This response to the 1979 Soviet invasion of Afghanistan stated, "an attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States." The key aim of the Doctrine was to warn the Soviets away from any plans to seek to control the energy resources of the Persian Gulf region and thereby maintain regional stability and U.S. access to the region's energy resources. During the 1970s, the United States experienced energy shortages as the result of supply restrictions imposed by the Organization of the Petroleum Exporting Countries (OPEC). This highlighted U.S. vulnerability created by dependence on external sources of energy and, as a result, the strategic need to secure these resources. As noted above, key U.S. allies such as Japan and South Korea remain to a large degree dependent on Persian Gulf energy. The "Quad" Group The Quad has been defined as "a loose geostrategic alignment of states concerned with China's potential challenge to their interests." As such, some observers view it as one of the key strategic responses to China's rise in the Indo-Pacific. The Quad was first convened on the sidelines of the ASEAN Regional Forum in May 2007. Following this, Australia's then-Prime Minister Kevin Rudd reconsidered Australia's commitment to the Quad, leading to a ten-year hiatus of Australian government interest in participation. Australia, India, Japan, and the United States held senior official consultations on the Indo-Pacific in November 2017 in Manila. India's motivation for participation in efforts to revive the Quadrilateral group with the United States, Japan, and Australia appears to stem, at least in part, from the perception of a need for increased coordination on maritime security issues in the Indo-Pacific. The Quad raises the role of values, as well as interests, in regional security groups. In October 2017, U.S. Acting Assistant Secretary for South and Central Asian Affairs Alice Wells stated, "I think the idea is how do we bring together countries that share these same values to reinforce these values in the global architecture." Wells went on to describe the Quad as "providing an alternative to countries in the region who are seeking needed investment in their infrastructure" so that they have "alternatives that don't include predatory financing or unsustainable debt." Former Indian Secretary Anil Wadhwa reportedly believes reviving the four-way security dialogue is a necessary part of managing China. In 2018, United States Pacific Commander Admiral Harris stated at a meeting in Delhi, India, that China is a "disruptive transitional force in the Indo-Pacific" and that "We must be willing to take the tough decisions to ensure the Indo-Pacific region and the Indian Ocean remain free, open and prosperous....This requires like-minded nations to develop capacities, leverage each other's capabilities." Other observers are less certain of the efficacy of such a Quadrilateral group. China-India Strategic Rivalry in Indian Ocean Region Overview China's economic and military power has been growing significantly and China's military modernization efforts have greatly augmented China's capability. China's growing naval capability, including "capabilities against submarines—its rapidly maturing capabilities in fields such as anti-ship missiles, modern surface combatants, submarines operations and longer range deployments," has significant implications for India. For some time, the United States has sought to "assist the growth of Indian power. On the assumption that New Delhi and Washington share a common interest in preventing Chinese hegemony in Asia, the United States has sought to bolster India as a counter weight to China." There is a growing perception among many analysts that China is asserting itself to expand its influence and challenge the West, India, and a rules-based international order, particularly in the Indo-Pacific region. One means for doing so is China's use of its geo-economic leverage, which is largely gained through its trade and investment relationships currently being developed through its Belt and Road Initiative (BRI). According to one analyst The heavily promoted One Belt, One Road initiative is, in part, an attempt to develop new markets for China across Eurasia—with infrastructure links across central and south Asia towards Europe and Africa.... China's developing interest in Eurasia has significant strategic consequences. The Indian government is concerned that China is encircling it with infrastructure projects that have clear military implications.... The ultimate ambition of the Belt and Road initiative is to turn the Eurasian landmass into an economic and strategic region that will rival—and finally surpass—the Euro-Atlantic region. China-India strategic rivalry in the IOR is shaped by a number factors, including the following: China's further development of its strategic partnership with Indian rival Pakistan through the China-Pakistan Economic Corridor (CPEC), a key project in China's BRI; China's strategic, trade, investment and diplomatic advances in Bangladesh, Burma (Myanmar), Nepal, and Sri Lanka; China's expanding naval and military presence in the IOR including the new military base at Djibouti (and potentially another in Pakistan) as well as increased naval presence in the Indian Ocean; India's decision not to join China's BRI over sovereignty concerns related to CPEC projects in Kashmir; Border disputes including China's claim to the Indian state of Arunachal Pradesh and China and India's border standoff at Doklam in Bhutan; China's opposition to India joining the Nuclear Suppliers Group and to it becoming a permanent member of the United Nations Security Council; India's hosting the Dalai Lama and nearly 100,000 exiled Tibetans; India's Act East Policy including developing relations with Vietnam; China's role in blocking the designation of certain anti-India terrorists at the United Nations; India's trade deficit with China; and the two nations' starkly different political systems (India is the world's largest democracy and China is presenting its authoritarian system as a model for the world). India and China's Growing Presence in IOR57 Many analysts view the emergence of a Sino-centric Asian system as not in India's interest, particularly since India has its own aspirations to great power status in Asia. India has generally welcomed the United States' strategic overtures under the previous Bush and Obama Administrations, but has also sought to maintain its independence and avoid provoking China. Prime Minister Modi's call for India to become a leading power, or a great power, marks a change for India. For some Whether India becomes a great power depends on its ability to achieve multidimensional success in terms of improving its economic performance and wider regional integration, acquiring effective military capabilities for power projection coupled with wise policies for their use, and sustaining its democracy successfully by accommodating the diverse ambitions of its peoples. India's aspirations to great power status are longstanding. Several developments—including India's economic growth (which may soon make India's economy larger than either France's or Britain's), the modernization of its defense force, Prime Minister Modi's more active foreign policy and conceptualization of India as a "leading power," India's increasing economic interdependence (with 40% of its GDP linked to global trade), an increasingly multi-polar world, and India's ambitions to assert influence in South Asia and the Indian Ocean—contribute to India's growing status as one of the world's leading powers. In 2016, India had the world's fifth largest defense expenditure after the U.S., China, Russia and Saudi Arabia. Speaking in 2015, Indian Foreign Secretary S. Jaishankar discussed India's efforts to develop greater connectivity with neighbors and the development of an integrated Indian Ocean strategy and the need for India to pursue a more energetic diplomacy that seeks a larger and deeper footprint in the world.... The transition in India is an expression of greater self-confidence. Its foreign policy dimension is to aspire to be a leading power, rather than just a balancing power. Consequently, there is also a willingness to shoulder greater global responsibilities. Tensions related to ongoing Indian border disputes with China and concern over China's increased presence in its neighborhood as well as the welcoming of a stronger India in world affairs by the United States, contributes to a level of agreement by some in India that the presence of the United States in the region generally supports Indian interests. That said, India's continuing attachment to policies of strategic autonomy and its reluctance to take actions that could antagonize China, have placed limits on its relationship with Washington. While mounting tensions characterized bilateral relations between New Delhi and Beijing for much of 2017, more recent events point to efforts to improve bilateral ties between them. India is reportedly seeking a "reset" of its relationship with China in the lead up to the Prime Minister's visit to the Shanghai Cooperation Organization (SCO) summit in Qingdao in June 2018. In the view of one analyst, "Both sides seem to be conscious of the need to do something to arrest the decline in their ties." Another report states, "Post-Doklam, India and China are trying to put the pieces together." Prime Minister Modi and President Xi met on the sidelines of the BRICS summit in Xiamen in September 2017 and opened a "forward looking" round of engagement, apparently including border confidence building measures aimed at preventing future border incidents from occurring. Foreign Secretary S. Jaishankar emphasized that the two leaders had "laid out a very positive view of the relationship" and stated I think one of the important points which were made in the meeting was that peace and tranquility in the border areas was a prerequisite for the further development of the bilateral relationship and there should be more effort to really enhance and strengthen the mutual level of trust between the two sides. In December 2017, the Foreign Ministers of China, India, and Russia held their 15 th meeting in New Delhi to discuss issues of common concern. Among other provisions in their joint communique, they reiterated the importance that they attach to the trilateral platform, and the Foreign Ministers of Russia and China welcomed the accession of India as a member of the SCO in June 2017. Indian analyst Raja Mohan has observed that "India might be quite open to a substantive dialogue with China on the Belt and Road Initiative if Xi is prepared to address New Delhi's concerns on sovereignty and sustainability" and that "Delhi has said it is open to consultations with China on the development of regional trans-border infrastructure." Some Emerging Implications of China-India Rivalry Emerging implications of Sino-Indian rivalry in the IOR include the following: This rivalry is no longer mainly limited to the Sino-India border in the Himalayan geographic area, though that area, too, has seen an increase in tensions as demonstrated by the stand-off at Doklam. China-India competition is expanding into the Indian Ocean region and as a result is more maritime-focused than in the past. This has the potential to spur further development of naval assets on both sides that could have implications for U.S. naval procurement and regional posture. The geographic expansion of strategic competition between China and India is increasing strategic linkages between East Asia and South Asia and the Indian Ocean, making the broader Indo-Pacific region increasingly linked. Both India and China have an expanding vision of their place in the world. There may be increasing competition for energy and other resources across the IOR which could have an impact on global markets. Increasing competition with China may add impetus in India to further develop its relationship with the United States and other regional partners in the Indo-Pacific, such as Australia, Japan, and others. The competition may offer increasing opportunities to Indian Ocean littoral states to play China and India off against each other to extract foreign aid, military assistance, expanded trade and investment, and other advantages. The expansion of India's and China's naval capabilities and presence and increased engagement with regional states may relatively diminish the strategic posture of the United States in the IOR. For additional background information bearing on Sino-Indian rivalry in the IOR, see Appendix B through Appendix F . Potential Issues for Congress Sino-Indian strategic rivalry in the IOR poses a number of potential policy and oversight issues for Congress, including the following: Administration strategy . Where does the Indo-Pacific lie in the Administration's list of priorities? Does the Trump Administration have a fully developed, whole-of-government strategy for responding to Sino-Indian rivalry in the IOR, for achieving a free and open Indo-Pacific, and for implementing the Quad concept? If so, what are the elements of that strategy, and what programs and funding in the Administration's proposed FY2019 budget are intended to begin implementing that strategy? If not, when does the Trump Administration anticipate completing its development of such a strategy? Should Congress require the Trump Administration to submit a report or reports to Congress on the development and implementation of its strategy for responding to Sino-Indian rivalry in the IOR? Economic architec ture . Is the evolving strategy towards the Indo-Pacific overly reliant on military tools following the United States' withdrawal from the Trans-Pacific Partnership (TPP)? Should the Trump Administration seek to further develop or engage with an economic architecture for the Indo-Pacific that could promote peace and stability and enhance U.S. interests through enhanced economic interdependencies between regional states including China? State Department staffing. Numerous senior State Department positions, including positions relating to Asia, are currently unfilled due to nominees for those positions not having been named or confirmed, or to resignations of career State Department staff. What impact, if any, does the current staffing situation at the State Department have on the U.S. ability to develop and implement a whole-of-government strategy for responding to Sino-Asia rivalry in the IOR? Time and attention devoted to issue. Given the need for the United States to monitor and respond to other regions, is the Trump Administration devoting adequate time and resources to tracking and responding to developments in the IOR, including Sino-Indian rivalry in the IOR? U.S. r elations with o ther countries . What implications does Sino-Indian rivalry in the IOR have for U.S. relations with India, China, and other countries in the IOR, such as Pakistan, Sri Lanka, Australia, and countries in Southeast Asia? U.S. defense programs and spending levels. What implications does Sino-Indian rivalry in the IOR have for U.S. defense programs and spending levels? How, for example, might it affect requirements for maintaining forward-deployed U.S. military forces in the region, or for modernizing U.S. military forces, particularly naval and air forces? To what degree can or should the United States rely on Indian military forces (or the military forces of other U.S. allies or partner countries) to counter China's military presence in the IOR? U.S. arms sales. What implications does Sino-Indian rivalry in the IOR have for U.S. arms sales to India or other countries in the region? In light of Sino-Indian rivalry in the IOR, what kinds of arms should the United States sell to India, in what quantities, and on what schedule? U.S. foreign assistance. What implications does Sino-Indian rivalry in the IOR have for the scale or allocation of U.S. foreign assistance funding to the region? Is the IOR receiving too large a share, too little a share, or about the right share of total U.S. foreign assistance funding? Is the allocation of U.S. foreign assistance funding to individual countries in the region appropriate, or should it be changed in some way? Trade policy. What implications, if any, does Sino-Indian rivalry in the IOR have for U.S. trade policy? For example, does Sino-Indian rivalry in the IOR have any implications for whether the United States should pursue bilateral trade agreements as opposed to regional or multilateral trade agreements? Energy policy. What implications, if any, does Sino-Indian rivalry in the IOR have for U.S. energy policy? For example, what impact might it have on the role that Persian Gulf oil supplies have in the formulation of U.S. foreign and defense policy? Congressional organization and staffing. What implications, if any, does Sino-Indian rivalry in the IOR have for congressional organization and staffing? For example, are congressional subcommittees optimally organized and staffed (in terms of both number and experience levels of staffers) for addressing the issue of Sino-Indian rivalry in the IOR and its potential implications for the United States? Appendix A. Geopolitical and Geoeconomic Framework Geopolitics, and its related concept of geoeconomics, is a conceptual framework that may assist Congressional decisionmakers as they grapple with policy questions related to China-India rivalry in the IOR, particularly related to the strategic considerations behind China's Belt and Road Initiative (BRI). While Beijing is selling the promise of economic development throughout the region, its main focus is on the benefits that it hopes BRI will bring to China, not simply in the realm of economics but most importantly in the geopolitical domain. More robust engagement of the entire Eurasian continent through BRI is intended to enable China to better use its growing economic clout to achieve its ultimate political aims. BRI is thus not merely a list of revamped construction projects but a grand strategy that serves China's vision for itself as the uncontested leading power in the region. There are other conceptual frameworks, such as the security dilemma, which could also be applied. Geopolitics Geopolitical competition on the Indian Subcontinent was captured by the concept of the "Great Game," popularly articulated by Rudyard Kipling in his novel Kim . This Great Game was a competition for influence between the British East India Company in colonial India and Czarist Russia. Some analysts view today's conditions as an evolving new Great Game in the Indo-Pacific, focused primarily on trade, investment and infrastructure development, between China, on the one hand, and India, the United States, Japan, and Australia on the other. While the competition is primarily economic at present, this new Great Game is increasingly developing strategic and military aspects. Current American geopolitical thinking is to a large extent built on a tradition formed through a debate between United States Navy Captain Alfred Thayer Mahan, who wrote the seminal 1890 work The Influence of Sea Power on History , which argued that control of the seas and littorals determines strategic decisions on land, and Britain's Halford J. MacKinder who, in his 1904 work The Geographical Pivot of History , argued instead that the Eurasian heartland was central to strategic control. In Mahan's view, the control of sea lanes of communication and maritime choke points with the selective projection of power inland was key to a winning strategy. MacKinder's focus lay in the Eurasian interior rather than with maritime theaters of operation. This debate was expanded during and after World War II by Nicholas Spykman, who argued in America's Strategy in World Politics and The Geography of the Peace , that the "rimland" region of Eurasia, stretching in a crescent from Europe through the Indian Ocean to East Asia "had a tendency to unite in the hands of one state and that the country that controlled it would likely dominate the world." Such discussions of heartland, rimland, and grand geopolitics are once again part of strategic commentary about Eurasia and the Indo-Pacific region and growing great power competition. In his prepared statement for the Senate Armed Services Committee's January 2018 hearing on Global Challenges and U.S. National Security, former Secretary of State Henry Kissinger spoke of the "systemic failure of world order" and the trend toward the "international system's erosion." Kissinger pointed to negative trends with respect to sovereignty, geoeconomic coercion, and territorial acquisition by force and stated "traditional patterns of great power rivalry are returning." Kissinger also observed, " In a world of admitted rivalry and competition, a balance of power is necessary but not sufficient. The underlying question is whether a renewed rivalry between major powers can be kept from culminating in conflict ." House Foreign Affairs Subcommittee on Asia and the Pacific Chairman Representative Ted Yoho stated "For a long time, the world's center of gravity has been shifting to the East, and the Indian Ocean region is a major part of this trend." When he chaired the subcommittee, Representative Steve Chabot stated: As the center of the Indian Ocean Rim-land that extends from the Middle East to India and south to Indonesia, South Asia is a subregion in need of strategic stability. The scene of a power struggle for energy and security, the Indian Ocean maritime region holds the world's most important shipping and trade routes ... it is in the recognition of this region's importance that the rivalry between China and India is interlocked with a rivalry between the United States and China. A geopolitical debate inspired by Mahan, Mackinder, and Spykman can also be discerned in current Indian strategic debates over how best to deter any potential threat by China to India's border. A "continentalist" school of thought has placed relatively more emphasis on the need to develop a mountain strike corps to defend India's Himalayan border from a repeat of the disastrous [from the Indian perspective] 1962 border war, while others believe developing India's naval capabilities to be able to interdict China's shipping in the Indian Ocean is the best way to deter China's aggression. Former Indian Foreign Secretary Shayam Saran has also described how geopolitical concepts infuse China's strategic thought today: The ideas of McKinder and Mahan are as much discernible in Chinese strategic thinking today as are the concepts derived from the writings of the ancient Chinese strategist Sun Zi. The One Belt One Road project is McKinder and Mahan in equal measure; the Belt designed to secure Eurasia which McKinder called the World Island, dominance over which would grant global hegemony; and the Road which straddles the oceans, which would enable maritime ascendancy—the indispensable element in pursuing hegemony according to Mahan. America's strategic vision toward Asia has, until recently, generally conceptualized Asia as the Asia Pacific, which generally includes East Asia, Southeast Asia and the Southwest Pacific and a separate South Asia. Many analysts and officials are today referring to the broader region as the Indo-Pacific or Indo-Asia-Pacific: The way policy makers define and imagine regions can affect, among other things, the allocation of resources and high level attention.... Thus, the increasing use of the term Indo-Pacific carries implications for the way countries approach security competition or cooperation in maritime Asia. The idea of an Indo-Pacific region involves recognizing that the growing economic, geopolitical and security connections between the Western Pacific and the Indian Ocean regions are creating a single "strategic system." This view of the Indo-Pacific as an increasingly linked region was reinforced by former Secretary of State Tillerson and Admiral Harris in October 2017. Tillerson highlighted the importance of the IOR and stated, "The Indo-Pacific ... will be the most consequential part of the globe in the 21 st century." Admiral Harris stated, "the Indian and Pacific Oceans are the economic lifeblood that links India, Australia, Southeast Asia, Northeast Asia, Oceania and the United States." The Indian Ocean was also linked to U.S. security interests across Asia by former President Obama in his January 2012 strategic guidance document Sustaining U.S. Leadership: Priorities for the 21 st Century which stated: " U.S. economic and security interests are inextricably linked to developments in the arc extending from the Western Pacific and East Asia into the Indian Ocean region and South Asia, creating a mix of evolving challenges and opportunities . " The Obama Administration focused attention on the strategic importance of the Indo-Pacific to the United States through its rebalance to Asia strategy. While placing renewed emphasis on Asia, the strategy also linked United States interests in East Asia with "newly emphasized U.S. concerns in Southeast Asia, South Asia, the Indian Ocean, and the Pacific Ocean, creating a region wide initiative of extraordinary breadth." The Indo-Pacific is also a geostrategic concept that has gained acceptance in various countries in the region. In the November 2011 Foreign Policy article "America's Pacific Century," in which she articulated the concept of a United States "pivot" to Asia, former Secretary of State Hillary Clinton described strategic dynamics in the region: " The Asia-Pacific has become a key driver of global politics. Stretching from the Indian subcontinent to the western shores of the Americas, the region spans two oceans – the Pacific and the Indian - that are increasingly linked by shipping and strategy ." In this way, former Secretary Clinton extended the geostrategic definition of the Asia Pacific to include the Indian Ocean Region and South Asia. Geoeconomics Another lens that can aid congressional decision makers as they grapple with policy decisions related to Indo-Pacific strategic dynamics, which is particularly relevant when looking at China's Belt and Road Initiative, is the concept of geoeconomics. One definition of geoeconomics is "the use of economic instruments to promote and defend national interests, and to produce beneficial geopolitical results; and the effects of other nations' economic actions on a country's geopolitical goals." The United States has used geoeconomics to further its geopolitical interests. Past examples of the United States' use of geoeconomics include the Louisiana Purchase of 1803, the Lend Lease Policy of 1941, the 1944 Bretton Woods Agreement, the 1947 Marshall Plan, and the Suez Crisis of 1956. China has more recently also used the tools of geoeconomics to promote its interests in numerous ways. One example of China's use of geoeconomic power was its 2010 decision to prevent the export of rare earth elements (REE), which are used in the production of products such as hybrid cars, wind turbines, and guided missiles, to Japan. China's decision to halt shipments of REEs to Japan was apparently aimed at compelling Japan to release the captain of a fishing vessel whom it detained. China mines 93% of the world's rare earth minerals. In November 2017 testimony before the House Foreign Affairs, Subcommittee on Asia and the Pacific, Jonathan Stivers, a Commissioner at the U.S.-China Economic and Security Review Commission, stated China is marshalling the full resources of its state and private sector in an attempt to shape the Asia-Pacific region in a way that places China at the center of economic and security activity in the region. I believe that the U.S. needs a new strong, coordinated economic and development policy for Asia in order to effectively compete with China's growing investment and influence in the Asia-Pacific region. In his testimony, Stivers emphasized development financing, foreign assistance, and coordination with allies and partners, as well as trade, as key components of a new strategy. Appendix B. Geography, Historical Background and Border Tensions Strategic Choke Points The Atlantic and the Pacific Oceans are relatively open oceans when compared with the Indian Ocean, which in many ways is defined by its strategic choke points. The U.S. Energy Information Administration (EIA) has identified seven key straits that act as choke points for the world's primary maritime routes. Of these, the Straits of Hormuz, Malacca, and the Bab el-Mandeb are in the Indo-Pacific region. The EIA has pointed out that even temporary blockage of a choke point "can lead to substantial increases in total energy costs." It goes on to state that "chokepoints leave oil tankers vulnerable to theft from pirates, terrorist attacks, and political unrest in the form of wars or hostilities." The Strait of Hormuz is the world's most important oil transit choke point with roughly 35% of all seaborne oil passing through the strait. More than 85% of this flow of energy is for Asia. The strait is deep and is 21 miles wide at its narrowest point. The Strait of Malacca is the key choke point in Asia. Singapore, Malaysia, and Indonesia are located along the strait. Southern Thailand and India's Andaman and Nicobar Islands are located at the northern entrance to the strait. The contested South China Sea is located to the north east of the strait. Piracy is a threat to shipping in the area. An estimated 41% of pirate attacks between 1995 and 2013 took place in Southeast Asia while 28% took place in the west Indian Ocean. Approximately 120,000 vessels transit the Malacca strait each year. The energy-hungry economies of northeast Asia depend on energy flows that pass through the strait. Any closing of the strait would force costly diversions to alternative routes through the Sunda and Lombok Straits in the Indonesian archipelago. The Bab el-Mandeb Strait and the Suez Canal are located on either end of the Red Sea. The Bab el-Mandeb is located between Djibouti and Yemen. Houthi rebels have attacked shipping in or near the strait. The Indian Ocean is the worlds' third-largest ocean after the Pacific and Atlantic Oceans and has extensive hydrocarbon reserves offshore Saudi Arabia, Iran, India, and Western Australia. This economic importance is in addition to providing a major energy and trade sea route linking the Middle East, Persian Gulf, Europe, Asia, and the Americas. Offshore oil and gas exploration and extraction activity is thought to potentially increase the strategic importance of the east coast of Africa, the Bay of Bengal, the Timor Sea, and Australia's northwest coast. The United States' fight against Al Qaeda, the Islamic State, and its related military involvement in Iraq and Afghanistan, has also increased the strategic importance of the region for the United States. Early Asian and European Presence in the IOR The Indian Ocean has been a maritime environment of strategic importance for centuries. Throughout this history fleets have been dispatched and bases established, by both Asian and European powers, to secure valuable trade routes and ports throughout the Indo-Pacific region. The south Indian Chola dynasty had extensive trade linkages with Southeast Asia in the 9 th century and Imperial China sent fleets under the command of Zheng He into the Indian Ocean in the early 15 th century. European colonial powers' influence began to extend across the IOR beginning in 1498 when Vasco da Gama reached India. The Portuguese established a series of enclaves and trading posts around both the littoral of the Indian Ocean and the western Pacific in places like Hormuz, Goa, Malacca, Timor-Leste, and Macao. The Dutch East India Company, founded in 1602, centered in Batavia, or present day Jakarta, established its control over much of Indonesia and the lucrative spice trade and had a presence in places such as the Dutch Cape Colony and Ceylon. The influence of earlier powers in the Indo-Pacific was followed by the French, British, and Japanese. Although the French lost their holdings on the Indian Subcontinent to the British East India Company following Robert Clive's victory at Plessey in 1757, they continue to have a presence in the Indian Ocean in places such as Djibouti, Abu Dhabi, and Reunion. The British Raj in India was the "Jewel in the Crown" of a truly global empire that spanned the Indo-Pacific with key British bases across the Indian Ocean littoral. Japanese power engulfed the western Pacific during World War II and extended briefly into the northeast quadrant of the Indian Ocean following the fall of Singapore in 1942. Beginning in the 1960s, independence movements across the Indo-Pacific led to the end of the colonial era and began the shift of political, economic, and military power from colonial Europe to the newly independent countries. Land Border Tensions While maritime security dynamics between China and India are evolving rapidly, the two nations continue their long-standing dispute over the contested Himalayan land border. China and India fought a month-long border war in late 1962. The war was a humiliating defeat for India and left Indian leaders with a deep sense of betrayal by China. It followed a 1959 Tibetan uprising against Chinese Communist Party rule that sent Tibet's spiritual leader, the 14 th Dalai Lama, into exile in India, strengthening China's perception of a threat by India to its rule in Tibet. Following the border war, China retained control over an extensive area in the western sector of the border, known as Aksai Chin, which previously was Indian territory. China also claims large swaths of territory in the border's eastern sector in Arunachal Pradesh, and does not recognize the 1914 McMahon Line that British and Tibetan authorities recognized as the border between India and Tibet, and that a newly independent India recognized in 1947. Over time, the buffer states that historically helped separate India and China have come under pressure as China's and India's power has expanded. In geopolitical terms Bhutan, like Nepal, can be viewed as a buffer state between India and China. India and Bhutan signed a Treaty of Friendship in 1949 and Bhutan relies on India to a large degree for its defense. Tibet, over which China's Communist Party gained control in 1951, and Sikkim, annexed by India in 1975, also acted as buffers between the two great powers of Asia. More recently, border tensions between China and India escalated in mid-2017 as China extended an unpaved road on the Doklam Plateau on the disputed border between China and Bhutan, high in the Himalayas. China's road-building activity was first revealed by a Royal Bhutan Army Patrol that sought to dissuade China from continuing. Indian military personnel subsequently moved to the border area. Doklam is located in territory disputed by Bhutan and China to the north of the Siliguri Corridor, also known as the "chicken's neck," that links central India with its seven northeastern states. It is approximately 20 miles wide at its narrowest part. China's control of the corridor would isolate 45 million Indians in an area the size of the United Kingdom. Bhutan does not have diplomatic relations with China but does have a "special" relationship with India based on a 1949 Treaty of Friendship , which gives India a guiding influence over Bhutan's defense and foreign affairs. The treaty was revised in 2007 to give Bhutan a greater level of autonomy. With a population of less than 1 million, Bhutan is dwarfed by India (1.3 billion) and China (1.3 billion). The Doklam border tensions mounted while Prime Minister Modi traveled to Washington , DC, to meet with President Trump. China may have been motivated to signal displeasure over developing ties between India and the United States. Another interpretation of border tensions at Doklam is that the move was part of an effort by China to open diplomatic relations with Bhutan as part of an effort to increase its influence there. Another view speculates that Doklam might be China's way of signaling its displeasure over India's decision not to join the BRI. While India and China agreed to deescalate their border standoff at Doklam in late August 2017, it appears that neither side is inclined to back down over the issue. India is reportedly raising 15 new battalions to bolster defenses on the Pakistan and China borders while China is reportedly upgrading air defense capabilities in its Western Theater Command which is responsible for mountain warfare at the border with India. In 2006, China expanded previous claims to include all of Arunachal Pradesh in India's northeast. China protested both when Prime Minister Modi visited Tawang in Arunachal Pradesh in 2015 and when the U.S. Ambassador to India Richard Verma visited Tawang in 2016. China also protested the Dalai Lama's April 2017 visit to Tawang. While China claims 90,000 square kilometers of Arunachal Pradesh, the area around Tawang is of particular concern to China because of its religious and cultural connections to Tibet and also because of the strategic Bum La pass north of Tawang. China used this pass to invade India during the 1962 war. The 6 th Dalai Lama was also from Tawang and the Tawang Monastary is an important center of Tibetan Buddhism. Differences between India and China on how to resolve the border appear to be growing rather than diminishing with time. It now appears that China is pressing its border demands in a more extensive way than previously. Appendix C. China's Strategic Posture in the IOR Energy and Trade The rise of China has led it to depend on sea routes that cross the Indian Ocean for imported energy and trade. Much of China's energy must be imported by sea. (See below.) This creates a strategic vulnerability for China: For China, the primary concern is securing extensive sea lines of communication (SLOC) that traverse the Indian Ocean and western Pacific, linking the Persian Gulf crude exporters and China's main oil terminals and coastal refineries. Beijing is in the midst of several ambitious projects to expand its naval power projection capabilities well beyond its littoral.... Aside from the clear worry to India and other Asian states, the evolution of China's maritime power—or what China has labeled its "far sea defense"—is also of increasing concern to the U.S. China's vulnerability to the potential interdiction of its trade and energy supplies at the Strait of Malacca has led it to seek to develop alternative trade and energy routes. For example, it is developing overland energy routes linking the Xinjiang Uyghur Autonomous Region in its west with the Arabian Sea Port of Gwadar in Pakistan. It has also sought to lessen its strategic vulnerability at the Strait of Malacca by exploring alternative routes from the Indian Ocean overland through Burma to China's Province of Yunnan. (These projects, and other port and infrastructure investments in the IOR, are discussed in more detail in the country sections below.) While outside the geographic focus of this report, China is also developing and exploring routes through Central Asia, Russia, and the Arctic Sea. China's energy demand and oil imports have grown dramatically in recent years. China became the world's largest energy consumer in 2011 and is the world's second largest oil consumer after the United States. China's total primary energy consumption is 66% coal, 20% petroleum and other liquids, 8% hydroelectric, 5% natural gas, 1% renewables, and 1% nuclear. China's oil import dependency has grown from 30% in 2000 to 57% in 2014 and it has diversified its sources of oil imports as its demand has grown. China is also the world's top producer, consumer and importer of coal, accounting for approximately half of world coal consumption. China is seeking to increase imports of natural gas through pipelines and LNG through overseas imports. Natural gas imports met 32% of demand in 2013. China's dependence on imported energy, much of which must transit the Indiana Ocean and the Strait of Malacca, is a key strategic vulnerability for China and is a key driver for China's increasing engagement with the IOR. Over the longer term, some observers anticipate the further development of overland energy linkages, particularly with Russia and/or Iran, as a means of significantly lessening China's strategic vulnerability to interdiction of sea-borne energy routes. According to one analyst, "Once the new overland pipelines for black gold are fully operational, the United States no longer will have the ability to sever Beijing's energy lifeline. And China may no longer be deterred from resorting to military action in support of its proclaimed core interests." China's Belt and Road Initiative China's foreign policy outlook is being shaped in new ways by General Secretary of the Communist Party of China Xi Jinping who stated at the 19 th party conference in October 2017 that, "Socialism with Chinese characteristics has crossed the threshold into a new era. It offers a new option for other countries and nations who want to speed up their development while preserving their independence." This "new option" under Xi is viewed by many as "increasingly autocratic and illiberal." As a result, China has become an ideological rival, as well as a geopolitical rival, to those states, such as India and the United States, that value liberal democratic values. China's One Belt, One Road, or Belt and Road Initiative, first articulated by President Xi in 2013, is a conceptual tool that has given policy coherence to a wide range of China's trade and investment activities across the Indo-Pacific and beyond. The BRI concept builds on China's historical trade links to the West through the caravan routes of the ancient Silk Road. The BRI has been described as being a comprehensive vision for regional, political, economic and financial integration under Beijing's helm ... BRI is the Chinese leadership's answer to China's most pressing economic and strategic challenges ... it's about securing China's continental periphery, it's about energy security, as well as broader political influence and strategic expansion. The objective is an unrivaled Chinese influence over a key region of the world. China's Belt and Road Initiative is, according to the U.S.-China Economic and Security Review Commission's Jonathan Stivers, aimed at achieving a number of key objectives for China including the following: relieving China's domestic overcapacity in industrial and construction sectors; expanding China's access to strategically important maritime and overland trade routes; enhancing China's energy security strategy; gaining influence and leverage over other countries and countering U.S. influence; and placing China at the center of future economic and trade activity in Asia. The BRI is also serving to act as a catalyst to deepen linkages and build integration between the Indian and Pacific Ocean littoral regions. While some view China's Belt and Road Initiative largely as a vehicle for trade and investment, others see its importance as also, or more importantly, strategic in nature. From this perspective the expanding scale of Beijing's efforts suggest that BRI is nothing less than an attempt to reshape the economic, geopolitical, and energy landscape of the Eurasian continent and Asian maritime environment with China at its center. The BRI has six proposed main overland corridors, several of which are key trade and energy routes that connect China with South Asia, Southeast Asia, and the Indian Ocean, potentially having a significant impact on China's relationship with India. The six proposed corridors are China-Mongolia-Russia Economic Corridor; New Eurasian Land Bridge Economic Corridor; China-Central Asia-West Asia Economic Corridor; China Pakistan Economic Corridor (CPEC); Bangladesh-China-India-Myanmar Economic (BCIM) Corridor; and China-Indochina Peninsula Economic Corridor. In a South Asia/Indian Ocean context, the two most important of these overland routes are CPEC and BCIM. The BCIM corridor may not include India because "progress has been slow, especially because of India's misgivings about China's real intentions." As a result, the BCIM corridor at present appears to be more focused on infrastructure and investment activity along a route from Kunming to Kyaukphyu. Other key maritime silk road routes cross the Indian Ocean and link China with the Persian Gulf, Africa, and Europe. These, as well as CPEC and the Kunming to Kyaukphu corridor, are discussed in more detail in the country sections below. China was reportedly interested in having India join its BRI and warned India that it risks being isolated by remaining outside. For India, sovereignty issues related to the fact that the BRI crosses Pakistan-occupied Kashmir are a key stumbling block to participation. There is also reportedly a perception in India that "the BRI initiative is nothing but an attempt by China to unsettle the established regional order and replace it with a China-centric system that would marginalise other major Asian powers such as India and Japan." China held its first BRI summit in 2017 and has scheduled another in 2019. Reportedly, 68 nations and international organizations have signed cooperation agreements with China related to the BRI in 2017, and 29 heads of state attended the inaugural Belt and Road Forum for International Cooperation in May 2017. India's decision not to attend the summit was criticized by some observers in India who viewed the decision as "the grandest failure of Indian foreign policy" that could "quarantine [India] into splendid isolation." China's Strategy and the Indian Ocean China's influence and presence in the Indian Ocean region are spreading. This presence is not limited to trade and investment but now also includes a military component. While the pace and extent of China's plans to develop its strategic posture in the region are unclear, some regional analysts see China's presence as developing faster than previously anticipated. China is now moving faster than many expected to build a military role in the Indian Ocean. This includes the development of a network of naval and military bases around the Indian Ocean littoral, starting with Djibouti (opened last year) and a new base likely to be built at or near Gwadar in Pakistan. Further Chinese bases are likely in East Africa and perhaps in the central/eastern Indian Ocean. A network of bases—of varying types and size—will help maximize China's options in responding to contingencies affecting its interests, including support for anti-piracy operations, noncombatant evacuations, protection of Chinese nationals and property, and potentially, interventions into Indian Ocean littoral states or other regional countries. It is unlikely that China will be in a position to challenge U.S. dominance in the Indian Ocean for some years to come. But it will be poised to take advantage of strategic opportunities or step into any perceived power vacuums. China's "Far Sea Defense" strategy is an extension of past naval strategy which was more focused on Taiwan and China's coastal regions. The strategy reflects China's emerging power and increased confidence on the world stage and seeks to develop a capability to protect its shipping interests which are of critical importance to China's economy. China's Premier Li Keqiang has pointed to the need for China to continue to expand its air and naval defense capabilities because "China's national security is undergoing deep changes." Among other key missions, China's naval modernization is aimed at "defending China's Sea Lines of Communication (SLOC), particularly those linking China to the Persian Gulf" and "asserting China's status as a leading regional and major world power." The Chinese navy deployed in the Indian Ocean in 2009 as part of international anti-piracy operations. Such deployments have helped China's navy develop its long-range capabilities. China reportedly increased its naval presence in the Indian Ocean from its more typical deployment of seven or eight ships to 14 warships in December 2017. The commissioning of China's first aircraft carrier in September 2012, the 50,000-ton Liaoning , can be viewed as part of an ongoing effort to develop China's power projection capabilities. China launched its second carrier in April 2017. It is expected to have a slightly larger air wing than the Liaoning and "represents an important step in China's developing aircraft carrier program." China began building its third aircraft carrier in Shanghai in 2017, and it reportedly plans to have four aircraft carrier battlegroups in service by 2030. The Secretary of Defense's Annual Report to Congress: Military and Security Developments Involving the People's Republic of China 2017 discusses China's evolving overseas posture in the following terms. As China's global footprint and international interests have grown, its military modernization program has become more focused on supporting missions beyond China's periphery, including power projection, sea lane security.... China will likely seek to establish additional military bases in countries with which it has longstanding, friendly relationships. The 2017 report also stated that China's maritime emphasis and attention to missions guarding its overseas interests have increasingly propelled the PLA beyond China's borders and its immediate periphery. The PLAN's evolving focus-from "offshore waters defense" to a mix of "offshore waters defense" and "far seas protection"—reflects the high command's expanding interest in a wider operational reach. The U.S.- China Economic and Security Review Commission 2016 Report to Congress examined the impact of China's rise in South Asia and concluded the following: China's willingness to reshape the economic, geopolitical, and security order to accommodate its interests are of great concern as China's global influence grows. This influence has been manifesting most recently with China's "One Belt, One Road" initiative aimed at connecting China with great portions of the rest of the world via a wide range of investments and infrastructure projects.... China's emergence as a major player in South Asia is affecting the geopolitics of the region, and is causing the region's traditional major power, India, to grow increasingly concerned about the prospect of Chinese encirclement. The report also makes the following observations: China's support for Pakistan—coupled with Chinese military superiority along the disputed China-India land border and the growing Chinese naval presence in the Indian Ocean—is indicative of a Chinese strategy to encircle or contain India.... China has been seeking a greater presence and more influence there, primarily to protect the sea lines of communication upon which its economy depends.... As both countries [China and India] grow their maritime presence and capabilities, the Indian Ocean is likely to become an area of increasing competition between them. China's expanding naval capabilities and its will to use them to promote China's objectives was demonstrated in the December 2016 deployment of China's first aircraft carrier to the South China Sea and to the Taiwan Strait in January 2017. China ranks as the world's third-largest arms exporter and is a key source of arms for several Indian Ocean countries. Between 2012 and 2016, an estimated 60% of China's arms transfers went to Pakistan, Bangladesh, and Myanmar with a further 22% going to African states. Appendix D. India's Strategic Posture in the IOR Overview Through much of its history India focused on land power and invasions across its northwest frontier. India's, as well as China's, shift to focus on its maritime security environment in addition to its land borders marks a significant shift in its geopolitical orientation. The extension of China's and India's rivalry into the maritime domain clearly involves the interests of states across the IOR as well as those of the United States and other states with significant interests in the region. India's size, military power, economic growth, estimated to be 7.3%-7.5% between 2018 and 2020, and position near the key sea lanes running from the Strait of Hormuz to the Strait of Malacca point to India's strategic importance in the emerging geopolitics of the broader Indo-Pacific. A possible transformation of India's external worldview, from old notions of non-alignment and strategic autonomy to a new emphasis on developing strategic partnerships with the United States, Japan, and others, may facilitate India's increasing role as a major power in South Asia and the Indo-Pacific. India's objective of playing a more active role beyond South Asia and the Indian Ocean was demonstrated by External Affairs Minister Sushma Swaraj in 2014, when she called on India to "Act East." Popular perceptions also play a role in the bilateral relationship between India and China. A November 2017 Pew Research poll indicates that Indians are increasingly upbeat and have a declining view of China. Of those polled, 88% had a "favorable view of Narendra Modi" while 83% felt "the current state of the economy is good," and 70% were "satisfied with direction of country." Of those Indians polled by Pew Research in 2017 only 26% had a "favorable view of China." This marked a decline from 31% in 2016 and 41% in 2015." In the same poll, 49% of Indians had a "favorable view of the United States" as compared with 56% in 2016 and 70% in 2015. Pew also found in an October 2017 poll that 51% of Indians felt China's growing economy was a bad thing for India while only 20% felt it was a good thing for India's economy. Similarly, 56% of Indians polled by Pew felt that "China's growing military power is a bad thing" with only 16% viewing it as a good thing for India. Moreover, 65% percent of Indians polled in 2017 responded that "China's power and influence is a threat." Under Prime Minister Modi's leadership, India may be seeking to evolve from its position as the preeminent power in South Asia to become one of Asia's and the world's leading powers. This evolution has the potential to transform past, now outdated, external relations paradigms into a new more assertive strategic posture for India. According to one observer, Modi's call for India to become a leading power represents a change in how the country's top political leadership conceives of its role in international politics. In Modi's vision, a leading power is essentially a great power. China's rise, and its attendant increasingly active role in the Indian Ocean region, is of concern to some strategic thinkers in New Delhi. Key observers have noted that "India remains deeply suspicious of any actions it views as designed to supplant Indian influence among its neighbors." Former Indian Foreign Secretary Saran has stated that There is little doubt in my mind that the most significant challenge to India comes from the rise of China. There is also no doubt in my mind that China will seek to narrow India's strategic space by penetrating India's own neighbourhood and this is what we see happening in each of our sub-continental neighbours. Unless India is able to confront this penetration and restore its primacy in its own periphery, it would be unable to play the larger game of countervailing Chinese power. India has undertaken or participated in a number of initiatives in recent years that may serve to counter China's expanding presence in South Asia and the broader Indian Ocean region. Such initiatives include India's Act East policy, its efforts to develop its own trade route to Central Asia through Cha Bahar in Iran, the Asia-Africa Growth Corridor, and the Quadrilateral initiative with the U.S., Japan and Australia. The United States has worked with India in an effort to enhance India, Bangladesh, and Burma's engagement and integration with Southeast Asia and the Asia-Pacific through the Indo-Pacific Economic Corridor (IPEC) project. The IPEC also seeks to promote regional stability and economic prosperity. It was observed in February 2017 that the conception of the IPEC is "at a very nascent stage." Act East During the 2014 East Asia Summit, Prime Minister Modi revamped India's "Look East" policy—which dated to the early 1990s—to be an "Act East" policy, clearly signaling India's strategic interest in Southeast Asia and the broader Asia-Pacific region. Modi's "Act East" policy is driven by both strategic and economic factors. These include a strategic interest in countering China's rising influence in South Asia and the Indian Ocean, and an economic interest in promoting Indian exports and developing India's underdeveloped northeast. Economic interests are leading India to seek to develop overland trade connectivity with Southeast Asia through infrastructure projects linking India with Southeast Asia through Burma. The India-Myanmar-Thailand Trilateral Highway and the Kaladan Multi-Modal Transport project are two key initiatives. Chabahar India is seeking to develop a new trade route through the Iranian port of Chabahar, which is located on Iran's Gulf of Oman coast near Iran's border with Pakistan and to the east of the Strait of Hormuz. Indian Prime Minister Modi signed a transport corridor deal with Iran in 2016 to provide $500 million to develop a port in Chabahar and pledged to invest $16 billion in a nearby free-trade zone and in new road and railroad links from Chabahar to the border with Afghanistan. The route, which bypasses Pakistan, would likely provide India with better access to Central Asian and Iranian natural gas and thereby provide India with greater energy security. It is reported that a $1.6 billion railroad is being built from Chabahar to Zahedan on the Iran/Afghanistan border and that Zahedan has rail linkages with Turkmenistan. India is also exploring the North-South Transport Corridor (NSTC) through the Iranian port of Bandar Abas, located near the Strait of Hormuz, that would improve trade and transport linkages between India, Iran, Russia, the Caucuses, and Central Asia. Asia-Africa Growth Corridor Prime Minister Modi and Japanese Prime Minister Shinzo Abe announced plans for an Asia-Africa Growth Corridor (AAGC) in a joint declaration in November 2016. The AAGC is based on four pillars: 1. enhancing capacity and skills; 2. quality infrastructure and institutional connectivity; 3. development and cooperation projects; and 4. people-to-people partnership. Some media reports view the AAGC as a counter to China's Belt and Road Initiative and "an attempt to create a free and open Indo-Pacific region by rediscovering ancient sea-routes and creating new sea corridors that will link the African continent with India and countries in South-Asia and South-East Asia." Observers have noted an increasing convergence of India's and Japan's strategic and economic interests in the Indo-Pacific Region and see China's Belt and Road Initiative as a key factor in this convergence. Some view the AAGC, in tandem with the Quadrilateral Group, as linking India's Act East Policy with Japan's Free and Open Indo-Pacific Strategy. China reportedly has sought to persuade India to go slow on the AAGC and to keep Japan out of it. Malabar The annual Malabar naval exercises among India, the United States, and Japan promote maritime interoperability and provide a link between the Indo-Pacific's three most powerful democracies. Malabar began in 1992 as a bilateral naval exercise between India and the United States with Japan participating in 2007 and then joining as a permanent member in 2014. India blocked Australian participation in Malabar 2017, although India and Australia did hold bilateral naval exercises. India-Australia relations were improved by the 2014 nuclear cooperation agreement which provides for the export of uranium from Australia to India. An article in China Daily suggests that "India should do good to not become a simple piece of the U.S.-Japan chessboard." Appendix E. China's and India's Relations with IOR States China-India geopolitical rivalry is manifesting itself in many states across the IOR. To gain a better understanding of this dynamic the following section will examine how this rivalry is unfolding in selected regional states. Djibouti Djibouti's strategic importance as a base of operations for extra-regional powers has increased in recent years. The explicit military aspect of China's involvement in Djibouti makes this relationship different from the rest of China's bilateral relationships across the IOR. Djibouti, a former French Territory, is located on the strategic Bab-el-Mandeb Strait, which separates the Red Sea from the Gulf of Aden and the Indian Ocean. The United States, France, Japan, and most recently China have established military facilities there. China's first overseas military base was opened in Djibouti in August 2017. China's Navy began counter piracy operations off Somalia and in the Gulf of Aden in 2008. Djibouti announced that it was granting China a 10-year lease for the base in 2016. Under the agreement, China may station up to 10,000 troops in Djibouti, and China is reportedly investing significantly in Djibouti. Observers have concerns about Djibouti's ability to pay back loans to China that are estimated to amount to 60% of the country's annual GDP. U.S. Pacific Commander Admiral Harry Harris' statement for the House Armed Services Committee hearing on U.S. Pacific Command Posture pointed out that China's base at Djibouti "could support Chinese force projection through the Indian Ocean and into the Mediterranean and Africa." Some believe that China may seek to develop its second overseas base in Pakistan. (See below.) Pakistan Shared enmity with India is at the core of the strategic partnership between Pakistan and China, which has been a strong partnership for decades and which has complicated India's own relations with both nations. This partnership is military, economic, and strategic in nature. Pakistan is a key aspect of Beijing's plans to develop its Belt and Road Initiative and extend its influence across South Asia and the Indo-Pacific. For Pakistan, China's "all weather friendship" offers the prospect of much-needed investment and development and acts as a strategic balancer in Pakistan's fraught relationship with India. Pakistan receives 30% of China's arms exports. The China-Pakistan Economic Corridor (CPEC) is a flagship of China's Belt and Road initiative and was launched in 2015. China's announced investments in CPEC projects were estimated by some to be approximately $46 billion in 2016. Many experts are skeptical of such large estimates and have noted that many announced projects in the past have fallen short of expectations. As such, there is a high level of uncertainty over the exact amount of investment involved, which may be significantly less than announced. According to one source, an estimated $19 billion of Pakistan's debt is owed to China. One analyst has argued that, "Rather than opposing the spread of Chinese influence in South Asia at every turn, Washington and New Delhi should instead objectively study the details of China-Pakistan engagement and consider how these ties, for the most part, actually benefit global security." CPEC is a collection of road, rail, and energy projects that link Kashgar in China's far western Xinjiang Uyghur Autonomous Region with the Arabian Sea port of Gwadar in Baluchistan, Pakistan, while developing much needed energy and transportation infrastructure in Pakistan. The China Pak Investment Corporation describes CPEC in the following way: CPEC aims to improve Pakistani infrastructure and to deepen the economic and political ties between China and Pakistan.... CPEC will prove to be a strong knitting-factor between China and Pakistan who share a history of congenial strategic relations, over versatile canvass of mutual interest, extending over six decades.... CPEC is China's biggest splurge on economic development in another country to date. It aims over 15 years to create a 2000-mile economic corridor between Gwadar Port to China's North Western region of Xinjiang through 2,700 km long highway from Kashgar to Gwadar, railway links for freight trains, oil and gas pipelines and an optical fibre link. The actualisation of this project will create over 700,000 new jobs and will add up to 2.5% to Pakistan's annual growth rate. The two countries also plan to develop Gwadar as a deep-water Arabian Sea port capable of handling 300-400 million tons of cargo per year. A Pakistani newspaper reported that firms from China may be considering constructing a $500 million housing project for up to 500,000 Chinese citizens. Observers point out that CPEC energy projects could alleviate some of Pakistan's energy shortfalls. Work on a Gwadar-Kashgar oil pipeline that is planned to carry up to one million barrels of oil per day to China is reportedly to be completed by 2021. Upon completion the pipeline could reduce China's dependence on seaborne imported oil by an estimated 17%, further reducing its strategic vulnerability at the Strait of Malacca. CPEC plans call for the Karakorum Highway to be upgraded from Rawalpindi to the border with China and for railway lines across Pakistan to be upgraded and expanded. A new 1,100 km highway from Karachi to Lahore is also planned. Pakistan raised an Army division of 15,000 personnel to provide security for Chinese workers and CPEC projects. China appears to be gaining economic leverage over Pakistan as a result of CPEC/BRI projects. By one estimate, "Pakistan is now expected to repay China $90 billion for CPEC investments over the next three decades." Repaying such sums will be increasingly difficult for Pakistan as its trade deficit with China had grown to reach $12 billion in 2017. China is a key security partner and a major arms supplier to Pakistan. China has transferred technology, expertise, and equipment to aid Pakistan's nuclear weapons and missile programs. China has also supplied Pakistan with tanks, aircraft, and small arms. In 1992, China supplied Pakistan with 34 short-range M-11 missiles. China is reported to be helping Pakistan build two Hualong One nuclear reactors and the two nations are reported to have signed a deal in November 2017 to build a third reactor in Pakistan. China's submarines, including a submarine capable of carrying nuclear weapons, have also reportedly docked in Karachi. China and Pakistan held the 12 th round of defense and security talks in Beijing in June 2017. Biannual Aman naval exercises between the two nations were held in February 2017 and their air forces completed the Shaheen-VI air training exercise in Xinjiang in September 2017. In October 2017, it was reported that Pakistan would buy eight stealth attack submarines from China for an estimated $4 to $5 billion. It was also announced that Pakistan would also purchase frigates from China. While it is unclear, media reports suggest that "there is a possibility that Beijing might set-up a maritime logistics facility on the Makran coast ... [and that] the PLA navy may eventually establish a dual-use commercial military facility at Gwadar." "China [reportedly] is about to start construction of a naval base and airfield at Jiwani, some 60 kilometers west of Gwadar." The scale and commitment of the CPEC, and other aspects of the two nations' relationship, indicates China's continuing support for Pakistan, a nation with which India has fought several wars. India and Pakistan fought wars in 1947, 1965, 1971, and 1999 as well as several serious skirmishes along their contested border in Kashmir. Pakistan is widely believed to support cross-border terrorist infiltrations that have destabilized India and made peace difficult to achieve. While the history of inter-communal tensions on the subcontinent is long, many analysts believe India has demonstrated considerable restraint in the wake of past terrorist attacks. These attacks have included the 2001 attack against the Indian parliament and the Mumbai terrorist attacks of 2008 which killed 164, including 6 Americans, and wounded over 300. As a result, this border remains one of the most volatile in the world and a source of concern for U.S. policymakers. India-Pakistan tensions also complicate U.S. efforts to stabilize Afghanistan. Sri Lanka Sri Lanka's strategically important location near sea lanes that link the energy-rich Persian Gulf with the economies of Asia apparently have led to China's growing interest in the nation. Its proximity to India, and historical, ethnic, and religious ties, also make Sri Lanka of particular interest to India. China has increased both security and economic assistance to Sri Lanka. According to some observers, China's assistance played a key role in enabling former Prime Minister Mahinda Rajapaksa to win the civil war against the Liberation Tigers of Tamil Eelam (LTTE). Sri Lanka is seeking to leverage its strategic geography and make itself an increasingly important economic hub in the Indian Ocean region. Sri Lanka has attracted much interest as part of China's Belt and Road trade and investment initiative. Under former President Mahinda Rajapaksa, China's naval ships including a submarine visited Sri Lanka. Total investment from China in Sri Lanka from 2005 to October 2017 has been estimated by one source at approximately $14.87 billion. Rajapaksa's successor, President Maithripala Sirisena, initially sought to reset Sri Lanka's relations with China and India to be more balanced by revisiting China's investments in Sri Lanka including the Colombo Port City project. It was estimated by some in September 2016 that Sri Lanka owed $8 billion to China. Economic considerations led the Sirisena government to go forward with a 99-year lease of Hambantota port for payments that will help Sri Lanka pay down some of its $65 billion estimated debt to financiers. In February 2018, India's Defence Minister Nirmala Sitharaman raised doubts about China's activities in Sri Lanka: "Whether China will use the port only for port activities is a question mark." India has many current ties with Sri Lanka and has sought to develop its relationship with Colombo at the same time that China's engagement with Sri Lanka has grown. India became entangled in a counter-insurgency war against the LTTE following the signing of the Indo-Sri Lanka Agreement of 1987. Between 1987 and 1990 India lost over 1,200 soldiers in this conflict. Prime Minister Rajiv Gandhi was later killed by an LTTE suicide bomber in 1991. The Sri Lanka-India relationship was strengthened by President Maithripala Sirisena's February 2015 visit to India, his first foreign visit as president, and also by Indian Prime Minister Narendra Modi's March 2015 return visit to Colombo, the first by an Indian prime minister in 29 years. India's native Tamil populations feel kinship with Sri Lanka's Tamil minority. India, along with the United States, has been an active voice for reconciliation. The Maldives The unfolding of recent events in the Maldives is viewed by some analysts as another example of the rising influence of China in the Indian Ocean. The Maldives, like Sri Lanka, is situated close to the key sea lanes that transit the Indian Ocean. For many years, the Maldives had been seen by many observers as largely within India's sphere of influence. This was demonstrated in 1988 when India sent troops to avert a coup in the Maldives. China's President Xi Jinping visited the Maldives in 2014. Maldives President Abdullah Yameen met with China's President Xi in Beijing in 2017 where the two nations signed agreements on free trade and also signed a Memorandum of Understanding bringing the Maldives into the Maritime Silk Road component of the BRI. China is funding large development projects in the Maldives including a bridge from Malé, the capital, to Hulhule Island. An estimated 70% of the Maldives foreign debt is owed to China and some observers fear that the Maldives could, as a result, fall into a debt trap. In December 2016, a Chinese company obtained a 50-year lease of Feydhoo Finolhu island near Malé. Media reports in February 2018 speculated that China's deployment of a naval task force to the Indian Ocean may have been related to a constitutional crisis in the Maldives. President Yameen declared a state of emergency and arrested the Supreme Court Judges who had ordered the government's release of opposition leaders. The task force reportedly included a Luyang III guided missile destroyer, a Jiangkai Frigate, and an amphibious transport dock ship. According to one observer, "the mere presence of Chinese warships acts as a deterrent to Indian Intervention. It's also a neon-sign of Beijing's determination to wield its new-found influence worldwide." Seychelles India is developing its relationship with the Seychelles in part to enhance its Indian Ocean maritime surveillance capabilities. India and the Seychelles signed a revised agreement in January 2018 under which India will be allowed to build military infrastructure on Assumption Island in the Seychelles island chain in the western IOR. This agreement extends India's strategic reach in the Indian Ocean and amends a 2015 agreement between the two nations which builds on previous Indian engagement with the Seychelles. The Seychelles islands are located northeast of Madagascar and southwest of the Maldives. The Seychelles has an exclusive economic zone (EEZ) of 1.3 million square kilometers. According to Indian Foreign Secretary S. Jaishankar's remarks of January 2018 India and Seychelles have drawn up a cooperation agenda that covers within its purview joint efforts in anti-piracy operations, and enhanced EEZ surveillance and monitoring to prevent intrusions by potential economic offenders indulging in illegal fishing, poaching, drug and human trafficking. The cooperation is further exemplified by the operationalisation of the Coastal Surveillance Radar System in March 2016, and our commitment to augment Seychelles' defence assets and capability. According to Captain Gurpreet Khurana with the Indian Navy's National Maritime Foundation, "India's geostrategic frontier is expanding in tandem with China's growing strategic footprint in the Indo-Pacific." The Indian Navy deployed a U.S.-supplied P-8I Neptune maritime patrol and anti-submarine warfare plane to the Seychelles in March 2016. The Indian Navy also deploys ships to assist the Seychelles patrol its EEZ. India conducts joint military exercises with the Seychelles in addition to operating the network of coastal surveillance radars. Prime Minister Modi visited the Seychelles in 2015 to launch the first of a planned constellation of 32 coastal surveillance radars which provide the Indian Navy with enhanced maritime domain awareness. According to some observers, "the larger reason behind New Delhi's push is to check China's growing maritime expansion into the Indian Ocean." India has also deployed P-8I aircraft to its Andaman and Nicobar Islands as a response to China's submarine deployments into the Indian Ocean. The Andaman and Nicobar Islands are located to the northwest of the Strait of Malacca. In October 2017, the Seychelles and China signed an Economic and Technical Cooperation Agreement. China reportedly is providing a $7.3 million grant for school construction and $15 million grant for the construction of the Seychelles Broadcasting Corporation House. China also reportedly financed a $6 million judiciary building in the Seychelles. Bangladesh Positioned at a geopolitically important intersection between India, China, and Southeast Asia, Bangladesh is a nation of strategic importance not only to the South Asian sub-region but also to the larger geopolitical context of Asia as a whole. Dhaka's foreign policy seeks to develop ties with China while continuing positive relations with New Delhi, the United States, and the West. India provided decisive support during Bangladesh's war of independence from Pakistan in 1971. Since that time, bilateral relations have been mixed. Relations between India and Bangladesh have tended to be more positive when the Awami League (AL), rather than the Bangladesh National Party (BNP), is in power. Prime Minister Sheikh Hasina, of the AL, emphasized that Bangladesh would not be used as a base for extremism during a meeting with Indian Prime Minister Modi in 2014. Another major irritant in bilateral relations with India was removed during Modi's June 2015 visit when a Land Boundary Agreement was reached. India also extended a $2 billion line of credit to Bangladesh in 2015. The prospect for political tensions with India remains, however, over illegal immigration to India from Bangladesh, the sharing of cross-border water resources, and Bangladesh's developing ties with China. By some accounts, there are as many as 10-20 million Bangladeshi immigrants in India illegally. Prime Minister Modi has conveyed his hopes for a solution to the Teesta river dispute. India receives a higher share of the river's waters than Bangladesh and Bangladesh wants a higher share than it receives. Bangladesh's recent acquisition of two submarines from China has reportedly caused a degree of concern in New Delhi. These are Bangladesh's first submarines, and their transfer is viewed by some observers as potentially part of China's strategic encirclement of India. Unlike India, China backed Pakistan and not the Bangladesh independence movement in 1971. Despite this, China and Bangladesh have significantly deepened their bilateral relationship. The two nations upgraded the relationship to a Strategic Partnership through an October 2016 Joint Statement. An estimated $24.4 billion in government investment from China for 34 projects in Bangladesh has been announced. A further $13.6 billion in private investment from China was also announced during China's President Xi Jinping's October 2016 visit. China is also the major arms supplier to Bangladesh. In November 2016, China delivered the first of two Type 035G diesel-electric submarines as noted above. Since 2010, China has also delivered five maritime patrol vessels, two corvettes, 44 tanks, and 16 fighter jets to Bangladesh. According to the Stockholm International Peace Research Institute, Bangladesh (20%) is the second-largest destination, after Pakistan (30%), for China's arms exports. As noted, the Bangladesh-China-India-Myanmar Economic Corridor (BCIM) was identified as one of seven key pillars of the BRI. India's reluctance to join the May 2017 BRI summit may shift the emphasis of this corridor to the section between Kunming and the Rakhine coast in Burma. The October 2016 Bangladesh-China Joint Statement welcomed China's Belt and Road Initiative (BRI) and articulated the importance of the BCIM EC in promoting practical cooperation. Bangladesh's growing export economy depends on two existing, relatively shallow draft ports at Chittagong and Mongla, with Chittagong being by far the more important of the two. China is upgrading Chittagong port and building road and rail infrastructure linking Chittagong and Kunming. Both of these ports, however, are too shallow for large ships. The volume of goods transiting Chittagong is increasing by 14% to 15% per year and is expected to reach capacity by 2018. Since 2010, China has been working with Bangladesh to develop a deep-water port at Sonadia. For China, this was to anchor the Bangladesh, China, India, Myanmar Economic Corridor (BCIM EC) that is to link China's Yunnan Province with the Bay of Bengal. From India's perspective the Sonadia port, as the Hambantota and Gwadar ports, were deemed to be part of China's much talked about 'string of pearls' strategy to encircle India in its maritime neighbourhood. In February 2016, the Sonadia port project was canceled by Bangladesh. This was reportedly in response to pressure from India, the United States, and Japan. Japan enabled this decision by offering to loan $3.7 billion of an estimated $4.6 billion cost to construct a new port and related infrastructure at Matarbari. Another new port at Payra, in which China also expressed interest, will reportedly involve $15.5 billion in investment from 10 different countries. Burma (Myanmar) The potential for Burma to offer access to the Bay of Bengal to interior regions of both China and India acts as an impetus for rivalry between China and India. China is developing an energy and trade route from Kunming, China, to Kyaukpyu, in Burma's Rakhine state. This project is developing into a significant energy and trade outlet to the Indian Ocean for China. China has completed oil and gas pipelines linking Kunming with Kyaukpyu. The oil pipeline, which shortens and diversifies China's oil supply routes, was opened in April 2017. The gas pipeline became operational in 2014. The oil pipeline is designed to carry 22 million tons of crude per year while the gas pipeline is designed to transport 12 billion cubic meters of natural gas annually. Railroad linkages connecting Kunming and Southeast Asia through Burma are also apparently being explored as part of China's One Belt, One Road. China's influence in Burma experienced setbacks in 2011 when Burma ended decades of isolation with a transition that has led to civilian-military rule and lessened the country's dependence on China. In that year, anti-Chinese and rising democratic sentiment led the transitional government to suspend the $3.6 billion Myitsone Dam project under which 90% of the energy generated by the China-financed dam would have gone to China. Mining operations by China's Wanabo Mining Company and the Union of Myanmar Economic Holdings conglomerate at the Letpadaung copper mine have also led to local resentment and protests over land appropriation and inadequate compensation. China has sought to reestablish its influence in Burma more recently. In May 2017, Burma's State Counselor Daw Aung San Suu Kyi and China's President Xi Jinping signed a Memorandum of Understanding on Cooperation within the Framework of the Silk Road Economic Belt and 21 st Century Maritime Silk Road Initiative. By developing energy and trade connectivity from Yunnan Province to the Bay of Bengal and the Indian Ocean through Burma, China is lessening its dependence on the Strait of Malacca and developing its relationship with Burma. China's CITIC Group has been awarded contracts to build a deep sea port and Special Economic Zone at Kyaukpyu. The port will reportedly cost $7.3 billion while the industrial park will cost $3.2 billion. CITIC will reportedly have the right to operate the port for 50 years with a possible 25-year extension. China is also investing heavily in Rakhine. A $2.45 billion pipeline from Kyaukpyu to Western China is already operational. The goal of the pipeline (793 km gas and 771 km oil pipeline) is to secure a key route for Beijing to import crude oil from the Middle East, reducing the country's reliance on oil supplies that pass through the Strait of Malacca. The pipeline can carry up to 22 million tons of oil a year, accounting for about 5%-6% of China's annual oil imports. Burma itself is also a hydrocarbon-rich country. Moreover, Beijing has an ambitious infrastructure development plan worth $7.3 billion in the state developing the Kyaukphyu Special Economic Zone and a deep seaport. It is one of the major projects of China's Belt and Road program in the region. The humanitarian crisis triggered by the Burmese military's operations against the Rohingya Muslim ethnic group, in Rakhine state on Burma's northwest coast on the Bay of Bengal, has led hundreds of thousands of Rohingya to flee to Bangladesh and has raised humanitarian-based concerns in the United States' and other Western countries. Such humanitarian concerns are largely absent in China's relations with Burma which are more focused on securing its trade and energy infrastructure investments. China's Foreign Ministry has voiced support for Burma's efforts to "uphold peace and stability" in Rakhine state. India is also focused on developing ties with Burma for economic and strategic reasons as part of its Act East Policy of 2014. India also reportedly seeks to counter China's influence in Burma. As China's profile continues to rise in India's vicinity, New Delhi would like to enhance India's presence by developing infrastructure and connectivity projects in the country. India is developing a $484 million Kaladan Multimodal Transport Project to connect Sittwe in Rakhine with Mizoram in India. This project includes both port development at Sittwe and road construction that gives northeast India an alternative and more direct route to the sea. This route is also meant to provide India with increased access to other ASEAN states as well as Burma itself. Two agreements were signed between India and Burma in September 2016 to move forward with development of the India-Myanmar-Thailand Highway. Some observers have speculated that India's, as well as China's, strategic interests in Burma will mute or moderate both countries' criticism of Burma on the Rohingya issue. Malaysia Malaysia's is strategically situated next to the Strait of Malacca linking the South China Sea and the Andaman Sea in the Indian Ocean. Like many of its Southeast Asian neighbors, Malaysia has long adopted careful hedging strategies to balance its relations with China and the United States and has not had extensive relations with India. Malaysia's population of 31 million is approximately 50% Malay, 25% Chinese and 7% Indian by origin. Malaysia and China signed a defense pact in 2005 and began annual military exercises in 2015. Relations between the two improved significantly in December 2015 when China bought $2.3 billion in 1Malaysia Development Berhad (1MDB) assets which helped ease concerns over mounting debt. China and Malaysia reportedly signed investment agreements worth $34 billion during Prime Minister Najib Razak's visit to Beijing in November 2016 and Malaysia has also announced plans to purchase four littoral mission ships from China. In early 2017, two of China's submarines visited the Malaysian port of Kota Kinabalu. Malaysia's relations with the United States were strained after the U.S. Department of Justice filed lawsuits related to 1MDB, a Malaysian sovereign wealth fund whose chairman is Prime Minister Najib Razak. Some observers view the November 2016 Najib visit to Beijing as diluting U.S. influence in the region and signaling a strategic shift by Malaysia toward China. Some argue that recent diplomatic moves by Malaysia to improve relations with Beijing may be part of a new balance of power in Asia. Others point to a long history of both cooperation and tension between Malaysia and the West which can be traced back to former Prime Minister Mahathir and the East Asia Economic Caucus concept. They note that despite Malaysia's strategic hedging towards China, U.S. naval ships continue port calls and U.S. surveillance aircraft continue to operate out of Malaysia. It is important to understand alignments shifts-whether perceived or real-as being the product of a complex range of factors like history, relative capabilities, or domestic politics—rather than advancing convenient but lazy and inaccurate narratives like states succumbing to some kind of domino effect. Australia Australia, a treaty ally of the United States, has in recent years looked to develop additional strategic partnerships in the Indo-Pacific as a hedge against the rise of China and relative decline of U.S. power in the region. Australia has sought to develop its partnership with India in this context. A major stumbling block was removed when Australia moved to export uranium to India. This was made possible by the passage of the Civil Nuclear Transfers to India Act by the Australian parliament in December 2016. Prime Ministers Turnbull and Modi have reaffirmed their commitment to a peaceful and prosperous Indo-Pacific, based on mutual respect and cooperation. Australia and India share a commitment to democratic values, rule of law, international peace and security, and shared prosperity. The strategic and economic interests of both countries are converging which opens up opportunities for working together in a rapidly changing region.... Both leaders recognised that India and Australia share common interests in ensuring maritime security and the safety of sea lines of communication. Prime Minister Modi and Prime Minister Turnbull have also committed themselves to "deepening the bilateral defence and security partnership" and welcomed progress achieved through the bilateral Framework for Security Cooperation of 2014. They also share a desire "to ensure that Indian Ocean architecture keeps pace with regional issues and addresses emerging threats and challenges in the region." The two nations' bilateral naval exercise AUSINDEX was held in 2015 and is scheduled to be held again in 2018. Army-to-army exercises are also scheduled for 2018. Australia and India have held a number of high-level visits in recent years. Turnbull and Modi " reaffirmed their commitment " in New Delhi in April 2017 and noted that " India and Australia share common interests in ensuring maritime security and the safety of sea lines of communication ." Prime Minister Modi made an official visit to Australia in November 2014, when he addressed a joint sitting of both houses of parliament and met with Turnbull's predecessor, Prime Minister Tony Abbott. This was the first state visit of an Indian prime minister to Australia in almost three decades. Abbott visited India in September 2014. Australia and India also hold an annual Foreign Ministers Framework Dialogue to further their bilateral agenda. During her April 2015 visit to New Delhi, Australian Foreign Minister Julie Bishop gave the inaugural Indo-Pacific Oration at the Observer Research Foundation where she stated " our increasingly close cooperation in the Indo-Pacific region, the region in which both Australia's and India's core economic and strategic interests converge ... is vital to Australia's future economic and strategic security . " Australia and India also work together through the Indian Ocean Rim Association (IORA) a Ministerial forum focused on the Indian Ocean, with a Secretariat based in Mauritius. India is Australia's fifth largest export market, tenth largest trading partner, and increasingly a destination for Australian investment. Bilateral trade between Australia and India grew dramatically from AD$6.8 billion in FY2003/04 to AD$14.8 billion in FY2013/14. Australia is seeking an Australia-India Comprehensive Economic Cooperation Agreement with India to facilitate the growth of bilateral trade between the two nations. The two countries also are involved in Regional Comprehensive Economic Partnership (RCEP) trade negotiations, which involve 16 nations in the Indo-Pacific region. Australia's strategic vision is increasingly shaped by its geographic location between the Pacific and Indian Oceans, and many strategic decisionmakers and analysts in Australia are increasingly focused on India and the Indo-Pacific, which have historically received less attention relative to China and the Asia-Pacific. This increasing emphasis on the Indo-Pacific is evident in Australia's 2016 Defense White Paper that stated, "The Indian Ocean region is also likely to become a more significant zone of competition among major powers, with China, India, and the United States all increasing their levels of military activity in this region." It also described India as an "increasingly important economic and security partner." Australia and India have established several mechanisms to further their strategic and defense cooperation. A Framework for Security Cooperation was established in November 2014, and is based on "converging political, economic and strategic interests." Today, this framework is viewed by many analysts in Australia as an important step forward in developing relations between Australia and India. Bilateral defense relations are based on a 2006 memorandum on Defense Cooperation and a 2009 Joint Declaration on Security Cooperation. Strategic dialogues include annual Defense Policy Talks and an annual Track 1.5 Defense Strategic Dialogue. The first-ever official visit to Australia by an Indian defense minister came in 2013 and, during Prime Minister Modi's late 2014 visit to Canberra, the two countries agreed to extend defense cooperation to cover research, development, and industry engagement. They also formalized annual defense minister summits and made plans to conduct regular maritime exercises. A number of issues have caused tensions in Australia's relationship with China despite the fact that China is Australia's primary export destination. Among these are China's political donations in Australia, the sale or lease of farmland and energy and transportation infrastructure to Chinese business interests, and differences over the South China Sea maritime territorial disputes. Chinese corporate donations to Australian political parties have become a focus of attention with respect to concerns over China's influence in Australia. Senator Sam Dastyari of the Labor Party resigned from the opposition frontbench after media scrutiny of his acceptance of such funds. The Northern Territory granted the company Landbridge Group, which has ties to China, a 99-year lease for port facilities in Darwin. The port, which was attacked by the Japanese in 1942, is strategically located in the north of Australia and former President Obama reportedly registered his displeasure over the lease to Prime Minister Turnbull. Critics of the lease have argued that this gives China an excellent position to observe U.S. and Australian military operations. China became the largest investor in Australia's agricultural sector in 2014. The Australian government blocked the sale of Kidman and Company agricultural enterprises on national security grounds in 2015. National security concerns were referenced when Australia prevented the A$10 billion sale of Ausgrid to China. Ausgrid supplies power to New South Wales. Australians are also concerned that Chinese buyers are putting upward pressure on real estate prices. Foreign Minister Julie Bishop also urged China to abide by the ruling by an arbitral tribunal under the United Nation Convention on the Law of the Sea (UNCLOS), which ruled largely in favor of the Philippines and against China's behavior and claims in the South China Sea in July 2016. Appendix F. Summary Comparison of India's and China's Military Forces Table F-1 provides a summary comparison of India's and China's military forces.

The Indian Ocean Region (IOR), a key geostrategic space linking the energy-rich nations of the Middle East with economically vibrant Asia, is the site of intensifying rivalry between China and India. This rivalry has significant strategic implications for the United States. Successive U.S. administrations have enunciated the growing importance of the Indo-Pacific region to U.S. security and economic strategy. The Trump Administration's National Security Strategy of December 2017 states that "A geopolitical competition between free and repressive visions of world order is taking place in the Indo-Pacific region." A discussion of strategic dynamics related to the rivalry between China and India, with a focus on U.S. interests in the region, and China's developing strategic presence and infrastructure projects in places such as Pakistan, Sri Lanka, Burma (Myanmar), and Djibouti, can inform congressional decision-makers as they help shape the United States' regional strategy and military capabilities. Potential issues for Congress include determining resource levels for the Navy, Marines, Air Force, and Army to meet the United States' national security interests in the region and providing oversight of the Administration's efforts to develop a regional strategy, provide foreign assistance, and maintain and develop the United States' strategic and diplomatic relationships with regional friends and allies to further American interests. Competition between China and India is driven to a large extent by their economic rise and the rapid associated growth in, and dependence on, seaborne trade and imported energy, much of which transits the Indian Ocean. There seems to be a new strategic focus on the maritime and littoral regions that are adjacent to the sea lanes that link the energy rich Persian Gulf with the energy dependent economies of Asia. Any disruption of this supply would likely be detrimental to the United States' and the world's economy. China's dependence on seaborne trade and imported energy, and the strategic vulnerability that this represents, has been labeled China's "Malacca dilemma" after the Strait of Malacca, the key strategic choke point through which a large proportion of China's trade and energy flows. Much of the activity associated with China's Belt and Road Initiative (BRI) can be viewed as an attempt by China to minimize its strategic vulnerabilities by diversifying its trade and energy routes while also enhancing its political influence through expanded trade and infrastructure investments. China's BRI in South and Central Asia and the IOR, when set in context with China's assertive behavior in the East China Sea and the South China Sea and border tensions with India, is contributing to a growing rivalry between India and China. This rivalry, which previously had been largely limited to the Himalayan region where the two nations fought a border war in 1962, is now increasingly maritime-focused. Some in India feel encircled by China's strategic moves in the region while China feels threatened by its limited ability to secure its sea lanes. Understanding and effectively managing this evolving security dynamic may be crucial to preserving regional stability and U.S. national interests. Some IOR states appear to be hedging against China's rising power by building their defense capabilities and partnerships, while others utilize more accommodative strategies with China or employ a mix of both. Some also see an opportunity to balance India's influence in the region. Hedging strategies by Asian states include increasing intra-Asian strategic ties, as well as seeking to enhance ties with the United States. This may present an opportunity for enhanced security collaboration particularly with like-minded democracies such as the United States, India, Australia and Japan. While forces of nationalism and rivalry may increase tensions, shared trade interests and interdependencies between China and India, as well as forces of regional economic integration in Asia more broadly, have the potential to dampen their rivalry. The United States' presence as a balancing power can also contribute to regional stability.

Price Support Program From the late 1930s through the 2004 crop, the USDA operated the tobacco price support program. It was designed to raise and stabilize farm tobacco prices at higher levels than they otherwise would have reached. This was accomplished through a combination of farm marketing quotas and federal nonrecourse commodity loans. Administration was done through the county offices of the Farm Service Agency (FSA), and loan program funding was provided through the Commodity Credit Corporation (CCC). In 1982, legislation was adopted that applied an assessment on all tobacco marketings to be used to offset price support losses and make the loan operations function at no net cost to taxpayers. On two occasions legislation relieved the program of its obligations on large inventories. These actions cost about $1 billion. In addition, Congress made so-called tobacco loss payments of $852 million during FY2000-FY2003 to offset a sharp decline in farm sales to domestic and foreign buyers. Overall, from FY1982 through FY2005, tobacco support net expenditures totaled about $1.57 billion, for an annual average cost of $71 million. After Congress enacted the Fair and Equitable Tobacco Reform Act of 2004 ( P.L. 108-357 ), the tobacco support program came to an end. Tobacco quota owners and farm operators were compensated for the diminished value of their farms and the loss of future support with a payment of $9.6 billion over 10 years, funded by an assessment on tobacco manufacturers and importers. Because of this tobacco buyout, CCC support program expenditures have been eliminated, and it is not anticipated there will be any future ad hoc assistance to tobacco farmers. FSA administrative expenditures associated with the buyout are estimated to be $1.827 million in FY2006, and the budget for FY2007 is zero. (For additional information, see CRS Report RS20802, Tobacco Farmer Assistance , and CRS Report RS22046, Tobacco Quota Buyout .). Federal Crop Insurance The federal crop insurance program, administered by USDA's Risk Management Agency, provides farmers with subsidized multi-peril insurance on tobacco and other crops. The insurance covers unavoidable production losses due to adverse weather, insect infestations, plant diseases, and other natural calamities. It does not cover avoidable losses caused by neglect or poor farming practices. Sales and servicing of policies are done by private companies with some federal reimbursement, and most of the net indemnity losses fall upon the government. Additionally, the premiums have been subsidized since 1980 in order to encourage participation and avoid enactment of ad hoc disaster assistance programs. Experimental Crop Revenue Coverage, available for wheat, corn, and soybeans, is not available for tobacco. Total net federal expenditures for tobacco crop insurance coverage include outlays for crop loss indemnity payments, plus the premium subsidies, plus sales administrative expenses, less the farmer-paid premiums. Net federal outlays are estimated to be $27.9 million in FY2006, and are budgeted at $28.7 million for FY2007. Tobacco Inspection and Grading The USDA's Agricultural Marketing Service (AMS) carries out voluntary inspection and grading services at tobacco auction markets and import terminals. The establishment of uniform standards of quality, with grading by unbiased experts, helps assure that auction markets perform efficiently and fairly. Historically, federal grading provided an assurance of quality for tobacco held as collateral for CCC price support loans. Additionally, imported and domestic tobacco is inspected voluntarily to guard against illegal pesticide residues. Since 1981, the grading and inspection services have been financed through user fees (now set at $0.62 per 100 pounds for grading and $0.85 per 100 pounds for pesticide testing). These fees are sufficient to fully cover the costs of inspection activities as well as the cost of developing and maintaining the standards applied by the inspectors. This has dramatically reduced the use of AMS inspectors. AMS inspection work now is done on imported tobacco, as nearly all of the domestic crop is contracted for sale rather than auctioned. Market News Services The Agricultural Marketing Service provides a market news service for sellers and buyers of tobacco. Daily reports of grades, prices, and sales volume at the auction markets are distributed throughout the tobacco industry. The cost of the tobacco news service in FY2006 is an estimated $190,000, and the budget for FY2007 is $194,000. Similar market news services are provided for all major agricultural commodities. Market news services are designed to provide farmers, and others in the marketing chain, with timely, accurate, and unbiased information on market conditions, to help them make better decisions on where and when to sell and buy commodities. According to economists, such information is necessary for a market economy to function efficiently and effectively. In the absence of a taxpayer-funded market news service, the information might be collected and sold by commercial enterprises, but questions of bias could arise. Tobacco Research In the past, USDA-funded research related to tobacco production, processing, and marketing. Some of the research was carried out by Agriculture Research Service (ARS) scientists and some was done by university scientists funded through the Cooperative State Research, Education, and Extension Service (CSREES). Annual research spending by the USDA averaged about $6.6 million until it was terminated under the FY1995 agricultural appropriations law and subsequent laws. The restriction does not apply to research on medical, biotechnological, food, and industrial uses of tobacco. A special research grant of $329,000 was approved for FY2006 to investigate alternative uses of tobacco plant material. No similar spending is anticipated in FY2007. Extension Education The jointly funded federal-state-county extension education and technical assistance program is designed to serve as a link between the nation's agricultural research institutions and farmers. The term extension conveys the concept of extending the work of researchers into the community. At the county level, extension agents distribute information and expert advice to farmers and others through published materials, seminars, and direct consultation. The state extension staff, given their close proximity to researchers, continuously trains the county agents and designs and prepares materials for use by the county agents. In FY1997, CSREES spent $680,000 on tobacco-related extension activities. Federal funding was eliminated in FY1998 by the Administration and remains at zero. All state and county extension activity related to tobacco is funded by the states. Economic Analysis The Economic Research Service (ERS) is responsible for assembling and analyzing economic data and forecasting market data within the USDA. As with the other major commodities, ERS assembles and analyzes supply and demand data on tobacco. ERS periodically publishes analytical findings in a Tobacco Situation and Outlook Report. Economists also conduct studies on related topics, such as the structural characteristics of tobacco farming, the role of tobacco in local economies, and the likely impact of program changes and policy options. ERS spending on tobacco analysis during FY2006 is estimated at $123,000, and the budget for FY2007 is $125,000. International Data Collection and Analysis The Foreign Agriculture Service (FAS), through its network of agricultural counselors and attaches, collects economic intelligence throughout the world. This intelligence is used by trade negotiators, economists, policymakers, and the business community. Tobacco is one in a long list of commodities on which the FAS staff collects information. The USDA estimates that the cost of this effort for tobacco will be $200,000 in FY2006, and the budget for FY2007 is $205,000. Domestic Crop Data Collection The National Agricultural Statistics Service (NASS) collects field-level data on planting intentions, crop conditions, harvesting progress, yield, and production. This information helps the business community, including farmers develop marketing plans. Also, it serves to alert policy officials of likely shortages or surpluses, thereby facilitating plans for any government action that might be taken. The information that NASS compiles and distributes is considered by economists to be critical to an efficiently functioning market economy. It is argued that the absence of NASS data would most severely disadvantage farmers and government officials, who are least able to obtain information through alternative sources. Tobacco is one in a long list of commodities on which NASS staff collects information. The estimated cost of this effort for tobacco is $231,000 in FY2005, and the budget for FY2007 is $231,000.

The U.S. Department of Agriculture (USDA) has long operated programs that directly assist farmers and others with the production and marketing of numerous crops, including tobacco. In most cases, the crops themselves have not been controversial. However, where tobacco is involved, the use of federal funds has been called into question. Taken together, all of the directly tobacco-related activities of the USDA generated net expenditures of an estimated $30.8 million in FY2006, and the budget anticipates net expenditures of $29.5 million for FY2007. Over 90% of this spending is related to crop insurance. The federally financed tobacco price support program, once the major form of tobacco farmer assistance and in some years a costly program, was terminated at the end of crop year 2004. The USDA is prohibited by language in the annual appropriations law from spending funds to help promote tobacco exports and to conduct research relating to production, processing, or marketing of tobacco and tobacco products. Other tobacco-related activities have been subjected to congressional scrutiny. The USDA does operate numerous programs that are not tobacco-specific, but are available to farmers that produce tobacco and other crops. These are not examined in this report.

Introduction This report provides a broad overview of U.S. immigration policy. The first section addresses policies governing how foreign nationals enter the United States either to reside permanently or to stay temporarily. Related topics within this section include visa issuance and security, forms of quasi-legal status, and naturalization. The second section discusses enforcement policies both for excluding foreign nationals from admission into the United States, as well as for detaining and removing those who enter the country unlawfully or who enter lawfully but subsequently commit crimes that make them deportable. The section also covers worksite enforcement and immigration fraud. The third section addresses policies for unauthorized aliens residing in the United States. While intended to be comprehensive, this primer may omit some immigration-related topics. It does not discuss policy issues or congressional concerns about specific immigration-related policies and programs. Immigration Inflows and Related Topics U.S. immigration policy is governed largely by the Immigration and Nationality Act (INA), which was first codified in 1952 and has been amended significantly several times since. Implementation of INA policies is carried out by multiple executive branch agencies. The Department of Homeland Security (DHS) has primary responsibility for immigration functions through several agencies: U.S. Citizenship and Immigration Services (USCIS), Customs and Border Protection (CBP), and Immigration and Customs Enforcement (ICE). The Department of State (DOS) issues visas to foreign nationals overseas, and the Department of Justice (DOJ) operates immigration courts through its Executive Office of Immigration Review (EOIR). Foreign-born populations with different legal statuses are referred to throughout this report. The term a liens refers to people who are not U.S. citizens, including those legally and not legally present. The two basic types of legal aliens are (1) immigrants (not including refugees and asylees) and (2) nonimmigrants. Im mi grant s refers to foreign nationals lawfully admitted to the United States for permanent residence. N onimmigrant s refers to foreign nationals temporarily and lawfully admitted to the United States for a specific purpose and period of time, including tourists, diplomats, students, temporary workers, and exchange visitors, among others. Refugees and asylees refer to persons fleeing their countries because of persecution, or a well-founded fear of persecution, on account of race, religion, nationality, membership in a particular social group, or political opinion (see " Refugees and Asylees "). Refugees and asylees are not classified as immigrants under the INA, but once admitted, they may adjust their status to lawful permanent resident (LPR). Na turalized citizens refers to LPRs who become U.S. citizens through a process known as naturalization (described below), generally after residing in the United States continuously for at least five years. Noncitizen s are persons who have not naturalized and may include immigrants as well as nonimmigrants. U nauthorized alie ns refers to foreign nationals who reside unlawfully in the United States and who either entered the United States illegally ("without inspection") or entered lawfully and temporarily ("with inspection") but subsequently violated the terms of their admission, typically by "overstaying" their visa duration. Permanent Immigration5 Four general principles underlie the current system of permanent immigration: family reunification, U.S. labor market contribution, origin-country diversity, and humanitarian assistance. These principles are reflected in different components of permanent immigration. Family reunification occurs primarily through family-sponsored immigration. U.S. labor market contribution occurs through employment-based immigration. Origin-country diversity is addressed through the Diversity Immigrant Visa. Humanitarian assistance occurs primarily through the U.S. refugee and asylee programs. These permanent immigration pathways are discussed further below. The INA limits worldwide permanent immigration to 675,000 persons annually: 480,000 family-sponsored immigrants , made up of family-sponsored immediate relatives of U.S. citizens ("immediate relatives"), and a set of ordered family-sponsored preference immigrants ("preference immigrants"); 140,000 e mployment-based immigrants ; and 55,000 diversity visa immigrants . This worldwide limit, however, is referred to as a "permeable cap" because immediate relatives are exempt from numerical limits placed on family-sponsored immigration (described below) and thereby represent the flexible component of the 675,000 worldwide limit. In addition, the annual number of refugees is determined not by statute but by the President, in consultation with Congress. Consequently, actual total annual LPRs (immigrants, refugees, and asylees) have averaged roughly 1 million persons during the past decade. To ensure that a few countries do not dominate permanent immigration flows, the INA further specifies a "per-country limit" or "cap" limiting the number of family-sponsored preference immigrants and all employment-based immigrants from any single country to 7% of the limit in each preference category. Family-Sponsored Immigration Family-sponsored immigration consists of two immigrant groups ( Table 1 ). I m mediate relative s include spouses and minor unmarried children of U.S. citizens and parents of adult U.S. citizens. An unlimited number of immediate relatives can acquire LPR status each year if they meet the standard eligibility criteria required of all immigrants. Pre ference immigrants , on the other hand, are numerically limited to 226,000 per year and, unlike immediate relatives, are also bounded by the 7% per-country limit. In recent years, family-sponsored immigrants have accounted for two-thirds of all permanent immigration. Employment-Based Immigration Employment-based immigration occurs through five numerically limited preference categories ( Table 2 ), the first three of which are ranked by professional accomplishment and ability. The fourth preference category includes various "special immigrants," and the fifth preference category includes immigrant investors (i.e., EB-5 visa holders), a category created in 1990 to benefit the U.S. economy through employment creation and capital investment. Employment-based immigrants include accompanying spouses and children of qualifying LPRs, are limited to 140,000 total annual admissions, and are subject to the same 7% per-country limit as family-sponsored preference immigrants. Visa Queue The number of foreign nationals seeking to immigrate to the United States each year through family-sponsored and employment-based preference categories typically exceeds the INA-mandated numerical limits. Prospective immigrants are further constrained by the 7% per-country cap that primarily impacts foreign nationals from countries that send many immigrants to the United States (e.g., Mexico, China, India, Philippines). As a result, many foreign nationals who meet the U.S. immigrant qualifications and whose petitions have been approved by USCIS must wait years before a numerically limited visa from DOS becomes available. When a visa becomes available, it allows an approved prospective immigrant to travel to the United States and, if admitted to the country by an immigration officer at a port of entry, receive LPR status. If the approved prospective immigrant already resides in the United States on a nonimmigrant visa, the availability of a visa allows him or her to "adjust status" (i.e., change from a temporary nonimmigrant to a permanent immigrant with LPR status) without having to return to the country of origin to complete visa processing through a DOS consulate. As of November 1, 2017, the queue of approved family-sponsored and employment-based immigrants waiting for visas numbered 4.1 million persons. Diversity Immigrant Visa The diversity immigrant visa fosters legal immigration from countries that send relatively few immigrants to the United States. Each year, 50,000 visas are made available to selected natives of countries from which immigrant admissions totaled less than 50,000 over the preceding five years. Since the visa's inception in the early 1990s, the regional distribution of diversity lottery immigrants has shifted from Western European to African and Eastern European countries. To be eligible for a diversity immigrant visa, foreign nationals must have a high school education or two years of work experience within the past five years in an occupation that requires at least two years of training or experience to perform. Diversity immigrant visa applicants are selected by lottery. Winners of the diversity immigrant visa lottery must also meet the standard eligibility criteria required for most immigrants. Refugees and Asylees The United States has long held to the principle that it will not return a foreign national to a country where his or her life or freedom would be threatened. This is embodied in several INA provisions, notably in those defining refugees and asylees. A refugee is a person who is outside his or her home country (a second country that is not the United States) and is unable or unwilling to return because of persecution, or a well-founded fear of persecution, on account of five possible criteria: (1) race, (2) religion, (3) nationality, (4) membership in a particular social group, or (5) political opinion. An asylee is a person who meets the definition of a refugee in terms of persecution or a well-founded fear of persecution but who has been admitted in the United States or is present at a land border or port of entry to the United States. Refugee status is granted within numerical limits. Refugee admissions differ from other immigrant admissions because their annual number, known as the refugee ceiling , and their allocation by world region are not mandated in statute but set each year by the President, in consultation with Congress. For FY2018, the worldwide refugee ceiling was set at 45,000, allocated among world regions (Africa, East Asia, Europe and Central Asia, Latin America/Caribbean, and Near East/South Asia). Asylum is granted on a case-by-case basis and is not numerically limited. An alien in the United States may "affirmatively" apply to USCIS for asylum or may "defensively" seek asylum before an immigration judge during proceedings that determine an individual's removability under the INA. Typically, aliens arriving at a U.S. port of entry who lack proper immigration documents for admission or who engage in fraud or misrepresentation are placed in expedited removal (described below); however, if they express a fear of persecution, they receive a "credible fear" review by a USCIS asylum officer and—if found to have credible fear—are referred to an immigration judge for a hearing. Other Pathways to Lawful Permanent Resident Status In addition to the primary components of permanent immigration discussed above, there are several other pathways to LPR status, though they account for relatively few immigrants. The most prominent among these are c ancellation of r emoval , U nonimmigrant visas , and T status . Cancellation of r emoval is a discretionary, case-by-case form of relief granted by an immigration judge to aliens in removal proceedings. To receive it, an alien must demonstrate substantial ties to the United States, be of good moral character, and not have been convicted of a crime that makes him or her removable. More specific requirements differ by legal status. Because an immigration judge grants cancellation of removal at his or her discretion, no fixed standard exists for who merits relief. The alien must show that he or she is eligible for and deserves the relief. Grants of cancellation of removal are limited to 4,000 LPRs and 4,000 nonpermanent residents per year. U nonimmigrant visas are granted to certain victims who help law enforcement agencies investigate and prosecute domestic violence, sexual assault, human trafficking, and other crimes. After meeting specific requirements, U visa recipients, as well as their immediate family members, can acquire LPR status. The INA limits U visas to 10,000 per year. T status is granted to alien victims of severe forms of human trafficking. T status recipients may remain in the United States for four years and apply for LPR status after three. To qualify for T status, trafficking victims must also (1) be physically present in the United States, its territories, or a U.S. port of entry either because of such trafficking or to participate in related investigations or prosecutions; (2) have complied with requests to assist law enforcement investigating or prosecuting trafficking acts; and (3) be likely to suffer unusual and severe harm upon removal. Such aliens must also be admissible to the United States or obtain a waiver of inadmissibility. The INA limits T status to 5,000 principal aliens annually. Requirements for Permanent Admissions To obtain LPR status, prospective immigrants must traverse a multistep process through several federal departments and agencies. If they already reside legally in the United States, obtaining LPR status involves adjusting from a temporary nonimmigrant status to lawful permanent resident status. If they live abroad and have not established a lawful residence in the United States, their petitions are forwarded to DOS's Bureau of Consular Affairs in the home country after they have been adjudicated and approved by USCIS. The consular officer (when the alien lives abroad) and USCIS adjudicator (when the alien is adjusting status within the United States) must be satisfied the alien is entitled to the immigrant status. These reviews are intended to ensure that prospective immigrants are not ineligible for visas or admission under the INA's grounds for inadmissibility (see section on " Visa Issuance and Security "). Temporary Admissions Each year, the United States admits millions of nonimmigrants, including tourists, foreign students, diplomats, temporary workers, exchange visitors, internationally known entertainers, foreign media representatives, intracompany business personnel, and crew members on foreign vessels. DOS issues 87 specific types of nonimmigrant visas within 24 major nonimmigrant visa categories. Categories are often referred to by the letter and numeral denoting their subsection within INA Section 101(a) (e.g., B-2 tourists, E-2 treaty investors, F-1 foreign students). Requirements for Temporary Admission Foreign nationals who apply for temporary admission must demonstrate, both to DOS consular officers at the time they apply for a visa in their home countries, as well as to CBP officers when they apply for admission upon arrival in the United States, that they are eligible for both nonimmigrant status and the specific requested nonimmigrant visa. In addition, because the INA presumes that all aliens seeking admission to the United States are coming to live permanently, nonimmigrant applicants must demonstrate that they intend to stay for a temporary period and a specific purpose. With certain exceptions, nonimmigrants are prohibited from working in the United States. In recent years, the most numerous nonimmigrants entering the United States have included B-1 business visitors; B-2 tourists; Border Crossing Card holders; L intracompany transferees employed with international firms; H-1B professional specialty workers; H-2A agricultural guest workers and H-2B nonagricultural guest workers; J cultural exchange visitors (including professors, students, foreign medical graduates, teachers, resort workers, camp counselors, and au pairs); and F foreign students. Visa Waiver Program The Visa Waiver Program (VWP) allows nationals from certain (mostly high income) countries to enter the United States as temporary visitors for business or pleasure without obtaining visas from U.S. consulates abroad. Those entering the country under the VWP undergo a biographic (e.g., name, address, date of birth) rather than a biometric (e.g., fingerprint) security screening and do not need to be interviewed by a U.S. government official before their trip. In FY2016, roughly 18.7 million pleasure and 3.1 million business visitors entered the United States using the VWP. Border Crossing Card Mexican citizens who live in Mexico and who are admissible as B-1 business or B-2 tourist visitors can apply for a border crossing card (BCC) to gain short-term entry into the United States. In FY2017, roughly 1.1 million Mexican nationals were issued border crossing cards. The BCC may be used for multiple entries and is valid usually for 10 years. Current rules limit BCC holders to visits of up to 30 days within a zone of 25 miles along the border in Texas and California, 55 miles along the New Mexico border, and 75 miles along the Arizona border. U.S. admissions from persons possessing border crossing cards in FY2016 totaled 101.9 million. Visa Issuance and Security All nonresident foreign nationals who wish to come to the United States, whether permanently or temporarily, must obtain a visa. A visa permits a foreign national to travel to a U.S. port of entry and request permission from CBP to enter the country. To obtain a visa, foreign nationals must establish their qualification for a specific visa under its admission criteria. Visa issuances to the United States can be denied under three INA provisions: insufficient information under INA Section 221(g); the grounds of inadmissibility under INA Section 212(a); and for nonimmigrant applicants, the presumption of seeking permanent residence under INA Section 214(b). Visa applications must be complete. A visa denial under INA Section 221(g) indicates that the DOS consular officer abroad lacks sufficient information to determine if a foreign national is eligible to receive a visa. A consular officer may also disqualify a visa applicant if (1) he or she knows or has reason to believe that the alien is inadmissible under INA Section 212(a) (described below) or any other provision of law; or (2) the application fails to comply with INA provisions or regulations. All foreign nationals must undergo admissibility reviews. Consular officers must decide whether a foreign national is excludable under the grounds in INA Section 212(a), which include the following: health-related grounds; criminal grounds; security and terrorist concerns; public charge risk (e.g., indigence); seeking to work without proper labor certification; illegal U.S. entry and U.S. immigration law violations; ineligibility for U.S. citizenship; and having been previously removed from the United States. The INA describes procedures for making and reviewing an inadmissibility determination, and specifies conditions under which some of these provisions may be waived. For nonimmigrant applicants, a visa denial under INA Section 214(b) indicates that the foreign national was unable to demonstrate to the consular officer that he or she had sufficient ties to his or her home country to return home. This is the most common reason that DOS denies nonimmigrant visas. All visa applicants are required to submit their photographs, fingerprints, and biographic and demographic information. All prospective LPRs and certain prospective nonimmigrants must also submit to physical and mental examinations. Visa applicants are checked against multiple databases and information sources for security purposes. Consular officers' decisions on whether or not to grant foreign nationals a visa are not subject to judicial appeals. Types of "Quasi-legal" Status Two immigration mechanisms that allow persons to remain legally in the United States without being legally admitted into the country, Temporary Protected Status and parole, are described below. Other options, including Deferred Enforced Departure, withholding of removal, and deferred action, are described in later sections of this report. Temporary Protected Status When extraordinary conditions such as civil unrest, violence, or natural disasters occur in foreign countries, foreign nationals from those places who are present in the United States may not be able to return home safely. The INA allows DHS, in consultation with DOS, to grant Temporary Protected Status (TPS) to such foreign nationals, provided that doing so is consistent with U.S. national interests. Congress has also provided TPS legislatively. While TPS beneficiaries may obtain employment authorization, TPS does not provide a path to LPR status. DHS can designate TPS for 6 to 18 months and may extend it if conditions do not change in the designated country. Based on the most recent designations for each country, there are an estimated 317,600 TPS recipients from 10 countries: El Salvador, Haiti, Honduras, Nepal, Nicaragua, Somalia, Sudan, South Sudan, Syria, and Yemen. Parole DHS may, at its discretion and on a case-by-case basis, "parole" an alien into the United States for urgent humanitarian reasons or significant public benefit. Parole does not constitute formal admission to the United States and is not classified as a formal immigration status (e.g., nonimmigrant, immigrant). It is granted for a specified period of time. Parolees may obtain employment authorization but must leave when the parole expires or, if eligible, be admitted in a lawful status. Naturalization Under U.S. immigration law, all LPRs may become U.S. citizens through a process known as naturalization. With some exceptions, aliens must do the following to naturalize: reside continuously in the United States as LPRs for five years; demonstrate that they possess good moral character; demonstrate basic English skills and knowledge of U.S. history and civics; and take an oath of allegience to the United States. An estimated 43.7 million foreign-born persons resided in the United States in 2016, roughly divided between 21.2 million (49%) naturalized citizens and 22.5 million (51%) noncitizens. Immigration Enforcement Immigration enforcement encompasses enforcement of the INA's civil provisions (e.g., violations of admission conditions) as well as its criminal provisions (e.g., marriage fraud, alien smuggling). It involves border security where foreign nationals enter the United States (at ports of entry) and along U.S. borders (between ports of entry), as well as enforcing immigration laws in the U.S. interior, including worksite enforcement. Immigration enforcement also involves the identification, investigation, apprehension, prosecution, and deportation of foreign nationals who violate U.S. laws and become removable. Border Security at Ports of Entry Foreign nationals arrive in the United States at one of 329 ports of entry (POEs), including land checkpoints, airports, and seaports. They are met by CBP officers whose primary immigration enforcement mission is to ensure that such travelers are eligible to enter the United States and to exclude inadmissible foreign nationals. Possession of a visa by a foreign national does not guarantee U.S. admission if a CBP officer finds the individual inadmissible under law. About 390 million travelers (citizens and noncitizens) entered the United States in FY2016, including roughly 251 million land travelers, 119 million air passengers and crew, and 20 million sea passengers and crew. During the same period, about 274,000 aliens were denied admission and 21,000 aliens were arrested on criminal warrants. To balance facilitating the flow of lawful travelers with the competing interest of ensuring border security and immigration enforcement, DHS relies on a risk management strategy that includes screening at multiple points in the immigration process, beginning well before travelers arrive at U.S. POEs. DHS and other departments involved in the "inspection" process use screening tools to distinguish known, low-risk travelers who may be eligible for expedited admissions processing from lesser-known, higher-risk travelers who are usually subject to more extensive secondary inspections. DHS is also responsible for implementing an electronic entry-exit system at POEs, a task Congress mandated in 1996. While CBP collects a portion of the requisite biographic and biometric data from noncitizens at various stages of their entry to and exit from the United States, implementation of a fully automated biometric system has proven challenging. Border Security Between Ports of Entry Border security between POEs focuses on unauthorized land border entry into the United States, which has been a concern for Congress since the 1970s, when unauthorized migration first registered as a major national issue. It has received greater attention since the September 11, 2001, terrorist attacks. CBP's unauthorized migration control strategy between POEs has involved "prevention through deterrence," or concentrating personnel, infrastructure, and surveillance technology along heavily trafficked border regions. More recently, CBP's strategy has involved "enforcement with consequences," which includes making migrants who commit crimes face criminal charges and incur penalties (including incarceration) prior to removal. For Mexican nationals, this can include repatriation to Mexican locations geographically remote from where migrants were apprehended. Criminal charges, penalties, and formal removal generally bar migrants from legally entering the United States for varying lengths of time. Remote repatriation is intended to disrupt migrant smuggling networks and reduce the likelihood that removed migrants will reenter the country illegally. The United States has substantially increased appropriations for personnel, fencing, infrastructure, and surveillance technology for border enforcement over the last three decades, particularly after 2001. Since receiving authorization from Congress in 1996, DHS has built 653 miles of several types of barriers along the U.S.-Mexico border. CBP also employs land-based, aerial, and marine surveillance technologies. The most widely cited metric of border security is unauthorized migrant apprehensions, which are usually positively related to the flow of unauthorized migrants. Annual apprehensions were relatively low in the 1960s, climbed sharply after 1965, and reached peaks of roughly 1.7 million in both 1986 and 2000. They have fallen since then to 310,531 apprehensions in FY2017. The extent to which reduced inflows resulted from more effective enforcement rather than other factors, like the U.S. economic downturn in the late 2000s, remains subject to debate. Detention U.S. law provides broad authority to detain foreign nationals awaiting the outcomes of their removal proceedings. The law mandates detention for certain categories of aliens, including those arriving to the United States with fraudulent or no documentation; who are inadmissible or deportable on criminal or national security grounds; who are certified as terrorist suspects; or with final orders of deportation (with some limitations). Detention priorities are specified in statute and regulations and have been expanded legislatively in recent years. Other detained aliens include persons who are arrested for being illegally present in the United States. Most detained aliens are quickly returned to their country of origin through a process known as expedited removal (described below). Aliens not subject to mandatory detention may be either detained, paroled, or released on bond. DHS detained 352,880 noncitizens during FY2016. The amount of detention space, which has increased from 21,100 beds in FY2002 to 34,000 beds in FY2016, is controlled almost exclusively through congressional appropriations. In FY2016, almost all detained aliens had been prioritized for removal because they had committed specific felony crimes, multiple misdemeanors, or specific immigration violations targeted by ICE. The U.S. Supreme Court has ruled that the detention of unauthorized foreign nationals generally may not last beyond six months. In addition, ICE must obtain travel documents to repatriate foreign nationals. Because some countries refuse to provide such documents or do so in a protracted manner, ICE has regularly released sizeable numbers of detainees following their full detention term, including criminal aliens—an outcome that has been criticized repeatedly by some Members of Congress. Removal Removing foreign nationals who violate U.S. immigration laws is central to immigration enforcement, and the INA provides broad authority to DHS and DOJ to remove certain foreign nationals from the country. This includes unauthorized aliens as well as lawfully present foreign nationals who commit certain acts that make them removable. Any foreign national found to be inadmissible (either before or after U.S. entry) or deportable under grounds specified in the INA may be ordered removed. To remove a lawfully admitted alien, the U.S. government must prove that the noncitizen has violated one of the following six grounds of deportation specified in INA Section 237(a): being inadmissible at the time of entry or violating one's immigration status; committing certain criminal offenses, including crimes of "moral turpitude," aggravated felonies, alien smuggling, and high-speed flight from an immigration checkpoint; failing to register with DHS (if required) or committing document fraud; being a security risk (including violating any law relating to espionage, engaging in criminal activity that endangers public safety, partaking in terrorist activities, or assisting in Nazi persecution or genocide); becoming a public charge within five years of entry; or voting unlawfully. The INA describes procedures for making and reviewing a removal determination, and specifies conditions under which certain grounds of removal may be waived. DHS officials may exercise some discretion in pursuing removal orders, and certain removable aliens may be eligible for permanent or temporary relief from removal. Other grounds for removal (e.g., criminal, terrorist) render foreign nationals ineligible for most forms of relief and may make them subject to more streamlined (expedited) removal processes, both at the U.S. border and within the U.S. interior. Under the standard removal process, an immigration judge from EOIR determines in a civil judicial proceeding whether an alien is removable. The immigration judge may grant certain forms of relief (e.g., asylum, cancellation of removal), and removal decisions are subject to administrative and judicial review. Under streamlined removal procedures, including expedited removal and reinstatement of removal (i.e., when DHS reinstates a removal order for a previously removed alien), opportunities for relief and review are generally limited. Under expedited removal (INA §235(b)), an alien who lacks proper documentation or has committed fraud or willful misrepresentation to gain admission into the United States is inadmissible. That individual may be removed without any further hearings or review, unless he or she indicates an intention to apply for asylum. Two other removal options that are often referred to as "returns"— voluntary departure and withdrawal of petition for admission —require aliens to leave the United States promptly but exempt them from certain penalties associated with other types of removal. Following an order of removal, an alien is generally ineligible to return to the United States for a minimum of five years and possibly longer depending on the reason for and type of removal. Absent other factors, unlawful presence in the United States is a civil violation, not a criminal offense, and removal and its associated administrative processes are civil proceedings. As such, aliens in removal proceedings generally have no right to free government-provided counsel, although they may obtain counsel at their own expense. Programs Targeting Criminal Aliens Although all unauthorized aliens are potentially subject to removal, the removal of criminal aliens (noncitizens who have been convicted of a crime in the United States) has been a statutory priority since 1986. Programs targeting criminal aliens for removal have grown substantially since DHS was established in 2002. ICE currently operates several programs that identify and remove criminal and other removable aliens, including the Criminal Alien Program (CAP), an umbrella program for coordinating the agency's resources. CAP includes a data sharing infrastructure, or "interoperability," between DHS and DOJ that screens for both immigration and criminal violations when individuals are booked into jail. To pursue known at-large criminal aliens and fugitive aliens outside of controlled settings (i.e., administrative offices or custodial settings), ICE uses the National Fugitive Operations Program (NFOP). In addition to programs using DHS personnel, ICE's Section 287(g) program allows DHS to delegate certain immigration enforcement functions to specially trained state and local law enforcement officers, under federal supervision. Options for Aliens in Removal Proceedings Provisions in the INA permit certain removable aliens to remain in the United States, either permanently or temporarily. Options that provide permanent relief by conferring or leading to lawful permanent resident status include cancellation of removal (discussed above) and "defensive" asylum applied for during removal proceedings. Options that provide temporary relief include withholding of removal, the Convention Against Torture, Deferred Enforced Departure, and deferred action (described below). Worksite Enforcement The INA prohibits the employment of individuals who lack work authorization. Its provisions, sometimes referred to as employer sanctions, make it unlawful for an employer to knowingly hire, recruit or refer for a fee, or continue to employ an alien who is not authorized to be so employed. ICE's worksite enforcement program primarily targets cases involving critical infrastructure or employers who commit "egregious" violations of criminal statutes and engage in worker exploitation. Employers who violate prohibitions on unauthorized employment may be subject to civil monetary penalties and/or criminal penalties. Combatting Immigration Fraud There are two general types of immigration fraud: document fraud and benefit fraud. Some view immigration fraud as a continuum of events, because people may commit document fraud to engage in benefit fraud. The INA addresses immigration fraud in several ways. It makes "misrepresentation" (e.g., obtaining a visa by falsely representing a material fact or entering the United States by falsely claiming U.S. citizenship) a ground for inadmissibility. The INA also has civil enforcement provisions, distinct from removal or inadmissibility proceedings, to prosecute individuals and entities that engage in immigration document fraud. Apart from the INA, the U.S. Criminal Code classifies knowingly producing or using fraudulent immigration documents (e.g., visas, border crossing cards) as criminal offenses. In addition to relying on document inspection to determine if noncitizens are eligible for federal benefits, USCIS operates the Systematic Alien Verification for Entitlements (SAVE) system, which provides federal, state, and local government agencies access to data on immigration status. USCIS does not determine benefit eligibility; rather, SAVE enables program administrators to ensure that only those noncitizens and naturalized citizens who meet their own programs' eligibility rules actually receive public benefits. Unauthorized Aliens Determining how to address the unauthorized alien population residing in the United States has arguably been among the most divisive immigration issues facing Congress. Unauthorized aliens consist of those who (1) entered the country surreptitiously without inspection, (2) were admitted on the basis of fraudulent documents, or (3) overstayed their nonimmigrant visas. In all three instances, the aliens violated the INA and may be removed. Aliens who attempt to enter the United States illegally and those who assist them also are subject to INA-mandated penalties. Because the exact number of unauthorized aliens residing in the United States remains unknown, demographers have developed methods to estimate their population size and characteristics. According to the most recent and widely cited estimates available, the size of the unauthorized alien population increased from 8.6 million in 2000 to a peak of 12.2 million in 2007. It has fluctuated between 11.0 and 11.5 million since that time. Scholars attribute the general decline and changing country-of-origin composition in illegal migration flows in recent years to increased border security, relatively large numbers of alien removals, high U.S. unemployment, crime in Central America, and other factors. Options proposed for addressing the unauthorized alien population often emphasize reducing its size. Some approaches would require or encourage unauthorized aliens to depart the United States. Other strategies would grant qualifying unauthorized residents various immigration benefits, including an opportunity to obtain legal immigration status. Immigration Law Regarding Unauthorized Aliens Federal law places various restrictions on unauthorized aliens. In general, they have no legal right to live or work in the United States and are subject to removal from the country. At the same time, the INA provides limited forms of immigration relief for some unauthorized aliens to be legally admitted to the country, including crime victims or those seeking asylum. Unauthorized aliens who were present illegally in the United States for between 6 and 12 months are barred from readmission to the United States for 3 years, and those present for more than 1 year are barred for 10 years (the "3- and 10-year bars"). Deferred Action For unauthorized aliens who cannot obtain LPR status, existing mechanisms enable some to remain in the United States. One such mechanism, deferred action , is defined by DHS as "a discretionary determination to defer removal action of an individual as an act of prosecutorial discretion." Deferred action is not an immigration status and does not have a statutory authority; it is a form of administrative discretion. Examples of deferred action may include DHS terminating removal proceedings, declining to initiate removal proceedings, or declining to execute a final order of removal. Approval of deferred action means that no action will be taken against a removable alien for a specified time or in some cases indefinitely. Under the Deferred Action for Childhood Arrivals (DACA) initiative begun by DHS in June 2012, certain individuals without a lawful immigration status who were brought to the United States as children and who meet other criteria may be granted deferred action for two years, subject to renewal. DACA recipients can apply for employment authorization but are not afforded a pathway to a legal immigration status. DACA was initiated not by congressional legislation but by the Obama Administration. The Trump Administration announced the planned rescission of the DACA initiative on September 5, 2017, but due to federal court orders enjoining the rescission, DACA remains in effect pending the outcome of further litigation.

U.S. immigration policy is governed largely by the Immigration and Nationality Act (INA), which was first codified in 1952 and has been amended significantly several times since. At a fundamental level, U.S. immigration policy can be viewed as two sides of a coin. One side emphasizes the faciliation of migration flows into the United States according to principles of admission that are based upon national interest. These broad principles currently include family reunification, labor market contribution, humanitarian assistance, and origin-country diversity. The United States has long distinguished permanent immigration from temporary migration. Permanent immigration occurs through family and employer-sponsored categories, the diversity immigrant visa lottery, and refugee and asylee admissions. Temporary migration occurs through the admission of visitors for specific purposes and limited periods of time, and encompasses two dozen categories of visitors, including foreign tourists, students, temporary workers, and diplomats. The other side of the immigration policy coin emphasizes the restriction of entry to and removal of persons from the United States who lack authorization to reside in the country, are identified as criminal aliens, or whose presence in the United States is not considered to be in the national interest. Such immigration enforcement is broadly divided between border enforcement—at and between ports of entry—and other enforcement tasks including detention, removal, worksite enforcement, and combatting immigration fraud. The dual role of U.S. immigration policy creates challenges for balancing major policy priorities, such as ensuring national security, facilitating trade and commerce, protecting public safety, and fostering international cooperation.

Introduction Attempt is a crime of general application in every state in the Union, and is largely defined by statute in most. The same cannot be said of federal law. There is no general applicable federal attempt statute. In fact, it is not a federal crime to attempt to commit most federal offenses. Here and there, Congress has made a separate crime of conduct that might otherwise have been considered attempt. Possession of counterfeiting equipment and solicitation of a bribe are two examples that come to mind. More often, Congress has outlawed the attempt to commit a particular crime, such as attempted murder, or the attempt to commit one of a particular block of crimes, such as the attempt to violate the controlled substance laws. In those instances, the statute simply outlaws attempt, sets the penalties, and implicitly delegates to the courts the task of developing the federal law of attempt on a case-by-case basis. Over the years, proposals have surfaced that would establish attempt as a federal crime of general application and in some instances would codify federal common law of attempt. Thus far, however, Congress has preferred to expand the number of federal attempt offenses on a much more selective basis. Background Attempt was not recognized as a crime of general application until the 19 th century. Before then, attempt had evolved as part of the common law development of a few other specific offenses. The vagaries of these individual threads frustrated early efforts to weave them into a cohesive body of law. At mid-20 th century, the Model Penal Code suggested a basic framework that has greatly influenced the development of both state and federal law. The Model Penal Code grouped attempt with conspiracy and solicitation as "inchoate" crimes of general application. It addressed a number of questions that had until then divided commentators, courts, and legislators. A majority of the states use the Model Penal Code approach as a guide, but deviate with some regularity. The same might be said of the approach of the National Commission established to recommend revision of federal criminal law shortly after the Model Penal Code was approved. The National Commission recommended a revision of title 18 of the United States Code that included a series of "offenses of general applicability"—attempt, facilitation, solicitation, conspiracy, and regulatory offenses. In spite of efforts that persisted for more than a decade, Congress never enacted the National Commission's recommended revision of title 18. It did, however, continue to outlaw a growing number of attempts to commit specific federal offenses. In doing so, it rarely did more than outlaw an attempt to commit a particular substantive crime and set its punishment. Beyond that, development of the federal law of attempt has been the work of the federal courts. Elements Attempt may once have required little more than an evil heart. That time is long gone. The Model Penal Code defined attempt as the intent required of the predicate offense coupled with a substantial step: "A person is guilty of an attempt to commit a crime, if acting with the kind of culpability otherwise required for commission of the crime, he ... purposely does or omits to do anything that, under the circumstances as he believes them to be, is an act or omission constituting a substantial step in a course of conduct planned to culminate in his commission of the crime." The Model Penal Code then provided several examples of what might constitute a "substantial step"—lying in wait, luring the victim, gathering the necessary implements to commit the offense, and the like. The National Commission recommended a similar definition: "A person is guilty of criminal attempt if, acting with the kind of culpability otherwise required for commission of a crime, he intentionally engages in conduct which, in fact, constitutes a substantial step toward commission of the crime." Rather than mention the type of conduct that might constitute a substantial step, the Commission defined it: "A substantial step is any conduct which is strongly corroborative of the firmness of the actor's intent to complete the commission of the crime." Most of the states follow the same path and define attempt as intent coupled to an overt act or some substantial step towards the completion of the substantive offense. Only rarely does a state include examples of substantial step conduct. Intent and a Substantial Step : The federal courts are in accord and have said, "As was true at common law, the mere intent to violate a federal criminal statute is not punishable as an attempt unless it is also accompanied by significant conduct," that is, unless accompanied by "an overt act qualifying as a substantial step toward completion" of the underlying offense. The courts seem to have encountered little difficulty in identifying the requisite intent standard. In fact, they rarely do more than note that the defendant must be shown to have intended to commit the underlying offenses. What constitutes a substantial step is a little more difficult to discern. It is said that a substantial step is more than mere preparation. A substantial step is action strongly or unequivocally corroborative of the individual's intent to commit the underlying offense. It is action which if uninterrupted will result in the commission of that offense, although it need not be the penultimate act necessary for completion of the underlying offense. Furthermore, the point at which preliminary action becomes a substantial step is fact specific; action that constitutes a substantial step under some circumstances and with respect to some underlying offenses may not qualify under other circumstances and with respect to other offenses. It is difficult to read the cases and not find that the views of Oliver Wendell Holmes continue to hold sway: the line between mere preparation and attempt is drawn where the shadow of the substantive offense begins. The line between preparation and attempt is closest to preparation where the harm and the opprobrium associated with the predicate offense are greatest. Since conviction for attempt does not require commission of the predicate offense, conviction for attempt does not necessitate proof of every element of the predicate offense, or any element of the predicate offense for that matter. Recall that the only elements of the crime of attempt are intent to commit the predicate offense and a substantial step in that direction. Nevertheless, a court will sometimes demand proof of one or more of the elements of a predicate offense in order to avoid sweeping application of an attempt provision. For instance, the Third Circuit recently held that "acting 'under color of official right' is a required element of an extortion Hobbs Act offense, inchoate or substantive," apparently for that very reason. Defenses Impossibility : Defendants charged with attempt have often offered one of two defenses—impossibility and abandonment. Rarely have they prevailed. The defense of impossibility is a defense of mistake, either a mistake of law or a mistake of fact. Legal impossibility exists when "the actions which the defendant performs or sets in motion, even if fully carried out as he desires, would not constitute a crime. The traditional view is that legal impossibility is a defense to the charge of attempt – that is, if the competed offense would not be a crime, neither is a prosecution for attempt permitted." Factual impossibility exists when "the objective of the defendant is proscribed by criminal law but a circumstance unknown to the actor prevents him from bringing about that objective." Since the completed offense would be a crime if circumstances were as the defendant believed them to be, prosecution for attempt is traditionally permitted. Unfortunately, as the courts have observed, "the distinction between legal impossibility and factual impossibility [is] elusive." Moreover, "the distinction ... is largely a matter of semantics, for every case of legal impossibility can reasonably be characterized as a factual impossibility." Thus, shooting a stuffed deer when intending to shoot a deer out of season is offered as an example of legal impossibility. Yet, shooting into the pillows of an empty bed when intending to kill its presumed occupant is considered an example of factual impossibility. The Model Penal Code avoided the problem by defining attempt to include instances when the defendant acted with the intent to commit the predicate offense and "engage[d] in conduct that would constitute the crime if the attendant circumstances were as he believe[d] them to be." Under the National Commission's Final Report, "[f]actual or legal impossibility of committing the crime is not a defense if the crime could have been committed had the attendant circumstances been as the actor believed them to be." Several states have also specifically refused to recognize an impossibility defense of any kind. The federal courts have been a bit more cautious. They have sometimes conceded the possible vitality of legal impossibility as a defense, but generally have judged the cases before them to involve no more than unavailing factual impossibility. In a few instances, they have found it unnecessary to enter the quagmire, and concluded instead that Congress intended to eliminate legal impossibility with respect to attempts to commit a particular crime. Abandonment : The Model Penal Code recognized an abandonment or renunciation defense. A defendant, however, could not claim the defense if his withdrawal was merely a postponement or was occasioned by the appearance of circumstances that made success less likely. The revised federal criminal code recommended by the National Commission contained similar provisions. Some states recognize an abandonment or renunciation defense; the federal courts do not. Admittedly, a defendant cannot be charged with attempt if he has abandoned his pursuit of the substantive offense at the mere preparation stage. Yet, this is for want of an element of the offense of attempt—a substantial step—rather than because of the availability of an affirmative abandonment defense. Although the federal courts have recognized an affirmative voluntary abandonment defense in the case of conspiracy, the other principal inchoate offense, they have declined to recognize a comparable defense to a charge of attempt. Sentencing The Model Penal Code and the National Commission's Final Report both imposed the same sanctions for attempt as for the predicate offense as a general rule. However, both set the penalties for the most serious offenses at a class below that of the predicate offense, and both permitted the sentencing court to impose a reduced sentence in cases when the attempt failed to come dangerously close to the attempted predicate offense. The states set the penalties for attempt in one of two ways. Some set sanctions at a fraction of, or a class below, that of the substantive offense, with exceptions for specific offenses in some instances; others set the penalty at the same level as the crime attempted, again with exceptions for particular offenses in some states. Most federal attempt crimes carry the same penalties as the substantive offense. The Sentencing Guidelines, which greatly influence federal sentencing beneath the maximum penalties set by statute, reflect the equivalent sentencing prospective. Except for certain terrorism, drug trafficking, assault, and tampering offenses, however, the Guidelines recommend slightly lower sentences for defendants who have yet to take all the steps required of them for commission of the predicate offense. Relation to Other Offenses The relation of attempt to the predicate offense is another of the interesting features of the law of attempt. It raises those questions which the Model Penal Code and the National Commission sought to address. May a defendant be charged with attempt even if he has not completed the underlying offense? May a defendant be charged with attempt even if he has also committed the underlying offense? May a defendant be convicted for both attempt and commission of the underlying offense? May a defendant be charged with attempting to attempt an offense? May a defendant be charged with conspiracy to attempt or attempt to conspire? May a defendant be charged with aiding and abetting an attempt or with attempting to aid and abet? Relation to the Predicate Offense : A defendant need not commit the predicate offense to be guilty of attempt. On the other hand, some 19 th century courts held that a defendant could not be convicted of attempt if the evidence indicated that he had in fact committed the predicate offense. This is no longer the case in federal court—if it ever was. In federal law, "[n]either common sense nor precedent supports success as a defense to a charge of attempt." The Double Jeopardy Clause ordinarily precludes conviction for both the substantive offense and the attempt to commit it. The clause prohibits both dual prosecutions and dual punishment for the same offense. Punishment for both a principal and a lesser included offense constitutes such dual punishment, and attempt ordinarily constitutes a lesser included offense of the substantive crime. Instances where the federal law literally appears to create an attempt to attempt offense present an intriguing question of interpretation. Occasionally, a federal statute will call for equivalent punishment for attempt to commit any of a series of offenses proscribed in other statutes, even though the other statutes already proscribe attempt. For example, 18 U.S.C. 1349 declares that any attempt to violate any of the provisions of chapter 63 of title 18 of the United States Code "shall be subject to the same penalties as those prescribed for the offense, the commission of which was the object of the attempt." Within chapter 63 are sections that make it a crime to attempt to commit bank fraud, health care fraud, and securities fraud. There may be some dispute over whether provisions like those of Section 1349 are intended to outlaw attempts to commit an attempt or simply to reiterate a determination to punish equally the substantive offenses and attempts to commit them. Relation to Other General Provisions Conspiracy: The Model Penal Code and National Commission resolved attempt to attempt and conspiracy to attempt questions by banning dual application. Crimes of general application would not have applied to other crimes of general application. A few states have comparable provisions. The federal code does not. The attempting to conspire or conspiring to attempt questions do not offer as many issues of unsettled interpretation as the attempt to attempt questions, for several reasons. First, the courts have had more occasion to address them. For instance, it is already clearly established that a defendant may be simultaneously prosecuted for conspiracy to commit and for attempt to commit the same substantive offense. Second, as a particular matter, conspiracies to attempt a particular crime are relatively uncommon; most individuals conspire to accomplish, not to attempt. Third, in a sense, attempting to conspire is already a separate crime, or alternatively, is a separate basis for criminal liability. Solicitation is essentially an invitation to conspire, and solicitation to commit a crime of violence is a separate federal offense. Moreover, attempts that take the form of counseling, commanding, inducing, or procuring another to commit a crime is already a separate basis for criminal liability. Fourth, a component of the general conspiracy statute allows simultaneous prosecution of conspiracy and a substantive offense without having to addressing the conspire to attempt quandary. The conspiracy statute outlaws two kinds of conspiracies: conspiracy to violate a federal criminal statute and conspiracy to defraud the United States. Conspiracy to defraud the United States is a separate crime, one that need not otherwise involve the violation of a federal criminal statute. Consequently, when attempt or words of attempt appear as elements in a substantive criminal provision, conspiracy to attempt issues can be avoided by recourse to a conspiracy to defraud charge. For example, the principal federal bribery statute outlaws attempted public corruption. The offense occurs though no tainted official act has been performed or foregone. It is enough that the official has sought or been offered a bribe with the intent of corrupting the performance of his duties. Bribery conspiracy charges appear generally to have been prosecuted, along with bribery, as conspiracy to defraud rather than conspiracy to violate the bribery statute. Aiding and Abetting: Unlike attempt, aiding and abetting is not a separate offense; it is an alternative basis for liability for the substantive offense. Anyone who aids, abets, counsels, commands, induces, or procures the commission of a federal crime by another is as guilty as if he committed it himself. Aiding and abetting requires proof of intentional assistance in the commission of a crime by another. When attempt is a federal crime, the cases suggest that a defendant may be punished for aiding and abetting the attempt and that a defendant may be punished by attempting to aid and abet the substantive offense.

It is not a crime to attempt to commit most federal offenses. Unlike state law, federal law has no generally applicable crime of attempt. Congress, however, has outlawed the attempt to commit a substantial number of federal crimes on an individual basis. In doing so, it has proscribed the attempt, set its punishment, and left to the federal courts the task of further developing the law in the area. The courts have identified two elements in the crime of attempt: an intent to commit the underlying substantive offense and some substantial step towards that end. The point at which a step may be substantial is not easily discerned; but it seems that the more serious and reprehensible the substantive offense, the less substantial the step need be. Ordinarily, the federal courts accept neither impossibility nor abandonment as an effective defense to a charge of attempt. Attempt and the substantive offense carry the same penalties in most instances. A defendant may not be convicted of both the substantive offense and the attempt to commit it. Commission of the substantive offense, however, is neither a prerequisite for, nor a defense against, an attempt conviction. Whether a defendant may be guilty of an attempt to attempt to commit a federal offense is often a matter of statutory construction. Attempts to conspire and attempts to aid and abet generally present less perplexing questions. This is an abridged version of CRS Report R42001, Attempt: An Overview of Federal Criminal Law, by [author name scrubbed], without the footnotes, attributions, citations to authority, or appendix found in the longer report.

Background Federal Timber Harvests The USFS has been selling timber for more than a century. The President was authorized to proclaim national forests (originally called forest reserves) in 1891. Congressional concerns over proclamations by President Grover Cleveland led to provisions in the Sundry Civil Expenses Appropriations Act for FY1898 limiting the forest reservations to specific purposes, including "to furnish a continuous supply of timber for the use and necessities of citizens," and authorizing the sale of "dead, matured, or large growth of trees." The first timber sale was in 1899 to the Homestake Mining Company in South Dakota. USFS timber sales grew slowly in the subsequent decades. Then, in the 1950s, USFS sales expanded rapidly, fueled by demand from the post-World War II economic expansion and by the decline in timber supply from private forests. (See Figure 1 .) Except for the 1980 and 1982 recessions, the high USFS timber sale level was sustained through the 1980s. The decline in USFS sales began in 1990 with litigation to protect the northern spotted owl in western Washington, western Oregon, and northwestern California. Though commonly believed to be a result of listing the northern spotted owl as threatened under the Endangered Species Act (ESA), the original litigation was primarily under a provision of the regulations to implement the National Forest Management Act of 1976 (NFMA) that required management for viable populations of native species. However, USFS timber sales declined in nearly all regions in the early 1990s, indicating more widespread problems than just northern spotted owls. USFS timber sales have continued at relatively modest levels for the past two decades, owing to continued concerns about the environmental effects of timber sales and relatively weak wood products demand in the United States and globally. The Bureau of Land Management (BLM) in the U.S. Department of the Interior (DOI) also sells timber. The vast majority (about 95%) of BLM timber sales are from the Oregon and California (O&C) grant lands in western Oregon. These lands were granted to the Oregon and California Railroad Company in 1869 for building a railroad north from the Oregon-California border, and the lands were to be sold to settlers. The 2.5 million acres of timberland in western Oregon were returned to ("revested in") federal ownership under a U.S. Supreme Court decision in 1915 for violations of the terms of the grant. The O&C lands are often understood to include the Coos Bay Wagon Road (CBWR) grant lands, 74,547 acres of timberland amid the O&C lands. These lands were granted in 1869 to the Southern Oregon Company to build a military wagon road between Coos Bay and Roseburg, Oregon, and returned ("reconveyed") to federal ownership by an act of Congress in 1919 to terminate litigation over violations of the terms of the original grant. Federal administration of the O&C and CBWR lands was subject to various statutes until Congress directed management by the DOI in the O&C Act of 1937. Management was initially by the General Land Office, which was merged with the U.S. Grazing Service in 1946 to create the BLM. As with USFS timber sales, O&C timber sales declined after 1990, as shown in Figure 1 , initially owing to protection of northern spotted owl habitat. Payments for Counties In 1908, Congress added a provision to the Agriculture Appropriations Act directing the USFS to give 25% of its gross receipts to the states for use on roads and schools in the counties where the national forest lands are located. Thus, the money is paid to the state, and the state determines how much goes toward roads and how much toward schools (or leaves some or all of the discretion to the counties). The state also determines which programs can be funded (e.g., salaries, construction, maintenance, etc.) and which local governmental agency receives the funds (e.g., counties, townships, school districts, etc.), but the state cannot retain any of the funds, even for administrative costs. How much must be spent in each county is calculated by the USFS based on gross receipts from all sources (timber, grazing, special use permits, etc.) and acres in each county for each of the 156 proclaimed national forests. The payment basis was altered in 2008 to provide 25% of a seven-year rolling average of receipts (rather than current-year receipts), to reduce annual fluctuations in payments. The USFS 25% payments to states have mandatory spending authority, and thus the payments are made automatically, unless Congress acts to alter the payments. The O&C Act of 1937 provided for payments from the O&C lands. The act allocated 50% of receipts directly to the counties for any governmental purpose, 25% for administering the O&C lands (with any remainder returned to the Treasury), and 25% to pay the counties for accrued tax liabilities through March 1, 1938; after the accrued tax liabilities were paid, the 25% was to be used for administering the O&C lands, with any remainder provided to the counties. In practice, after the tax liabilities were paid (by 1952), all of the 25% has been used to administer the O&C lands, raising the Treasury share to 50%. Thus, the counties receive 50% of receipts. Payments for the CBWR lands were not included in the O&C Act, but were included in a later act. The program paralleled the O&C payments: the counties could effectively receive up to 50% of receipts. However, the CBWR act also directed that the payments "be computed by applying the same rates of taxation as are applied to privately owned property of similar character in such counties." Thus, the actual payments are the county tax bills (county tax rates for assessed value of the lands), up to 50% of the receipts from the CBWR lands. Concern over declining timber sales and thus declining payments, attributed to protecting spotted owls and other species, led President Clinton to propose a 10-year payment program to address regional economic problems resulting from protection efforts that reduced federal timber harvests in the Pacific Northwest. Congress enacted this program in the Omnibus Budget Reconciliation Act of 1993. For 1994, these "spotted owl payments" began at 85% of the average payments between FY1986 and FY1990, and declined by 3 percentage points annually, to 58% in FY2003. Secure Rural Schools Act Concerns about declining timber sales and county payments continued and expanded, especially with the declining spotted owl payments and in areas without northern spotted owls. Congress responded with a temporary, optional substitute payment program: the Secure Rural Schools and Community Self-Determination (SRS) Act of 2000. For counties that chose the SRS payments, the program provided payments at the average of the three highest payments between FY1986 and FY1999. (Some counties with USFS lands chose to continue receiving payments of 25% of gross receipts.) Under Title II of SRS, counties receiving payments of $100,000 or more were required to spend 15%-20% of the payment on reinvestment projects (e.g., watershed improvement, wildfire fuel reduction, etc.) on the federal lands, and under Title III up to 7% could be used for additional specified purposes (e.g., search and rescue on federal lands). SRS payments were authorized for six years, FY2001-FY2006. Congress enacted a one-year extension for FY2007, then amended the SRS law in 2008. The amendment authorized a four-year extension (though FY2011) and modified the payments through a complicated formula that included the average of the three highest payments between FY1986 and FY1999, the eligible federal lands in each county, and relative per capita income in each county. The amended version also included transition payments for several states, and retained the Title II (federal land reinvestment) and Title III (special purposes) provisions of the payments. The amended SRS payments expired at the end of FY2011, and the USFS and O&C payments will return to their previous historic levels (25% and 50% of receipts, respectively) for FY2012 unless Congress enacts an alternative payment program before September 30, 2012. There have been many issues involved in congressional efforts to reauthorize SRS, as described in CRS Report R41303, Reauthorizing the Secure Rural Schools and Community Self-Determination Act of 2000 . One of the most significant difficulties has been the need for offsets to fund the reauthorization of the mandatory payments, and Congress continues to examine options on this issue. One other issue relates to the payments more generally. The issue has been referred to as "linkage." Some observers have noted that, because the counties historically received a share of revenues, they were rewarded for advocating revenue-generating activities (principally timber sales) and for opposing management that reduced or constrained activities that generate no revenues to the local forest (e.g., protecting commercial or sport fish harvests or designating wilderness areas). Thus, counties often allied themselves with the timber industry, and opposed environmental groups, in debates over USFS and O&C management and budget decisions. Because SRS payments were based on historic payments, and not on current agency receipts, they were seen as "de-linked" from the pressure to produce revenues—a situation desired by many environmental and conservation organizations but opposed by many user groups. Title I of H.R. 4019 Three bills addressing USFS payments for counties have been introduced in the 112 th Congress. Two, H.R. 3599 and S. 1692 , would extend the SRS Act for five additional years. The other, Title I of H.R. 4019 , takes a different approach, and thus warrants a separate analysis. This title of H.R. 4019 is called the County, Schools, and Revenue Trust for Federal Forest Land. It contains eight sections, described below. Section 101. Definitions This section contains 14 definitions. Eight are unique to this bill, including defining the Secretary of Agriculture as the "Trustee." Two are common or defined in other sources: "State" (to include the Commonwealth of Puerto Rico, the only territory with national forest lands); and "community wildfire protection plans." The other four include potentially conflicting definitions. "Federal lands," for example, are defined to include the National Forest System and the O&C lands (§101(7)), and the "National Forest System" is then defined in the bill to exclude certain National Forest System lands (§101(9)). "Secretary" is defined as the Secretary of Agriculture (§101(10)), while "Secretary concerned" is defined as the Secretary of Agriculture for National Forest System lands and the Secretary of the Interior for the O&C lands (§101(11)). Section 102. County, Schools, and Revenue Trust This section would establish the County, Schools, and Revenue Trust. It would direct that the Trustee (the Secretary of Agriculture) "has a fiduciary responsibility to beneficiary counties to use … Projects to generate amounts sufficient to satisfy the annual revenue requirements established for units of the National Forest System." It would establish the trust with an appropriation of $875 million and would direct that the portion of receipts from trust projects, as required in Section 106(a)(1), be deposited in the trust. It also would prohibit garnishment by or payment to a county creditor; spending other than as directed in Section 107; and offsetting state funding "for local schools, facilities, or educational purposes." Section 103. Opt-Out Option This section would allow political subdivisions of states (referred to as counties throughout the bill and this report) with National Forest System lands eligible for payments under SRS to elect not to participate; such an election would need to be submitted each year the county chooses not to participate. Counties otherwise would be automatically included in the trust program. The section would prohibit trust projects from commencing on lands in counties that have opted not to participate. Section 104. Determination of Annual Revenue Requirement and Minimum Sale Level This section would require the Secretary of Agriculture to determine, for each unit of the National Forest System, the annual revenue requirement for the unit and the minimum sale level for the unit. ("Unit" is not defined.) The annual revenue requirement is defined (§101(1)) as 60% of the "average annual gross receipts from the unit during the 20-year period beginning with" FY1980 (i.e., FY1980-FY1999). The minimum sale level is defined (§101(8)) as 50% of the "average annual chargeable timber volume (as measured in net sawtimber volume) sold from the unit during the period beginning with fiscal year 1980 through fiscal year 2000" (i.e., for the 21-year period). Chargeable volume is defined (§101(4)) as "the volume of timber and other forest products that is counted toward meeting the allowable sale quantity of a unit of National Forest System land based on the regionally applicable utilization and merchantability standards." Allowable sale quantity is a provision that limits USFS timber sales to "a quantity equal to or less than a quantity which can be removed from such [national] forest annually in perpetuity on a sustained-yield basis." Accordingly, Section 104 might cause management problems for forest supervisors for meeting the minimum sale level, if it conflicted with maintaining a perpetual supply. Section 105. County, Schools, and Revenue Trust Projects This section would provide for the implementation and review of projects that provide funds to be deposited in the trust. Trust projects would include any projects, but "may not exceed the number of projects necessary to meet the annual revenue requirement." Trust projects could not occur on National Forest System lands in counties that opt out of the trust program, in components of the National Wilderness Preservation System, on lands where Congress had prohibited timber harvesting, or on lands "over which administrative jurisdiction was assumed by the Forest Service under section 311." It is not clear to what this latter provision refers, as there is no Section 311 in the bill. Section 105 also would direct that trust projects be consistent with the standards and guidelines in the NFMA plans for each National Forest System unit, but also would allow the standards and guidelines to be modified for each trust project. Thus, it is not clear what role existing land management plans would have in the proposed trust system. Section 105(d) would provide for public review, public comments, and environmental review. Section 105(e) would direct that the provisions of this section, for implementing trust projects, are "deemed to be compliance with the requirements of" the Forest and Rangeland Renewable Resources Planning Act of 1974 (RPA), the National Forest Management Act of 1976 (NFMA), the Multiple Use-Sustained Yield Act of 1960 (MUSYA), the National Environmental Policy Act of 1969 (NEPA), and the Endangered Species Act of 1973 (ESA). Accordingly, the reviews, appeals, and analyses offered by these statutes would be superseded by the abbreviated process within H.R. 4019 . Public Review and Comment Section 105(d)(1) would establish a notice and comment process for trust projects. Proposed projects would require a Federal Register notice, and the public would have 30 days to provide written comments on the proposals. After considering the written comments, the decision-maker would be required to issue a final decision within 90 days after the end of the comment period. This would require another Federal Register notice, marking the start of a 30-day objection period. Only parties who submitted written comments on the proposed projects could submit written objections. However, there is no provision that would require consideration of the written objections. This process is identified as the sole means for the public to seek administrative review of trust projects. Environmental Review Section 105(d)(2) would require an environmental report on each proposed trust project within 180 days of the initial Federal Register notice, as much as 30 days after the deadline for written comments on the project's final decision. For catastrophic events, defined as events that have caused or will cause severe damage to National Forest System lands (§101(3)), the deadline would be shortened to 30 days, with public comment and objection periods shortened as necessary. The environmental review would include an evaluation of environmental impacts "to the extent the Secretary considers appropriate and feasible," including any effect on threatened or endangered plants or animals listed under ESA. The environmental review also would include the public comments and objections and any response, as well as modifications needed "to ensure the annual revenue requirement is met." The environmental report would not be allowed to cost more than one-third of the estimated receipts generated by the project. It is not clear whether the environmental review would be published or otherwise available to the public. Finally, the environmental report would not be subject to judicial review. Section 106. Distribution of Amounts from Trust Projects This section would allocate receipts from trust projects: 65% would be deposited in the trust; and 35% would be "deposited in the general fund of the Treasury for use ... in such amounts as may be provided in advance in appropriation Acts, for the Forest Service." Of this amount, up to 1% would be available for "performance-based cash awards ... to employees of the Forest Service who assist a unit in exceeding its minimum sale level for the fiscal year." Section 107. Payments to Beneficiary Counties from County, Schools, and Revenue Trust This section would direct that all deposits to the trust be distributed to the states each year as soon as practicable after the end of the fiscal year. Section 107(a) would direct each state's allocation "to the beneficiary counties in the manner provided by" SRS Section 102(c)(1). That section of SRS directed allocations among the counties in accordance with the USFS 25% Payments to States Act and the Weeks Law. These two laws direct the states to spend the money on roads and schools in the counties where the national forests are located; the money is not necessarily paid to the counties, and some states direct the payments to school districts or other local governmental entities. The USFS 25% payment allocation within each state is based on the receipts from each proclaimed national forest and the acreage of each county within each proclaimed forest. Section 107 is silent concerning the allocation among the states. It could be based on the current receipts from each proclaimed national forest, as is done under the USFS 25% Payments to States Act and the Weeks Law. However, it also could be based on the complicated formula in SRS, based on each county's share of historic receipts and of eligible lands, adjusted by relative per capita income. Section 107(b) would direct use of the trust payments in accordance with SRS Sections 102(c)(2) and (d). SRS Section 102(c)(2) directed use of payments in accordance with the USFS 25% Payments to States Act and the Weeks Law—that is, on roads and schools as determined by each state. SRS Section 102(d) required that, for counties with payments greater than $350,000 in a fiscal year, 80%-85% of the payment must have been used in accordance with Section 102(c)(2). Up to 7% of the remainder could be used for certain projects, as specified in SRS Title III (e.g., for search-and-rescue or for local wildfire protection). The remaining funds were to be used as specified in SRS Title II—reinvested in projects on the federal lands in accordance with recommendations of local resource advisory committees (RACs) and approval of the Secretary. Counties with smaller annual payments were excused from some or all of allocation to Title II and Title III projects. Section 107(b) is silent on whether the Title II projects can be done as trust projects in accordance with the implementation provisions of Section 105. Section 108. Initial Payments Pending Implementation of Trust Projects This section would direct allocations of the appropriations provided to the trust for the first two fiscal years. For FY2012, the Secretaries would make payments to beneficiary counties equal to the FY2010 SRS payments. For FY2013, the payments would be 75% of the FY2012 payments. The payments would be used in accordance with the provisions directed in Section 107(b). Analysis of Possible Issues for Congress Title I of H.R. 4019 raises many possible issues for Congress. The bill would shift the focus of management for some federal lands to generating revenues for counties, possibly at the expense of providing benefits to the American people for current and future generations, but also possibly creating jobs in the timber industry. It would presume that the new management focus complies with many existing statutes that require informing the public about possible impacts of decisions and alternatives (NEPA), protecting rare plants and animals (ESA), and assuring sustained forest ecosystems (NFMA). This would effectively eliminate the external enforcement of these provisions for projects on many federal lands. There are also many technical implementation questions. Specific issues are discussed below. In addition, while it appears that H.R. 4019 is intended as a substitute for USFS 25% payments to states and O&C 50% payments to counties, nowhere does the bill direct that these payments not be made. Thus, the trust payments would apparently be in addition to the USFS 25% and O&C 50% payments. However, the bill includes no direction on deposits to the National Forest Fund to make the USFS 25% payments. Fiduciary Trust Responsibilities and Federal Assets The bill would establish a fiduciary responsibility to the Secretary of Agriculture as trustee for the trust. Typically, a trust is a collection of assets to be administered by its trustee for the beneficiaries, typically to provide income while preserving the assets of the trust. The beneficiaries of the income and of the assets can differ; for example, some trusts are established to provide a surviving spouse with income while maintaining the assets for the children. In H.R. 4019 , the trust is defined as the income, not as the assets. The bill would establish a responsibility to produce income, but is unclear on the responsibilities of the agency and the means citizens might have to protect the assets—the federal lands and resources. H.R. 4019 would constrain some of the opportunities to challenge management decisions on trust projects to produce income for the counties. It is not clear whether the trust requirements to manage for income to the counties would outweigh long-term management to maintain the assets. The counties would be the principal beneficiaries of the trust, but would appear to bear few of the responsibilities or costs associated with the implementation and administration of the trust. That is, the costs to prepare and administer trust projects to produce income for the counties are borne by the federal government. In addition to the costs of the trust projects, there would also likely be costs to establish and administer the trust, also borne by the federal government. While 35% of the receipts from trust projects could be made available in advance in appropriations acts, it is unclear whether this funding would be sufficient to cover the costs of implementing the trust projects and administering the trust. It is also unclear whether this funding would be supplemental to or in lieu of annual appropriations. Annual Revenue Requirements H.R. 4019 would establish an annual revenue requirement of 60% of the average annual gross receipts from each National Forest System unit between FY1980 and FY1999. This provision raises a number of potential questions for Congress. For example, it may be unclear to some why 60% of annual gross receipts from FY1980 through FY1999 was selected for the bill; the committee and subcommittee press releases and statements from the chairmen do not include explanations for either the level or the selected period. (The eligibility period under SRS was FY1986 through FY1999.) Other possible questions include what would be included in "gross receipts"; what receipts would be available to make the specified payments; what additional receipts would be needed to make the specified payments; and where those receipts might come from. Gross Receipts The bill does not define "gross receipts." For USFS 25% payments to states, "gross receipts" include some receipts but not others. For example, timber purchaser deposits to the Knutson-Vandenberg (K-V) Fund and deposits in the Salvage Timber Sale Fund are included as receipts for USFS 25% payments. In contrast, timber purchaser deposits for brush disposal, fees for forest botanical product harvests, and recreation fees under the Federal Lands Recreation Enhancement Act are exempt from the USFS 25% payments. Thus, the basis for calculating the 60% of gross receipts is unclear. If the gross receipts subject to the annual revenue requirement in the bill were the average gross receipts from FY1980 through FY1999 used to determine the USFS 25% payments to states, then the annual revenue requirement nationally would likely be about $550 million to $600 million. However, the actual annual revenue requirement could be higher or lower than this estimate, depending on a host of estimates and assumptions about options and future receipts. Receipts Available for Deposit to the Trust The above discussion of gross receipts suggests several categories of receipts that could be deposited in the trust. One category of receipts that could be deposited in the trust are those currently deposited in the National Forest Fund (NFF). This is a receipt account that accumulates USFS receipts which are not deposited directly into an account with mandatory spending authority (an MSA). Congress has directed many of the NFF funds to be used for specific purposes, such as the 10% Roads and Trails Fund. The USFS has historically reported on NFF deposits in its annual budget justification, although that table was not included in the FY2013 budget justification. Many of the various land and resource uses generate receipts: Timber sales—$18.8 million annually for FY2008-FY2010, after deducting the mandatory spending from NFF deposits ($7.6 million annually). Grazing fees—$1.9 million annually for FY2008-FY2010, after deducting the mandatory spending from NFF deposits ($3.3 million annually). Minerals—$45.3 million annually for FY2008-FY2010, after deducting the mandatory spending from NFF deposits ($0.2 million annually). Of this amount, $44.0 million annually for FY2008-FY2010 was collected by the Minerals Management Service (MMS) in the U.S. Department of the Interior (now the Office of Natural Resource Revenues) and deposited in the NFF; because the collections are not USFS receipts, it is not certain whether they can be identified as trust projects and deposited in the trust. Recreation fees—$44.2 million annually for FY2008-FY2010, after deducting the mandatory spending from NFF deposits ($7.6 million annually). This does not include recreation fees under the Federal Lands Recreation Enhancement Act (FLREA), since these collections are deposited directly into an MSA. Fees for land uses and power—$16.9 million annually for FY2008-FY2010, after deducting the mandatory spending from NFF deposits ($3.3 million annually). Thus, NFF funds for FY2008-FY2010 that could have been available for the trust would have averaged $127.1 million annually, if MMS deposits were included, or $83.1 million annually, if the MMS were not included. One possible source of funds for the trust could be funds deposited in many of the MSAs. It is unclear whether the provisions of H.R. 4019 could override previous statutes on the disposition of receipts to the MSAs. For certain accounts associated with timber sales, the USFS determines the amount deposited (if any) in each of the MSAs. These accounts include: The Knutson-Vandenberg (K-V) Fund—$101.9 million annually for FY2008-FY2010. These funds are a portion of timber sale receipts currently used for reforestation, timber stand improvement, and mitigation and enhancement of other resources in timber sale areas. The Salvage Sale Fund—$27.0 million annually for FY2008-FY2010. These funds are a portion of timber sale receipts currently used to prepare and administer additional salvage timber sales. Brush Disposal—$7.5 million annually for FY2008-FY2010. These funds are additional deposits from timber purchasers currently used to clean up the "slash" (tree tops and limbs) in timber sale areas. Stewardship Contracting retained receipts—$5.5 million annually for FY2008-FY2010. Stewardship contracts are special timber sales where the USFS is authorized to require additional land and resource treatments in exchange for lower timber payments; the USFS is also authorized to retain any receipts generated by stewardship contracts to be used for additional stewardship contracting activities. Because the USFS determines the amount deposited in the first three of these accounts, and can choose not to undertake stewardship contracting, the agency could substantially expand the funds available for the trust. The K-V and Salvage Sale Funds could be directly deposited in the trust, while reducing or halting the use of brush disposal and stewardship contracting would likely increase the bid prices for USFS timber sales. The total amount available from these accounts that could have been available for the trust averaged $141.9 million annually for FY2008-FY2010. Funds directed to be deposited into other MSAs might also be diverted to the trust. The statutes establishing these many MSAs direct the deposit of specified receipts into these accounts. However, the USFS might be able to designate the activities generating these receipts as trust projects, shifting funds from the MSAs to the trust. The total amount available from these accounts that could have been available for the trust averaged $124.0 million annually for FY2008-FY2010. While many of the accounts are relatively modest (less than $5 million annually), two accounts are relatively large: Recreation fees under FLREA—$64.4 million annually for FY2008-FY2010. These funds have been used primarily to address the $5.5 billion backlog of deferred maintenance in the national forests. The 10% Roads and Trails Fund—$14.0 million annually for FY2008-FY2010. These funds were originally set aside to supplement appropriations for road construction; at various times, they have been returned to the U.S. Treasury to offset USFS road appropriations, although for several years they were authorized to be used for other forest health activities in the national forests. There are a few MSAs that are unlikely to be available for the trust. These accounts include funds for specific purposes that would not have been deposited into the accounts without use for those purposes. The largest account is Restoration of Lands and Improvements, which accumulates recoveries from cash bonds, forfeitures, judgments, settlements, and the like from contractors who fail to complete the required work; the funds are used for others to complete the work. Similarly, the Cooperative Work account includes deposits from contractors and cooperators for commensurately funding jointly beneficial work (e.g., USFS expenditures to maintain jointly used roads). The total amount from these accounts averaged $67.7 million annually for FY2008-FY2010, but would probably not be available for the trust. Additional Receipts Needed The discussion of sources suggests that current NFF receipts could provide about $83 million to $127 million annually, depending on the availability of the MMS deposits. Reducing or eliminating the use of the several timber-related MSAs, and depositing those receipts in the trust, could generate another $142 million annually. Shifting deposits from the other MSAs, excluding the last group (whose funds likely would not be available for the trust), could add another $124 million to the trust. Thus, if the USFS chose (and were able) to designate all these activities as trust projects and deposit all the receipts in the trust, total deposits in FY2008-FY2010 could have been as much as $349 million to $393 million annually. As described above, the trust would likely need receipts of about $550 million to $600 million annually. If only current NFF receipts were deposited in the trust, additional annual requirements could range from $423 million to $517 million. As NFF deposits from timber harvests averaged $18.8 million annually for FY2008-FY2010, timber sales would need to increase by more than 20 times above the average timber harvest level of FY2008-FY2010 (2.6 billion board feet (bbf)) to generate sufficient funds. This could lead to annual USFS timber harvests increasing to as much as or more than the current annual timber harvest level from all lands (federal and nonfederal) in the United States. Thus, the USFS would have to alter the way it has been selling timber and/or allocating receipts. If the timber receipts deposited in the timber-related MSAs were allocated to the trust as receipts from trust projects, the need for additional annual requirements would be reduced. NFF and timber-related MSA deposits averaged about $161 million for FY2008-FY2010. Thus, the additional funds needed for the trust would be about $281 million to $375 million. With this allocation, timber sales would need to increase by more modest, but still substantial, amounts—about 175% to 233% above current levels. This would imply USFS sale levels of about 7.2 bbf to 8.7 bbf. While roughly triple the harvest levels of the past 20 years, these would be within historic levels. (See Figure 1 , above.) If all activities that provide funds for MSAs were designated to be trust projects, the additional annual requirements would be reduced to about $157 million to $251 million. Using additional timber receipts (deposits to the NFF and timber-related MSA deposits, about $161 million annually for FY2008-FY2010) would require increasing timber sales between 98% and 156%, 5.1 bbf to 6.7 bbf, double or more the FY2008-FY2010 average of 2.6 bbf. Where the Receipts Might Come From Additional Timber Sales Interests disagree about whether such increased timber sales are feasible and desirable. One question is whether sufficient timber exists in the national forests to provide the necessary additional receipts for the annual revenue requirements. Timber inventory data show that softwood growing stock on all forest lands increased by 23% between 1953 and 2007, and by 18% in the national forests. The increase has largely been in medium-sized trees (7-17 inches in diameter), while the inventory in large trees (more than 29 inches in diameter) has declined, especially in the Pacific Coast states (Alaska, Washington, Oregon, and California). The national forests contain more timber now than when harvest levels were much higher, and timber growth exceeds harvests and mortality, so timber inventories will continue to grow. This is true even with extensive wildfires and insect infestations (e.g., mountain pine beetles) in recent years. This suggests that, biologically, more timber could be cut from the national forests, at least in the near term and especially in salvaging trees killed by fires, insects, or diseases. However, salvage timber and the smaller average tree diameter suggest lower values for the remaining timber. Furthermore, in some areas of the Rocky Mountains, sawmill capacity has declined substantially in the past 20 years, raising questions about whether sufficient markets exist for increased federal timber harvests. If additional timber were harvested under the bill, additional jobs would likely be generated in the timber industry. Job multipliers based on timber harvests are imprecise, because they are influenced by many factors, such as tree diameters, mill characteristics, and more. One meta-study on northern spotted owl impacts in 1990 showed timber job multipliers ranging from 6 to 26 direct and indirect jobs per million board feet harvested, although most ranged from 14 to 16 jobs per million board feet. More recent studies have suggested that timber job multipliers are now lower—11.28 jobs per million board feet in Washington in 2004. If the additional timber sales estimated above (5.1 billion to 8.7 billion board feet) were achieved, the 2004 multiplier would suggest additional direct and indirect timber industry jobs of 57,000 to 98,000 jobs. The USFS likely could adjust its timber practices to provide at least some of the annual revenue requirement. As implied above, significant additional receipts could come from receipts that previously were being deposited in the K-V, Salvage, and brush disposal funds and were being used in stewardship contracts. Because the level of deposits and use of stewardship contracts are within the agency's discretion, shifting these funds to the trust is feasible. However, additional appropriations would likely be needed to accomplish the tasks now being supported by these funds—reforestation, timber sale preparation, treatment of logging debris to reduce wildfire threats, and more. The USFS also could likely shift timber harvests to emphasize the remaining large-diameter timber (or at least the largest-diameter trees that remain). This could lead to ecological problems, however. For example, one of the contributing factors in the forest health and wildfire problem of the intermountain West has been the historic emphasis on logging large-diameter pines. Cutting more of the large-diameter trees and leaving the small trees, undergrowth, and debris exacerbates wildfire threats. Increased logging does not reduce wildfire threats because it puts more dead biomass at ground level, which makes fires more difficult to control, and leaves small trees to serve as fuel ladders to carry fires into the canopy; this could lead to catastrophic wildfires. Another potential ecological problem could be degraded forest conditions. It has long been recognized that harvesting the best trees, and leaving the poorer-quality trees, is not desirable in the long run; this approach is called "high-grading" the forest, and is generally regarded as a poor forest management practice. Because harvests account for a relatively small acreage in any one year, and because on-the-ground inventories occur only periodically, it could be decades before the extent of high-grading were known, and it would take decades, if it were even feasible, to restore the forests to healthy conditions after such practices occur. In addition, the loss of large-diameter trees would likely alter the composition of wildlife populations. Finally, it would also be possible to harvest additional timber in some national forests, and use those revenues to provide the trust payments to other counties. Only receipts from trust projects would be deposited in the trust, and trust projects could only occur in counties that did not opt out of the trust payment program. However, all trust project receipts would be deposited in the trust, and the allocation to counties in the trust payment program would not be based on where those receipts were generated. Thus, the USFS could emphasize timber sales in areas with high timber values, such as in the Allegheny National Forest (PA) and in the south Atlantic and Gulf coastal national forests. For example, two of the four counties that have Allegheny NF land opted for SRS payments, while the other two opted for the USFS 25% payments. If those two counties opted for trust payments, the USFS could expand timber sales in those two counties to make trust payments in other areas. This is significant, because the value of USFS timber in the Allegheny in 2010 was 20 times greater (per thousand board feet) than in Colorado or Nevada. Other Possible Sources of Revenues Much of the attention on H.R. 4019 has been on increased timber sales to provide the additional revenues for the trust. However, the bill would not limit revenues to timber sales. Specifically, Section 105(b)(2) also included "issuance of a grazing permit, issuance of a special use permit involving land use, mineral development, power generation, or recreational use, and projects implementing a community wildfire protection plan." Livestock grazing is unlikely to provide much revenue, as the administrative fee for grazing use (there is no fee for a grazing permit) is set under a formula originally enacted in law, and administrative efforts to raise grazing fees have been controversial. Potential revenues from community wildfire protection plan projects would also likely be modest, at best. Biomass removal for wildfire protection generally involves removing biomass on or near the ground, such as underbrush and small trees. Such biomass has little or no commercial value. While the biomass could have some value for energy production, such use to date has required federal and state subsidies to be viable, and no independent commercial biomass energy facilities using biomass from forests are currently in operation. Special use permits, however, could offer more opportunities. Special use permits are employed for a wide variety of activities in the national forests, such as ski areas, commercial filming, and commercial telecommunication sites. The USFS generally seeks to recover fair market values for special use permits. New or higher fees for renewable energy production, such as from wind or solar farms, could be a possible source of revenues, although the capacity to generate fees from these sources and the possible environmental and social impacts from renewable energy farming continue to be studied. Other activities for which special use permits might be required could include other uses for which the USFS is not prohibited from charging fees. For example, under FLREA, some recreational activities cannot be charged user fees, such as parking and picnicking, camping at undeveloped sites, and hunting and fishing "for any person who has a right of access for hunting or fishing privileges under a specific provision of law or treaty." However, other recreational users could be charged a fair market price for special use permits, such as for hunting and fishing for persons lacking a right of access, for using all-terrain vehicles or snowmobiles off roads, for commercial outfitters and guides, and more. The amount of possible revenues from such special use permits is unknown, and in remote areas, the cost to collect and enforce the fees may exceed the potential receipts. In addition, it seems likely that most of the burden of the fee increases would be borne by people living closest to the national forests and those living in the counties to which these revenues would be transferred. Effects If Annual Revenue Requirements Are Not Met The bill provides no penalties or guidance on consequences for not meeting the annual revenue requirements. Public Involvement and Environmental Reporting Section 105(d)(2) would require an environmental report for each proposed trust project. The report must be produced within 180 days of the Federal Register notice on the proposed trust project, meaning that the USFS could issue a report 30 days after the deadline for written comments on its final decision. Thus, H.R. 4019 appears not to provide a notice-and-comment process on the environmental report for either the public or other agencies. Furthermore, in cases of catastrophic events, the USFS would be required to produce the environmental report within 30 days of the notice of the proposed project and permitted to shorten the public comment period on the trust project. H.R. 4019 does not identify any penalties or consequences if the USFS fails to meet the specified deadlines. Under current law, non-trust timber sales require an environmental review under NEPA and an ESA consultation with either the Fish and Wildlife Service (FWS) or the National Marine Fisheries Service (NMFS) about the sale's impacts on listed species and critical habitat. Section 105(e), however, would exclude trust projects from NEPA and ESA compliance. Moreover, H.R. 4019 's requirements suggest that the environmental report would not be a functional equivalent of a review under NEPA or a biological assessment under ESA. The "minimum" contents of the report would be: an evaluation of the environmental impacts, including the effect on threatened or endangered species, to the extent "appropriate and feasible"; public comments and objections and "any response" to them; and any modifications to the project to ensure annual revenue is met. Section 105 would expressly ban judicial review of the report and would limit administrative review to an opportunity to submit objections to the trust project final decision; however, H.R. 4019 would not require USFS to review or respond to the objections. Thus, the rationale for preparing the report is unclear, as it does not appear to inform the USFS or the public of the consequences of a trust project in a timely manner, nor would it arguably provide agencies or the public an adequate opportunity to comment meaningfully on the report. If H.R. 4019 were enacted, review could not be forced under many other statutes pertaining to timber harvests. The bill states that compliance with Section 105 would be deemed as compliance with the requirements of the Multiple Use-Sustained Yield Act, the National Environmental Policy Act, the Endangered Species Act, the Forest and Rangeland Renewable Resources Planning Act, and the National Forest Management Act. It is not clear how NFMA Section 14 could be satisfied by the environmental report, as that law pertains to bidding, contracting, and harvesting practices. However, it appears to mean that, under H.R. 4019 , timber harvests for trust projects would not need to be made at appraised value or overseen by federal employees. The possibility of litigation related to trust projects would not be entirely precluded by H.R. 4019 . Courts could be asked to review violations under several laws, including the Clean Water Act, the Clean Air Act, the National Historic Preservation Act, and the Archaeological Resources Protection Act. In addition, by barring ESA consultation, H.R. 4019 could potentially expose companies performing trust projects to liability. The consultation process under ESA typically leads to either FWS or NMFS issuing what is called an incidental take statement, immunizing the agency and any applicant from liability if the project incidentally harms a listed species. By eliminating the consultation process in this way, Section 105(e) insulates the USFS from ESA liability, but does not appear to protect private parties, such as timber companies, from suit. Allocation and Distribution of Trust Payments The bill would allocate 65% of trust project receipts to the trust. This would be a significant increase from the historic allocation—25% of USFS receipts and 50% of O&C receipts. The trust payments would be allocated by the states to the counties in accordance with SRS Section 102(c)(1), which refers to the original USFS 25% payments to states. This clearly would direct allocations for roads and schools in the counties based on revenues from each proclaimed national forest and acreage of that national forest in each county; the payment may or may not go to the county, depending on each state's statutory direction. How the trust payments would be allocated among the states is not clear. The allocation could be based on the average 1980-1999 USFS revenues in each state; this is shown in the fifth column in Table 1 (under "Calculated Payments, Historic Allocation"). Table 1 shows the historic USFS payments: the second column shows the average annual payments for 1980-1999; the third column shows the average annual payments for 2001-2007; and the fourth column shows the average annual payments for 2008-2011. Because the bill refers to the distribution in SRS as amended, the allocation of the trust payments could be based on the allocation of SRS payments in each state; this calculated allocation is shown in the sixth column in Table 1 . The allocation among states—by historic payments or SRS formula—would make a substantial difference in state payments. If the allocation were based on historic payments, trust payments would rise from the SRS 2008-2011 average annual payments in a few states, notably Oregon, Washington, and California. In fact, the average annual trust payments in California would likely exceed the average annual payments for any of the preceding periods. In contrast, if the allocation were based on the SRS formula, trust payments would decline from the SRS 2008-2011 average annual payments in many states, especially western states with large land areas but modest historic receipts, such as Arizona, Colorado, Idaho, Montana, Nevada, Utah, and Wyoming. In addition, because the payments would be distributed "subject to" SRS Sections 102(c)(2) and (d), counties where the payments exceed the specified amounts must or may (depending on the level and the circumstances) allocate 15%-20% of their payments for projects in accordance with SRS Titles II and III. Thus, the amounts shown in the fourth and fifth data columns overstate the likely payments in many of the counties opting for the trust payment program. For counties opting out of the trust payment program, if current receipts were significantly higher than their 1980-1999 average receipts, the actual payments could be higher than shown in the table. The trust payments also appear to be in addition to the USFS 25% payments, which would lead to greater payments (perhaps substantially greater) in some areas. The bill also would allocate 35% of receipts to the U.S. Treasury, and would allow the funds to be appropriated to the USFS. For trust project receipts appropriated to the USFS, the agency would be allowed to use up to 1% of that appropriation for bonuses to employees "who assist a unit in exceeding its minimum sale level for the fiscal year." This bonus would reward employees who help in increasing timber sales, regardless of the environmental and economic consequences of those sales, since it would be for exceeding volume targets, not for achieving revenue requirements. Efforts to increase receipts from other sources (such as those described above) would not be eligible for bonuses. Implementation The implementation of H.R. 4019 also raises a number of possible issues. Some issues may appear to be relatively minor; for example, grazing fees are charged for actual use, not for permits (as implied in Section 105(b)(2)), and chargeable volume (Section 101(4)) in some national forests is calculated in growing stock (cubic feet), not in merchantable sawtimber (board feet), making the minimum sale level calculation (Section 104(2) from the definition in Section 101(8)) difficult, at best. Six implementation provisions could raise more complicated issues and warrant some additional discussion: the provision on state education funding; inclusion of the O&C lands; implementation in parts of national forests; directions on timber sale practices and procedures; the need for regulations for implementation; and impacts on USFS staffing and funding. Provision on State Education Funding Section 102(c)(3) would direct that the "assets of the Trust shall not ... be used in lieu of or to otherwise offset State funding sources for local schools, facilities, or educational purposes." This provision appears to be intended to prevent states from adjusting their allocation of state educational funds in response to USFS state payments, as is currently done in Washington and other states. Some might view this as federal interference in state prerogatives to allocate state funding as the state sees fit, which would violate the Spending Clause/Tenth Amendment of the U.S. Constitution. Others would likely argue that this is a legitimate condition of the federal trust payments. While the language of Section 102(c)(3) appears to make this a requirement only for counties choosing the trust payments, the automatic opt-in provision (§103) and the allocation and distribution provisions (§§106 and 107) make this appear less of a voluntary grant program. Inclusion of the O&C Lands The bill would include payments for the O&C lands in western Oregon through the definition of federal land (§101(7)(B)). However, some of the actions required by the bill would not be applied to the O&C lands. The provisions of Section 105, implementing the trust projects, direct the Secretary of Agriculture to identify trust projects on National Forest System lands. There are no directions for the Secretary of the Interior to identify trust projects on O&C lands, and no authorization for the trust project designation, public involvement, or environmental review provisions to be implemented on the O&C lands. Section 106 would direct that trust project revenues be deposited in the U.S. Treasury to be available for appropriation to the USFS. Finally, Section 107 would direct use of the funds consistent with SRS Section 102(c), which refers to the USFS 25% Payments to States Act requiring use of funds for roads and schools; under the 1937 O&C Act, the O&C payments have been available for any local governmental purpose. Thus, the bill includes the O&C lands in its definition of federal land, but other provisions of the bill seem not to apply to the O&C lands and it is not clear whether the counties with O&C lands would be eligible for trust payments. Implementation for Parts of National Forests The bill would allow each county to opt out of the trust payment program, and would prohibit trust projects from occurring on lands in counties that have opted out of the program. However, calculations and decisions would generally be directed to be done at units of the National Forest System. These two aspects could significantly complicate national forest management. First, the bill does not define "unit" of the National Forest System. NFMA allows multiple national forests to be combined for planning purposes, and the USFS has combined several national forests for administrative purposes; for example, the Choctawhatchee National Forest (NF), with 743 acres, is administered with three other national forests as the National Forests in Florida. However, the USFS 25% payments to states program is organized by proclaimed national forest, not by administrative designation. The bill is not clear on which of these approaches may or must be used for the required calculations and decisions. An additional possible complication is that some national forests are spread over many counties; the Mark Twain NF, for example, has land in 29 counties in Missouri, while the Daniel Boone NF and Jefferson NF each have land in 22 counties, the latter in three different states. Under the SRS payment program, counties could opt in, and in 38 of the 156 proclaimed national forests (24%), some counties opted in while others opted out. If similar choices were made under the trust payment program, about a quarter of the national forests would be required to administer some lands with trust projects and their implementation guidance, and other lands under MUSYA, NFMA, and other laws. This might require additional surveying, to assure that trust projects occur only in those counties that have not opted out of the trust payment program. Timber Sale Practices and Procedures Section 14 of NFMA sets forth guidelines for timber sales in the National Forest System. It requires an appraisal of the timber value in each sale and advertisement of the sale. Each sale is to be at not less than the appraised value, in open and competitive bidding. The timber harvest is to be supervised by a USDA employee. And the Secretary of Agriculture is to develop timber utilization standards, measurement methods, and harvesting practices "to provide for the optimum practical use of the wood material." Since the bill states that trust projects comply with NFMA (among other laws), it is unclear whether these guidelines would necessarily continue to be implemented and enforced. Regulations for Implementation The bill does not require regulations to implement its provisions. However, the USFS would be implementing different timber sale procedures on different lands, depending on decisions by the counties. Thus, regulations for the timber sale procedures for trust projects might be needed to provide consistent practices and to assure that adequate receipts are deposited in the trust. Moreover, counties could move into and out of the trust program from year to year, and the USFS might need regulations to guide timber practices on sales begun as trust projects versus those begun as non-trust projects. Impacts on USFS Staffing and Funding H.R. 4019 would likely increase USFS staffing needs and funding requirements. Additional staff would likely be needed to prepare and administer the expected increase in timber sales, although some staff might be saved by decreasing the needed environmental analysis on those sales. However, implementing different sets of sale regulations on possibly adjoining lands could significantly increase the total work effort. In addition, it seems likely that some additional staff will be needed to administer the trust and trust payments. Additional funding would likely be needed. As noted above, one possible avenue for achieving the revenue requirements is to reduce or eliminate USFS deposits to many of the MSAs. Thus, additional funding would likely be needed to replace funds for: timber sale preparation and administration from the Salvage Sale Fund and possibly the Timber Sale Pipeline Fund; reforestation from the K-V Fund and brush disposal funds; fuel treatment to replace brush disposal funds and to replace forest health improvements achieved through stewardship contracts; and mitigation of the effects of the additional timber sales on other resource values and conditions, such as degradation to water quality and loss of certain types of animal habitats, from the K-V fund. In addition, funding for staff to administer the trust and trust payments would likely be needed, since trust funds are not authorized to be used for administration of the trust. The extent of possible additional funding needs is unclear, but seems likely to be at least as much as the decline in deposits to USFS MSAs—$142 million annually for FY2008-FY2010 for the four timber-related accounts and another $124 million annually for FY2008-FY2010 for the other MSAs. In the current tight federal fiscal situation, it is unclear how such additional funding might be provided.

Since 1908, the Forest Service (USFS) in the Department of Agriculture has paid 25% of its receipts to the states for use on roads and schools in the counties where the national forests are located. The Bureau of Land Management (BLM) in the Department of the Interior has paid 50% of its receipts to the Oregon counties where the revested (returned to federal ownership) Oregon and California Railroad (O&C) grant lands are located. Payments under these programs dropped substantially in the 1990s, largely because of declining timber sales. In the Secure Rural Schools and Community Self-Determination Act of 2000 (P.L. 106-393; SRS), Congress created an optional alternative payment system for these lands, but the law expired at the end of FY2011. The 112th Congress has considered options for addressing the lower payments from federal lands due to lower timber sales. One bill, H.R. 4019 (Title I, the County, Schools, and Revenue Trust for Federal Forest Land), would establish a new payment program; the House Committee on Natural Resources has ordered the bill reported. The bill would establish the trust with receipts from certain projects, and give the USFS the "fiduciary responsibility" to undertake projects to achieve annual revenue requirements in counties that do not opt out of the trust program. The bill would direct the USFS to calculate the revenue requirements and, to implement trust projects, establish procedures for public involvement, environmental reporting, and judicial review. The bill also would direct the allocation and use of the trust payments, and provide appropriations for the payments until trust projects generated receipts for the trust payments. H.R. 4019 raises several issues for Congress. One is that, although the trust program has been described as a replacement for the SRS, the payments would apparently be in addition to the USFS 25% and O&C 50% payments that had been replaced by the SRS. Also, the fiduciary responsibility for trust payments makes the counties the primary beneficiary of federal land management and could restrict the ability of individuals to challenge decisions that they feel could degrade the federal lands and resources. The annual revenue requirement—60% of average 1980-1999 gross receipts—raises several questions: what would be included in "gross receipts"; what receipts could be deposited in the trust (e.g., whether deposits to other accounts could instead be deposited in the trust); how much additional revenue would be needed; and where those revenues could come from (e.g., how much additional timber might need to be cut, how many jobs might be created, where the timber could be cut, and what other options might be feasible, such as permits for currently free uses). Public involvement would be limited to written comments and objections to proposed and final trust decisions, filed before the required environmental report is prepared. The environmental report would not need to be made available, and could not be challenged in court or administratively. Trust project decisions would be presumed to be in accordance with several laws, such as the National Environmental Policy Act, the Endangered Species Act, and the National Forest Management Act. The 65% of trust project receipts that would be paid to the states would be a significant increase over the 25% USFS payments and the 50% O&C payments. The bill is unclear on the allocation among states; it could be based on historic receipts or on SRS payments, with substantially different results. There could also be numerous implementation issues, such as treatment of state education funding, inclusion of the O&C lands, forests with some counties opting out of the trust payments, existing federal timber sale requirements, the possible need for implementing regulations, and possible additional staffing and funding requirements.

Background Congress uses an annual appropriations process to fund the routine activities of most federal agencies. This process anticipates the enactment of 12 regular appropriations bills to fund these activities before the beginning of the fiscal year. When this process is delayed beyond the start of the fiscal year, one or more continuing appropriations acts (commonly known as continuing resolutions or CRs) can be used to provide funding until action on regular appropriations is completed. An interim continuing resolution (CR) typically provides that budget authority is available at a certain rate of operations or funding rate for the covered projects and activities, and for a specified period of time. The funding rate for a project or activity is based on the total amount of budget authority that would be available annually at the referenced funding level , and is prorated based on the fraction of a year for which the interim CR is in effect. In recent fiscal years, the referenced funding level has been the amount of budget authority that was available under specified appropriations acts from the previous fiscal year. For example, the first CR for FY2018 ( H.R. 601 \ P.L. 115-56 ) provided, "... such amounts as may be necessary, at a rate of operations as provided in the applicable appropriations Acts for fiscal year 2017." While a blanket continuation of the prior year's spending levels is one option for establishing the CR's funding rate, other funding levels also have been used to provide the funding rate. For example, H.R. 601 stipulated that funding be continued at the rate provided in the applicable FY2017 appropriations bill, minus 0.6791%. While recent CRs have provided that the funding rates for certain accounts are to be calculated with reference to the funding rates in the previous year, Congress could establish a CR funding rate on any basis (e.g., the President's pending budget request, the appropriations bill for the pending year as passed by the House or Senate, or the bill for the pending year as reported by a committee of either chamber). Full Text Versus Formulaic Continuing Appropriations CRs have sometimes provided budget authority for some or all covered activities by incorporating the text of one or more regular appropriations bills for the current fiscal year. When this form of funding is provided in a CR or other type of annual appropriations act, it is often referred to as full text appropriations . When full text appropriations are provided, those covered activities are not funded by a rate for operations, but by the amounts specified in the incorporated text. This full text approach is functionally equivalent to enacting regular appropriations for those activities, regardless of whether that text is enacted as part of a CR. The "Department of Defense and Full-Year Continuing Appropriations Act, FY2011" ( P.L. 112-10 ) is one recent example. For DOD, the text of a regular appropriations bill was included in Division A, thus funding those covered activities via full text appropriations. In contrast, a formula based on the previous fiscal year's appropriations laws was used to provide full-year continuing appropriations for the other projects and activities that normally would have been funded in the remaining 11 FY2011 regular appropriations bills ( P.L. 112-10 , Division B). If formulaic interim or full-year continuing appropriations were to be enacted for DOD, the funding levels for both base defense appropriations and Overseas Contingency Operations (OCO) spending could be determined in a variety of ways. A separate formula could be established for defense spending, or the defense and nondefense spending activities could be funded under the same formula. Likewise, the level of OCO spending under a CR could be established by the general formula that applies to covered activities (as discussed above), or by providing an alternative rate or amount for such spending. For example, the first CR for FY2013 ( P.L. 112-175 ) provided the following with regard to OCO funding: Whenever an amount designated for Overseas Contingency Operations/Global War on Terrorism pursuant to Section 251(b)(2)(A) of the Balanced Budget and Emergency Deficit Control Act of 1985 (in this section referred to as an "OCO/GWOT amount") in an Act described in paragraph (3) or (10) of subsection (a) that would be made available for a project or activity is different from the amount requested in the President's fiscal year 2013 budget request, the project or activity shall be continued at a rate for operations that would be permitted by ... the amount in the President's fiscal year 2013 budget request. Limitations that Continuing Resolutions May Impose CRs may contain limitations that are generally written to allow execution of funds in a manner that provides for minimal continuation of projects and activities in order to preserve congressional prerogatives prior to the time a full appropriation is enacted. As an example, an interim CR may prohibit an agency from initiating or resuming any project or activity for which funds were not available in the previous fiscal year. Congress has, in practice, included a specific section (usually Section 102) in the CR to expressly prohibit DOD from starting production on a program that was not funded in prior years (i.e., a new start ), and from increasing production rates above levels provided in the prior year. Congress may also limit certain contractual actions such as multiyear procurement contracts. Such prohibitions are typically only applied to the Department of Defense. An interim CR may provide funds at the rate of the prior year's appropriation and, as a result, may provide funds in a manner that differs from an agency's budget request. For example, if a CR is based on the prior year's enacted appropriation, a mismatch could occur at the account level between the agency's request and the CR funding level. The Antideficiency Act prohibits a federal employee from making or authorizing "an expenditure or obligation exceeding an amount available in an appropriation or fund for the expenditure or obligation" unless authorized by law. A mismatch at account level between the agency's request and the CR funding level is sometimes referred to as an issue with the color of money . Anomalies Even though CRs typically provide funds at a particular rate, CRs may also include provisions that enumerate exceptions to the duration, amount, or purposes for which those funds may be used for certain appropriations accounts or activities. Such provisions are commonly referred to as anomalies . The purpose of anomalies is to insulate some operations from potential adverse effects of a CR while providing time for Congress and the President to agree on full-year appropriations and avoiding a government shutdown. A number of factors could influence the extent to which Congress decides to include such additional authority or flexibility for DOD under a CR. Consideration may be given to the degree to which funding allocations in full-year appropriations differ from what would be provided by the CR. Prior actions concerning flexibility delegated by Congress to DOD may also influence the future decisions of Congress for providing additional authority to DOD under a longer-term CR. In many cases, the degree of a CR's impact can be directly related to the length of time that DOD operates under a CR. While some mitigation measures (anomalies) might not be needed under a short-term CR, extended delays in passing a full-year defense appropriations bill may increase management challenges and risks for DOD. An anomaly might be included to stipulate a set rate of operations for a specific activity, or to extend an expiring authority for the period of the CR. For example, the second CR for FY2017 ( H.R. 2028 \ P.L. 114-254 ) granted three anomalies for DOD: Section 155 funded the Columbia Class Ballistic Missile Submarine Program ( Ohio Replacement) at a specific rate for operations of $773,138,000. Section 156 allowed funding to be made available for multiyear procurement contracts, including advance procurement, for the AH–64E Attack Helicopter and the UH–60M Black Hawk Helicopter. Section 157 provided funding for the Air Force's KC–46A Tanker, up to the rate for operations necessary to support the production rate specified in the President's FY2017 budget request (allowing procurement of 15 aircraft, rather the FY2016 rate of 12 aircraft). In anticipation of an FY2018 CR, DOD submitted a list of programs that would be affected under a CR to the Office of Management and Budget (OMB). This "consolidated anomalies list" included approximately 75 programs that would be delayed by a prohibition on new starts and nearly 40 programs that would be negatively affected by a limitation on production quantity increases. OMB may or may not forward such a list to Congress as a formal request for consideration. Some analysts contend that OMB rarely supports inclusion of anomalies in a CR because anomalies generally reduce the impetus for Congress to reach a budget agreement. According to Mark Cancian, a defense budget analyst at the Center for Strategic and International Studies, "a CR with too many anomalies starts looking like an appropriations bill and takes the pressure off." H.R. 601 ( P.L. 115-56 ), the initial FY2018 CR, did not include any anomalies to address the programmatic issues included on the DOD list. H.R. 601 was extended through March 23, 2018, by four measures. The fourth measure ( P.L. 115-123 ) included an anomaly to address concerns raised by the Air Force regarding the effects of the CR on certain FY2018 construction requirements. How Agencies Implement a CR After enactment of a CR, OMB provides detailed directions to executive agencies on the availability of funds and how to proceed with budget execution. OMB will typically issue a bulletin that includes an announcement of an automatic apportionment of funds that will be made available for obligation, as a percentage of the annualized amount provided by the CR. Funds usually are apportioned either in proportion to the time period of the fiscal year covered by the CR, or according to the historical, seasonal rate of obligations for the period of the year covered by the CR, whichever is lower. A 30-day CR might, therefore, provide 30 days' worth of funding, derived either from a certain annualized amount that is set by formula or from a historical spending pattern. In an interim CR, Congress also may provide authority for OMB to mitigate furloughs of federal employees by apportioning funds for personnel compensation and benefits at a higher rate for operations, albeit with some restrictions. Unique Implementation Challenges Faced by DOD CRs essentially lock DOD funding accounts at the levels appropriated the previous year and prevent scheduled activities. Funding needs typically change from year to year across DOD accounts due to a variety of factors―including emerging or increasing threats to national security―and accounts that are funded below their budgeted level under a CR cannot obligate funds at the anticipated rate. This can restrict planned personnel actions, maintenance and training activities, and a wide variety of contracted support actions. Delaying or deferring such actions can also cause a ripple effect, generating personnel shortages, equipment maintenance backlogs, oversubscribed training courses, and a surge in end-of-year contract spending. Prohibitions on Certain Contracting Actions As discussed, a CR typically includes a provision prohibiting DOD from initiating new programs or increasing production quantities beyond the prior year's rate. DOD is typically the only federal agency limited in this manner. These DOD-unique prohibitions can directly result in delayed development, production, testing, and fielding of DOD weapon systems. An inability to execute funding as planned can induce costly delays and repercussions in the complex schedules of weapons system development programs. Under a CR, DOD's ability to enter into planned long-term contracts is also typically restricted, thus forfeiting the program stability and efficiencies that can be gained by such contracts. Misalignments in CR-Provided Funding DOD may also encounter significant color of money issues under a CR, meaning money is available but it is in the wrong appropriations account. Many defense acquisition programs may face challenges if they were going through a transitional period in the acquisition process amid a CR. For example, a weapons program ramping down development activities and transitioning into production could be allocated research, development, test and evaluation (RDT&E) funding under a CR (i.e. based on the prior year's appropriation) when the program is presently in need of procurement funding. One example of a program affected by limitations on the color of money is the Columbia class Ballistic Missile Submarine Program, which received funding exclusively for RDT&E in years prior to FY2017. In FY2017, however, the budget request for the Columbia class program included not only RDT&E funding, but also advance procurement (AP) funding. With no anomaly there could be no AP funding available for the program under a CR. Similar to generating issues with the color of money, a CR can result in problems specific to the apportionment of funding in the Navy's shipbuilding account, known formally as the Shipbuilding and Conversion, Navy (SCN) appropriation account. SCN appropriations are specifically annotated at the line-item level in the DOD annual appropriations bill. As a consequence, under a CR, SCN funding is managed not at the appropriations account level, but at the line-item level. For the SCN account—uniquely among DOD acquisition accounts—this can lead to misalignments (i.e., excesses and shortfalls) in funding under a CR for SCN-funded programs, compared to the amounts those programs received in the prior year. The shortfalls in particular can lead to program execution challenges under an extended or full-year CR. Timing of the NDAA Along with specific authorization for military construction projects, the National Defense Authorization Act (NDAA) provides additional authorities that DOD needs to conduct its mission. These authorities range from authorization of end strengths for active and reserve military forces to authorization for specific training activities with allied forces in contingency operations. Some such authorities are slated to expire at the start of the fiscal year, while others, such as certain authorities for special pay and bonuses, expire at the end of the calendar year. Should final action on the NDAA be delayed, Congress may consider addressing expiring authorities or the need for specific authorizations through the inclusion of relevant policy anomalies in a CR. While there are many examples of the effects of a CR on the military, many are difficult to quantify. For instance, DOD prioritized funding for readiness activities such as training, equipment maintenance, logistics, and civilian personnel pay in its FY2018 budget request. The budget request included $188.6 billion for the Operation and Maintenance (O&M) account, which funds many of these activities―a $21 billion increase from FY2017. The rate for operations provided under the FY2018 CR is 13% below the President's budget request for O&M. The resulting lack of availability of O&M funding at or near the planned level―combined with the uncertainty of the CR's duration―results in decisions to prioritize the use of available funding to meet urgent and critical needs. The consequent deferral of annual and routine training, preventative maintenance actions, and routine supply activities can erode the readiness of the force. DOD Management Challenges Under a CR In testimony before the Senate Subcommittee on Federal Spending Oversight and Emergency Management, Committee on Homeland Security and Governmental Affairs, a senior Government Accountability Office (GAO) analyst remarked that CRs can create budget uncertainty and disruptions, complicating agency operations and causing inefficiencies. Director of Strategic Issues Heather Krause asserts that "this presents challenges for federal agencies continuing to carry out their missions and plan for the future. Moreover, during a CR, agencies are often required to take the most limited funding actions." Krause testified that agency officials report taking a variety of actions to manage inefficiencies resulting from CRs, including shifting contract and grant cycles to later in the fiscal year to avoid repetitive work, and providing guidance on spending rather than allotting specific dollar amounts during CRs, to provide more flexibility and reduce the workload associated with changes in funding levels. When operating under a CR, agencies encounter consequences that can be difficult to quantify, including additional obligatory paperwork, need for additional short-term contracting actions, and other managerial complications as the affected agencies work to implement funding restrictions and other limitations that the CR imposes. For example, the government can normally save money by buying in bulk under annual appropriations lasting a full fiscal year or enter into new contracts (or extend their options on existing agreements) to lock in discounts and exploit the government's purchasing power. These advantages may be lost when operating under a CR. All federal agencies face management challenges under a CR, but DOD faces unique challenges in providing the military forces needed to deter war and defend the country. In a letter to the leaders of the armed services committees dated September 8, 2017, Secretary of Defense James Mattis asserted that "longer term CRs impact the readiness of our forces and their equipment at a time when security threats are extraordinarily high. The longer the CR, the greater the consequences for our force." DOD officials argue that the department depends heavily on stable but flexible funding patterns and new start activities to maintain a modernized force ready to meet future threats. Former Defense Secretary Ashton Carter posited that CRs put commanders in a "straight-jacket" that limits their ability to adapt, or keep pace with complex national security challenges around the world while responding to rapidly evolving threats like the Islamic State. Managing with an Expectation of a CR In all but 4 of the past 40 years, Congress has passed CRs to enable agencies to continue operating when annual appropriation bills have not been enacted before the start of the fiscal year. DOD has started the fiscal year under a CR for 13 of the past 17 years (FY2002-FY2018) and every year since FY2010. The average number of days of operation under a CR has increased over that same period. DOD has operated under a CR for an average of 125 days per year during the period FY2010-FY2017 compared to an average of 32 days per year during the period FY2002-FY2009 (see Figure 1 ). Since 2010, DOD has spent over 38 months operating under a CR, compared to less than 9 months during the preceding 8 years. Senior defense officials have stated that the military services and defense agencies have consequently come to expect that a full-year appropriations bill will not be completed by the start of the fiscal year. According to Admiral John Richardson, Chief of Naval Operations, "The services are essentially operating in three fiscal quarters per year now. Nobody schedules anything important in the first quarter." Given the frequency of CRs in recent years, many DOD program managers and senior leaders work well in advance of the outcome of annual decisions on appropriations to minimize contracting actions planned for the first quarter of the fiscal year. The Defense Acquisition University, DOD's education service for acquisition program management, imparts that, "Members of the OSD, the Services and the acquisition community must consider late enactment to be the norm [emphasis in original] rather than the exception and, therefore, plan their acquisition strategy and obligation plans accordingly." Replanning and executing short-term contracting actions can be reduced by building a program schedule in which planned contracting actions are pushed to later in the fiscal year when it is more likely that a full appropriation would be enacted. Additionally, managers can take steps to defer hiring actions, restrict travel policies, or cancel nonessential education and training events for personnel. These efforts by defense officials to prepare for the potential of a CR appear to have reduced some of the need to request that specific anomalies be included in the CR. However, former Defense Department Comptroller Mike McCord also held that no matter how the Pentagon responds to these repeated cycles of CRs, "there is no question that short-term funding creates enormous inefficiency.... "

This report provides a basic overview of interim continuing resolutions (CRs) and highlights some specific issues pertaining to operations of the Department of Defense (DOD) under a CR. As with regular appropriations bills, Congress can draft a CR to provide funding in many different ways. Under current practice, a CR is an appropriation that provides either interim or full-year funding by referencing a set of established funding levels for the projects and activities that it funds (or covers). Such funding may be provided for a period of days, weeks, or months and may be extended through further continuing appropriations until regular appropriations are enacted, or until the fiscal year ends. In recent fiscal years, the referenced funding level on which interim or full-year continuing appropriations has been based was the amount of budget authority that was available under specified appropriations acts from the previous fiscal year. CRs may also include provisions that enumerate exceptions to the duration, amount, or purposes for which those funds may be used for certain appropriations accounts or activities. Such provisions are commonly referred to as anomalies. The purpose of anomalies is to preserve Congress's constitutional prerogative to provide appropriations in the manner it sees fit, even in instances when only interim funding is provided. The lack of a full-year appropriation and the uncertainty associated with the temporary nature of a CR can create management challenges for federal agencies. DOD faces unique challenges operating under a CR while providing the military forces needed to deter war and defend the country. For example, an interim CR may prohibit an agency from initiating or resuming any project or activity for which funds were not available in the previous fiscal year (i.e., prohibit new starts). Such limitations in recent CRs have affected a large number of DOD programs. Before the beginning of FY2018, DOD identified approximately 75 weapons programs that would be delayed by the FY2018 CR's prohibition on new starts and nearly 40 programs that would be affected by a restriction on production quantity. In addition, Congress may include provisions in interim CRs that place limits on the expenditure of appropriations for programs that spend a relatively high proportion of their funds in the early months of a fiscal year. Also, if a CR provides funds at the rate of the prior year's appropriation, an agency may be provided additional (even unneeded) funds in one account, such as research and development, while leaving another account, such as procurement, underfunded. By its very nature, an interim CR can prevent agencies from taking advantage of efficiencies through bulk buys and multiyear contracts. It can foster inefficiencies by requiring short-term contracts that must be reissued once additional funding is provided, requiring additional or repetitive contracting actions. DOD has started the fiscal year under a CR for 13 of the past 17 years (FY2002-FY2018) and every year since FY2010. The amount of time DOD has operated under CR authorities during the fiscal year has increased in the past 9 years and equates to a total of more than 38 months since 2010.

Introduction Whistleblowing is "the act of reporting waste, fraud, abuse and corruption in a lawful manner to those who can correct the wrongdoing." Intelligence Community (IC) whistleblowers are those employees or contractors working in any of the seventeen elements of the IC who reasonably believ e there has been a violation of law, rule, or regulation, gross mismanagement, waste of resources, abuse of authority, or a substantial danger to public health and safety. The essential distinction between whistleblowers generally and those in the IC (or those who otherwise have security clearances) is the concern for protecting classified information that may be involved in an IC-related incident or complaint. The IC has recognized that whistleblowing can save taxpayers' dollars, help ensure an ethical and safe working environment, and enable timely responses for corrective action. Whistleblowing protections for employees and contractors in the IC are extended only to those who make a lawful disclosure. They do not cover disclosures that do not conform to statutes and directives prescribing reporting procedures intended to protect classified information, such as leaking to the media or a foreign government. The whistleblower protections do not apply to a difference of opinion over policy, strategy, analysis, or priorities for intelligence funding or collection unless there is a reasonable concern over legality or constitutionality. Whistleblowing protections also do not protect against legitimate adverse personnel or security clearance eligibility decisions if the agency can demonstrate that it would have taken the same action in the absence of a protected disclosure. Congress and the Executive Branch have defined in statute and directives procedures for IC whistleblowers to make protected disclosures that also provide for the security of classified information. The Director of National Intelligence (DNI) whistleblowing policy and guidance is publicly available and specifically addresses whistleblower process and protections for IC contractors, members of the Armed Forces, and federal employees. There are differing opinions, however, on whether the IC's internal processes have the transparency necessary to ensure adequate protections against reprisal, and whether protections for IC contractors are sufficient. IC whistleblower protections have evolved in response to perceptions of gaps that many believed left whistleblowers vulnerable to reprisal. The first whistleblower legislation specific to the IC was the Intelligence Community Whistleblower Protection Act (ICWPA) of 1998. It was limited to specifying a process for an IC whistleblower to make a complaint but offered no specific protections. The Intelligence Authorization Act for Fiscal Year 2010 included provisions for protecting IC whistleblowers, though these were general and subject to different standards of implementation. Presidential Policy Directive (PPD)-19, signed in 2012, provided the first specific protections in response to perceptions that IC whistleblowers remained vulnerable to reprisal actions for making a complaint. The Intelligence Authorization Act for Fiscal Year 2014 codified the PPD-19 provisions and Intelligence Community Directive (ICD)-120 established a PPD-19 implementation policy. For members of the Armed Forces assigned to elements of the IC, 10 U.S . C . §1034 provides whistleblower protections. Department of Defense (DOD) implementing guidance for Section 1034 can be found in DOD Directive 7050.06, Military Whistleblower Protection . In January 2018, Congress passed P.L. 115-118 . Section 110 amended the National Security Act of 1947 and the Intelligence Reform and Terrorism Prevention Act of 2004 to include provisions to address perceived gaps in protections for IC contractors. Intelligence Community Whistleblower Protection Act (ICWPA) of 1998 The Intelligence Community Whistleblower Protection Act of 1998 (ICWPA) was intended to assist whistleblowers in the IC who are specifically excluded from the Whistleblower Protection Act of 1989. It should be noted that the ICWPA makes no explicit mention of members of the Armed Forces assigned to an IC element. It amended previous acts of Congress—the Central Intelligence Agency Act of 1949, and the Inspector General Act of 1978—to enable an IC government employee or contractor "who intends to report to Congress a complaint or information with respect to an urgent concern" to report to the Inspector General (IG) of the employee's or contractor's IC agency. Congress noted that the absence of this provision in law previously "may have impaired the flow of information needed by the intelligence committees to carry out oversight responsibilities." Consequently, the ICWPA defines formal processes for submitting complaints that ensure the protection of classified information that may be involved: It requires the IG to report within 14 days all credible complaints to the Director of the CIA or to the head of the establishment who, in turn, is required to report the complaint to the congressional intelligence committees within 7 days. In the event the IG does not report the complaint or reports it inaccurately, the employee or contractor has the right to submit the complaint to Congress directly. This may be done: (1) after the employee has provided notice to the IG, and (2) after the employee has obtained from the IG procedures for protecting classified information when contacting the congressional intelligence committees. Although the ICWPA provides a process for IC whistleblowers—employees and contractors—to securely report complaints to Congress via the relevant IC agency IG, it offers no specific provisions for protecting whistleblowers from reprisal or punishment. Intelligence Authorization Act (IAA) for Fiscal Year 2010 The IAA for FY2010 ( P.L. 111-259 ) included the first general provisions for protection of whistleblowers as part of legislation that established the Office of the Inspector General of the Intelligence Community (OIGIC), headed by the Inspector General of the Intelligence Community (IGIC). Section 405(a)(1) of the IAA for FY2010 added a new Section 103H to the National Security Act of 1947. Section 103H(g) permitted lawful disclosures to the IGIC, but lacked the specificity of later whistleblower protection legislation and directives: (3) The Inspector General [of the Intelligence Community] is authorized to receive and investigate, pursuant to subsection (h), complaints or information from any person concerning the existence of an activity within the authorities and responsibilities of the Director of National Intelligence constituting a violation of laws, rules, or regulations, or mismanagement, gross waste of funds, abuse of authority, or a substantial and specific danger to the public health and safety. Once such complaint or information has been received from an employee of the intelligence community— (A) the Inspector General shall not disclose the identity of the employee without the consent of the employee, unless the Inspector General determines that such disclosure is unavoidable during the course of the investigation or the disclosure is made to an official of the Department of Justice responsible for determining whether a prosecution should be undertaken; and (B) no action constituting a reprisal, or threat of reprisal, for making such complaint or disclosing such information to the Inspector General may be taken by any employee in a position to take such actions, unless the complaint was made or the information was disclosed with the knowledge that it was false or with willful disregard for its truth or falsity. Section 405 does cover contractors in addition to federal employees of IC elements: The Inspector General [of the IC] shall have access to any employee, or any employee of a contractor, of any element of the intelligence community needed for the performance of the duties of the Inspector General." An employee of an element of the intelligence community, an employee assigned or detailed to an element of the intelligence community, or an employee of a contractor to the intelligence community who intends to report to Congress a complaint or information with respect to an urgent concern may report such complaint or information to the Inspector General. Section 425(d) of the IAA for FY2010 also amended the Central Intelligence Agency Act of 1949 clarifying existing protections against reprisals against CIA employees who make lawful disclosures to the CIA Inspector General. Presidential Policy Directive (PPD)-19 PPD-19, Protecting Whistleblowers with Access to Classified Information , signed by President Obama on October 10, 2012, provided the first Executive Branch protections for IC whistleblowers. PPD-19 specifically protects some employees in the IC (it specifically excludes members of the Armed Forces) with access to classified information, from personnel actions taken in reprisal for making a lawful disclosure. PPD-19 defines a protected disclosure in part as: a disclosure of information by the employee to a supervisor in the employee's direct chain of command up to and including the head of the employing agency, to the Inspector General of the employing agency or Intelligence Community Element, to the Director of National Intelligence, to the Inspector General of the Intelligence Community, or to an employee designated by any of the above officials for the purpose of receiving such disclosures, that the employee reasonably believes evidences (i) a violation of any law, rule, or regulation; or (ii) gross mismanagement, a gross waste of funds, an abuse of authority, or a substantial and specific danger to public health or safety. PPD-19 prohibits reprisals (1) that could affect a whistleblower's eligibility for access to classified information; or (2) involve a personnel action against the IC employee making a protected disclosure. PPD-19 requires IC elements to certify to the DNI a process for IC employees to seek a review of personnel actions the employee believes are in reprisal for making a lawful disclosure. The review process also must provide for the security of classified information involved in a disclosure. As part of the review process, PPD-19 requires the IC element Inspector General to determine whether a personnel action was in reprisal for a lawful disclosure. The IG makes recommendations for corrective action in the event of a determination that a violation took place. The agency head "shall carefully consider the findings of and actions recommended by the agency Inspector General." The agency head does not have to accept an IG's recommendation for corrective action. IC agencies also have to certify to the DNI that the agency has a review process that permits employees to appeal actions involving eligibility for access to classified information that are alleged to be in violation of prohibitions against retaliation for making lawful disclosures. PPD-19 allows for a whistleblower to request an external review by an IG panel chaired by the IGIC if the employee has exhausted the agency review process. In the event the panel decides in the employee's favor, the agency must consider but does not have to accept the panel's recommendation for corrective action. It requires the IGIC to report annually to the congressional intelligence committees the IG determinations and recommendations and IC element head responses to the determinations and recommendations. PDD-19 requires the Executive Branch to provide training to employees with access to classified information (not including contractors or members of the Armed Forces) regarding protections for whistleblowers. Title VI of the Intelligence Authorization Act (IAA) for Fiscal Year 2014 Title VI of the FY2014 IAA ( P.L. 113-126 ) codified provisions of PPD-19 and provided the first expansive statutory protections for IC whistleblowers against personnel or security clearance actions made in reprisal for protected disclosures. Section 601 of Title VI protected IC whistleblowers from any personnel action made in retaliation for a lawful disclosure. This includes a lawful disclosure to the Director of National Intelligence (or any employees designated by the DNI for such purpose), the Inspector General of the Intelligence Community, the head of the employing agency (or an employee designated by the head of that agency for such purpose), the appropriate inspector general of the employing agency, and a congressional intelligence committee, or a member of a congressional intelligence committee. Section 601 of Title VI made no specific mention of protections for contractors, however. A lawful disclosure is defined in the legislation as a disclosure that an IC employee whistleblower reasonably believes is a violation of "Federal law, rule or regulation…or mismanagement, a gross waste of funds, an abuse of authority, or substantial and specific danger to public health and safety." Section 602 of Title VI provided protections against retaliatory revocation of the security clearance of a covered government employee whistleblower for making a lawful disclosure . Section 602 also requires the development of appeal policies and procedures for any decision affecting a whistleblower's security clearance that the whistleblower alleges is in reprisal for having made a protected disclosure. This provision also enabled the whistleblower to retain his/her current employment status in the government, pending the outcome of the appeal. Section 602 of Title VI did not permit judicial review, nor does it permit a private right of action. Section 602 of Title VI does not make any mention of contractors. Intelligence Community Directive (ICD)-120 First signed in 2014, and updated on 29 April 2016, ICD-120, Intelligence Community Whistleblower Protection , provides IC implementing guidance for PPD-19. ICD-120 provisions include: Protections against reprisal involving a personnel action against the IC employee making a protected disclosure. ICD-120 excludes members of the Armed Forces, and makes no reference to contractors. Protections from reprisal for a protected disclosure that could affect an IC whistleblower's eligibility for access to classified information. This provision includes contractors and members of the Armed Forces. A requirement for each IC element to have a review process to permit appeals for any decision involving a security clearance allegedly in retribution for making a lawful disclosure. The provision allows the whistleblower to maintain his/her employment status while a decision is pending. Provision for an employee alleging a reprisal who has exhausted the internal agency review process to request an External Review Panel chaired by the IGIC. A requirement for IC-wide communications and training on whistleblower protections. Whistleblower Protections for Members of the Armed Forces Assigned to the IC Section 1034 of Title 10 U. S. Code provides protections against personnel actions taken in retaliation for protected communications by members of the Armed Forces. The Office of the DNI cites this statute as applicable to members of the Armed Forces assigned to the IC elements. Section 1034—unlike the ICWPA which makes no mention of applicability to the Armed Forces—does not provide a process for making a protected communication that also protects classified information. Section 1034: Allows members of the Armed Forces to communicate with a Member or Members of Congress; an Inspector General; a member of the DOD audit, inspection, investigation, or law enforcement organization; any person or organization in the chain of command; a court-martial proceeding; or any other organization designated pursuant to regulations or other established administrative procedures for such communications; or testimony, or otherwise participating in or assisting in an investigation or proceeding involving Congress or an Inspector General; Specifies prohibited personnel actions in reprisal for a member of the Armed Forces making a protected communication; Enables the DOD to take action to mitigate hardship for an Armed Forces member following a preliminary finding concerning an alleged reprisal for a protected communication; Requires the inspector general conducting an investigation into a protected communication to provide periodic updates to Congress, the whistleblower, the Secretary of Defense and the relevant Service; and Requires the DOD Inspector General to prescribe uniform standards for (1) investigations of allegations of prohibited personnel actions, and (2) training for staffs of Inspectors General on the conduct of such investigations. Legislation to Address Perceived Gaps in Protections for IC Contractors Coverage of contractors in existing IC whistleblower protection legislation is inconsistent. The ICWPA of 1998, which provides for a process for reporting a whistleblower complaint, does cover contractors, as do protections in Section 405 of the IAA for FY2010, and Title VI of the IAA of 2014. However PPD-19 and ICD-120 do not mention contractors. There have been three subsequent efforts in Congress to address the gap in perceived coverage, culminating in January 19, 2018 when Congress passed P.L. 115-118 , an amendment to the Foreign Intelligence Surveillance Act of 1978, which included Section 110 provisions to address perceived gaps in protections for IC contractors. S. 2002, 115th Congress, Ensuring Protections for IC Contractor Whistleblowers Act of 2017 Senator McCaskill introduced S. 2002 on October 24, 2017. It was referred to the Senate Select Committee on Intelligence (SSCI) and no further action was taken. S. 2002 would have provided protections for IC employees—to include applicants, former employees, contractors, personal services contractors, and subcontractors—from being "discharged, demoted, or otherwise discriminated against" as a consequence of making a protected disclosure. It also included provisions for a process for making a complaint. S. 794, 114th Congress, A Bill to Extend Whistleblower Protections for Defense Contractor Employees of Contractors of the Elements of the IC On March 18, 2015, Senator McCaskill introduced S. 794 . It was referred to the SSCI and no further action was taken. The bill would have amended Section 2409 of Title 10 U.S. Code by extending protections for contractor employees on a contract with DOD or other federal agencies to contractor employees on a contract with an IC element who comply with an existing lawful process for making a whistleblower complaint, to include protection of classified information that is part of a court action. Section 110 of P.L. 115-118, Whistleblower Protections for Contractors of the Intelligence Community On January 19, 2018, Congress passed P.L. 115-118 , an amendment to the Federal Intelligence Surveillance Act of 1978. Section 110 amended Section 1104 of the National Security Act of 1947 by providing protections for IC contractor whistleblowers. Section 110 amended existing whistleblower protections to enable IC contractors to make lawful disclosures to the head of the contracting agency (or an employee designated by the head of that agency for such purpose), or to the appropriate inspector general of the contracting agency, as well as to the DNI, IGIC and the congressional intelligence committees (or members of the committees). These protections are similar to those for IC employees under Title VI of the IAA for FY2014 ( P.L. 113-126 ). That legislation, however, included no provisions for contractors. Section 110 provides unambiguous protections for IC contractors making a lawful complaint against any retaliatory personnel action involving an appointment, promotion/demotion, disciplinary or corrective action, detail, transfer or reassignment, suspension, termination, reinstatement, performance evaluation, decisions concerning pay, benefits, awards, education, or training. The protections extend to lawful complaints involving, a violation of any Federal law, rule or regulation (including with respect to evidence of another employee or contractor employee accessing or sharing classified information without authorization); or gross mismanagement, a gross waste of funds, an abuse of authority, or a substantial and specific danger to public health or safety. These protections extend to contractors of the FBI—including contractors of the IC element of FBI, the Intelligence Branch—similar to the protections for IC employees and contractors under the Section 3234 of Title 50, U.S. Code , as amended. Section 110 also amended Section 3341(j) of Title 50, U.S. Code , to include protections for IC contractors who make lawful whistleblower disclosures against retaliatory revocation of their security clearances . Resources to Enhance Whistleblower Investigations House Amendment 894, 113 th Congress, to the DOD Appropriations Act for Fiscal Year 2015 ( H.R. 4870 ), was agreed by a voice vote on June 18, 2014, redirecting $2 million dollars to fund the IC Whistleblower and Source Protection Directorate. This directorate exists within the OIGIC. The funds, which augmented the Intelligence Community Management Account, were to support the hiring of investigators and support staff to provide the IGIC greater ability to investigate fraud, waste, and abuse. Although it does not provide protections for whistleblowers per se, the measure addressed an underfunded capability in order to enable responsive follow-up on whistleblower complaints.

Whistleblowing is "the act of reporting waste, fraud, abuse and corruption in a lawful manner to those who can correct the wrongdoing." Intelligence Community (IC) whistleblowers are those employees or contractors working in any of the seventeen elements of the IC who reasonably believe there has been a violation of law, rule, or regulation, gross mismanagement, waste of resources, abuse of authority, or a substantial danger to public health and safety. The IC has publicly recognized the importance of whistleblowing, and supports protections for whistleblowers who conform to guidelines to protect classified information. The Director of National Intelligence (DNI) whistleblowing policy and guidance is publicly available and specifically addresses the process for making protected disclosures and whistleblower protections for IC contractors, members of the Armed Forces, and federal employees. There are differing opinions, however, on whether the IC's internal processes have the transparency necessary to ensure adequate protections against reprisal, and whether protections for IC contractors are sufficient. IC whistleblower protections have evolved in response to perceptions of gaps that many believed left whistleblowers vulnerable to reprisal. The first whistleblower legislation specific to the IC was limited to specifying a process for IC whistleblowers to make a complaint but offered no specific protections. Subsequent legislation included only general provisions for protecting IC whistleblowers with no additional guidance on standards for implementation. Presidential Policy Directive (PPD)-19, signed in 2012, provided the first specific protections against reprisal actions for making a complaint. The Intelligence Authorization Act for Fiscal Year 2014 codified these provisions which were further supported with IC implementation policy. Separate legislation under Title 10 of the U.S. Code, along with DOD implementing guidance, provides protections for members of the Armed Forces, including those assigned to elements of the IC. In early 2018, Congress passed legislation to address perceived gaps in protections for IC contractors.

What Is NHTSA's Authority to Regulate the Fuel Economy of Motor Vehicles? NHTSA derives its authority to regulate the fuel economy of motor vehicles from the Energy Policy and Conservation Act of 1975 (EPCA; P.L. 94-163 ) as amended by the Energy Independence and Security Act of 2007 (EISA; P.L. 110-140 ). The origin of federal fuel economy standards dates to the mid-1970s. The oil embargo of 1973-1974 imposed by Arab members of the Organization of the Petroleum Exporting Countries (OPEC) and the subsequent tripling in the price of crude oil brought the fuel economy of U.S. automobiles into sharp focus. The fleet-wide fuel economy of new passenger cars had declined from 15.9 miles per gallon (mpg) in model year (MY) 1965 to 13.0 mpg in MY 1973. In an effort to reduce dependence on imported oil, EPCA established CAFE standards for passenger cars beginning in MY 1978 and for light trucks beginning in MY 1979. The standards required each auto manufacturer to meet a target for the sales-weighted fuel economy of its entire fleet of vehicles sold in the United States in each model year. Fuel economy—expressed in miles per gallon (mpg) —was defined as the average mileage traveled by a vehicle per gallon of gasoline or equivalent amount of other fuel. EPCA required NHTSA to establish and amend the CAFE standards; promulgate regulations concerning procedures, definitions, and reports; and enforce the regulations. CAFE standards, and new-vehicle fuel economy, rose steadily through the late 1970s and early 1980s. After 1985, Congress did not revise the legislated standards for passenger cars, and they remained at 27.5 mpg until 2011. The light truck standards were increased to 20.7 mpg in 1996, where they remained until 2005. New-vehicle fuel economy began to rise again in the mid-2000s, due, in part, to a steady increase in gasoline prices that led many consumers to purchase smaller, more fuel-efficient vehicles. NHTSA promulgated two sets of standards in the mid-2000s affecting the MY 2005-2007 and MY 2008-2011 light truck fleets, increasing their average fuel economy to 24.0 mpg. Further, Congress enacted EISA in 2007, which, among other provisions, revisited the CAFE standards. EISA required NHTSA to increase combined passenger car and light truck fuel economy standards to at least 35 mpg by 2020, up from the combined 26.6 mpg in 2007. Along with requiring higher vehicle standards, EISA changed the structure of the program (in part due to concerns about safety and consumer choice). What Is EPA's Authority to Regulate GHG Emissions from Motor Vehicles? EPA derives its authority to regulate GHG emissions from motor vehicles from the Clean Air Act, as amended (CAA). In 1998, during the Clinton Administration, EPA General Counsel Jonathan Cannon concluded in a memorandum to the agency's Administrator that GHGs were air pollutants within the CAA's definition of the term, and therefore could be regulated under the CAA. Relying on the Cannon memorandum as well as the statute itself, a group of 19 organizations petitioned EPA on October 20, 1999, to regulate GHG emissions from new motor vehicles under CAA Section 202. That section directs the EPA Administrator to develop emission standards for "any air pollutant" from new motor vehicles "which, in his judgment cause[s], or contribute[s] to air pollution which may reasonably be anticipated to endanger public health or welfare." On August 28, 2003, EPA denied the petition because the agency determined that the CAA does not grant EPA authority to regulate carbon dioxide (CO 2 ) and other GHG emissions based on their climate change impacts. Massachusetts, 11 other states, and various other petitioners challenged EPA's denial of the petition in a case that ultimately reached the Supreme Court. In April 2007, the Supreme Court held that EPA has the authority to regulate GHGs as "air pollutants" under the CAA. In the 5-4 decision, the Court determined that GHGs fit within the CAA's "unambiguous" and "sweeping definition" of "air pollutant." The Court's majority concluded that EPA must, therefore, decide whether GHG emissions from new motor vehicles contribute to air pollution that may reasonably be anticipated to endanger public health or welfare, or provide a reasonable explanation why it cannot or will not make that decision. If EPA made a finding of endangerment, the CAA required the agency to establish standards for emissions of the pollutants. Following the Court's decision, the George W. Bush Administration's EPA did not respond to the original petition or make a finding regarding endangerment. Its only formal action following the Court decision was to issue a detailed information request, called an Advance Notice of Proposed Rulemaking (ANPR), on July 30, 2008. The Obama Administration's EPA, however, made review of the endangerment issue a high priority. On December 15, 2009, it promulgated findings that GHGs endanger both public health and welfare, and that GHG emissions from new motor vehicles contribute to that endangerment. With these findings, the Obama Administration initiated discussions with major stakeholders in the automotive and truck industries and with states and other interested parties to develop and implement vehicle GHG standards. Because CO 2 from mobile source fuel combustion is a major source of GHG emissions, the White House directed EPA to work with NHTSA to align the GHG standards with CAFE standards. In addition, the CAA grants the state of California unique status to receive a waiver to issue motor vehicle emission standards provided that they are at least as stringent as federal ones and are necessary to meet "compelling and extraordinary conditions." California had already promulgated GHG emissions standards prior to 2009, for which it had requested an EPA waiver under provisions in the CAA. EPA granted California a waiver in July 2009, and President Obama directed EPA and NHTSA to align the federal fuel economy and GHG emission standards with those developed by California. The Administration referred to the coordinated effort as the National Program. EPA and NHTSA promulgated joint rulemakings affecting MY 2012-2016 light-duty motor vehicles on May 7, 2010. These are known as the Phase 1 standards. What Is California's Authority to Regulate GHG Emissions from Motor Vehicles?20 The California Air Resources Board (CARB) derives its authority to regulate GHG emissions from motor vehicles from California Assembly Bill (AB) 1493. Questions of federal preemption of state regulations can arise when state law operates in an area that may also be of concern to the federal government. Under the Supremacy Clause of the U.S. Constitution, state law that conflicts with federal law must yield to the exercise of Congress's powers. When it acts, Congress can preempt state laws or regulations within a field entirely, preempt only state laws or regulations that conflict with federal law, or allow states to act freely. Title II of the CAA generally preempts states from adopting their own emission standards for new motor vehicles or engines. However, CAA Section 209(b) provides an exception to federal preemption of state vehicle emission standards: The [EPA] Administrator shall, after notice and opportunity for public hearing, waive application of this section [the preemption of State emission standards] to any State which has adopted standards (other than crankcase emission standards) for the control of emissions from new motor vehicles or new motor vehicle engines prior to March 30, 1966, if the State determines that the State standards will be, in the aggregate, at least as protective of public health and welfare as applicable Federal standards. Only California can qualify for such a preemption waiver because it is the only state that adopted motor vehicle emission standards "prior to March 30, 1966." According to EPA records, since 1967, CARB has submitted over 100 waiver requests for new or amended standards or "within the scope" determinations (i.e., a request that EPA rule on whether a new state regulation is within the scope of a waiver that EPA has already issued). On July 22, 2002, California became the first state to enact legislation requiring reductions of GHG emissions from motor vehicles. The legislation, AB 1493, required CARB to adopt regulations requiring the "maximum feasible and cost-effective reduction" of GHG emissions from any vehicle whose primary use is noncommercial personal transportation. The reductions applied to motor vehicles manufactured in MY 2009 and thereafter. Under this authority, CARB adopted regulations on September 24, 2004, and submitted a request to EPA on December 21, 2005, for a preemption waiver. In 2008, EPA denied California's request for a waiver. As explained in its decision, EPA concluded that "California does not need its GHG standards for new motor vehicles to meet compelling and extraordinary conditions" because "the atmospheric concentrations of these greenhouse gases is [sic] basically uniform across the globe" and are not uniquely connected to California's "peculiar local conditions." However, under the Obama Administration, EPA reconsidered and reversed the denial, and granted the waiver in 2009. In reversing its denial, EPA determined that it is the "better approach" for the agency to evaluate whether California "needs" state standards "to meet compelling and extraordinary conditions" based on California's need for its motor vehicle program as a whole, and not solely based on GHG standards addressed in the waiver request. Under this approach, EPA concluded that it cannot deny the waiver request because California has "repeatedly" demonstrated the need for its motor vehicle problem to address "serious" local and regional air pollution problems. Upon receiving the waiver, CARB joined EPA and NHTSA to develop the National Program. Three key provisions of the 2009 agreement between the Administration, the auto manufacturers, and the State of California were that EPA would grant California the waiver for MYs 2017-2025 (the agency did so on January 9, 2013), that California would accept vehicles complying with the federal greenhouse standards as meeting the California standards, and that the auto manufacturers would drop their suit against the California standards. Additionally, the CAA allows other states to adopt California's motor vehicle emission standards under certain conditions. Section 177 requires, among other things, that such standards be identical to the California standards for which a waiver has been granted. States are not required to seek EPA approval under the terms of Section 177. Twelve other states have adopted California's GHG standards under these provisions, bringing approximately 35% of domestic automotive sales under the California program. What Are the Current CAFE and GHG Standards? NHTSA and EPA promulgated the second (current) phase of CAFE and GHG emissions standards affecting MY 2017-2025 light-duty vehicles on October 15, 2012. Like the Phase 1 standards, the Phase 2 standards were preceded by a multiparty agreement, brokered by the White House. The Phase 2 agreement involved the State of California, 13 auto manufacturers, and the United Auto Workers union. The manufacturers agreed to reduce GHG emissions from new passenger cars and light trucks by about 50% by 2025, compared to 2010, with fleet-wide average fuel economy rising to nearly 50 miles per gallon. GHG emissions would be reduced to about 160 grams per mile by 2025 under the agreement (see Table 1 ). The standards are applicable to the fleet of new passenger cars and light trucks with gross vehicle weight rating less than or equal to 10,000 pounds sold within the United States. Fuel economy and carbon-related emissions are tested over EPA's two test cycles (the Federal Test Procedure (FTP-75), weighted at 55%; and the Highway Fuel Economy Test (HWFET), weighted at 45%). In addition to the standards for fleet-average fuel economy and GHG emissions (measured and referred to as "CO 2 -equivalent emissions" under the regulations), the rule also includes emission caps for tailpipe nitrous oxide emissions (0.010 grams/mile) and methane emissions (0.030 grams/mile). As with the Phase 1 standards, the agencies used the concept of a vehicle's "footprint" to set differing targets for different size vehicles. These "size-based," or "attribute-based," standards were structurally different than the original CAFE program, which grouped domestic passenger cars, imported passenger cars, and light trucks into three broad categories. Generally, the larger the vehicle footprint (in square feet), the lower the corresponding vehicle fuel economy target and the higher the CO 2 -equivalent emissions target. This allowed auto manufacturers to produce a full range of vehicle sizes, as opposed to focusing on light-weighting and downsizing the entire fleet in order to meet the categorical targets. Upon the rulemaking, the agencies expected that the technologies available for auto manufacturers to meet the MY 2017-2025 standards would include advanced gasoline engines and transmissions, vehicle weight reduction, lower tire rolling resistance, improvements in aerodynamics, diesel engines, more efficient accessories, and improvements in air conditioning systems. Some increased electrification of the fleet was also expected through the expanded use of stop/start systems, hybrid vehicles, plug-in hybrid electric vehicles, and electric vehicles. How Do Manufacturers Comply with the Standards? Manufacturers comply with the standards by reporting to EPA and NHTSA annually with information regarding their MY fleet production and sales numbers, their MY fleet characteristics, and the fuel economy and emissions results from the EPA-approved test cycles. This information allows the agencies to calculate each manufacturer's specific CAFE and GHG emissions standards given its fleet-wide sales numbers. The agencies compare the calculated standard against the manufacturer's fleet-wide adjusted test results to determine compliance. Accordingly, compliance is based on the vehicles sold, not the vehicles produced. Figure 1 compares CAFE standards, as promulgated for both passenger cars and light trucks over MYs 1978-2025, against the U.S. fleets' adjusted performance data as reported by NHTSA for the given MYs. Table 2 lists the most recent adjusted performance data reported by the agencies—MY 2016—for each manufacturer and its fleets. Because of the "attribute-based" standards, compliance targets are different for each manufacturer depending on the vehicles it produces. As stated by NHTSA: "Manufacturers are not compelled to build light-duty vehicles of any particular size or type, and each manufacturer will have its own standard which reflects the vehicles it chooses to produce." Further, the agencies contend: "Under the National Program automobile manufacturers will be able to continue building a single light-duty national fleet that satisfies all requirements under both programs while ensuring that consumers still have a full range of vehicle choices that are available today." To facilitate compliance, the agencies provide manufacturers various flexibilities under the standards. A manufacturer's fleet-wide performance (as measured on EPA's test cycles) can be adjusted through the use of flex-fuel vehicles, air-conditioning efficiency improvements, and other "off-cycle" technologies (e.g., active aerodynamics, thermal controls, and idle reduction). Further, manufacturers can generate credits for overcompliance with the standards in a given year. They can bank, borrow, trade, and transfer these CAFE and/or GHG emission credits, both within their own fleets and among other manufacturers, to facilitate current compliance. They can also offset current deficits using future credits (either generated or acquired within three years) to determine final compliance. A CAFE credit is earned for each 0.1 mpg in excess of the fleet's standard mpg. A GHG credit is earned for each megagram (Mg, or metric ton) of CO 2 -equivalent saved relative to the standard as calculated for the projected lifetime of the vehicle. Table 3 summarizes GHG credits that are available to each manufacturer after MY 2016, reflecting all completed trades and transfers, as reported by EPA. (NHTSA's CAFE credit balances for MY 2016 have yet to be reported.) Under the CAFE program, manufacturers can comply with the standards by paying a civil penalty. The CAFE penalty is currently $5.50 per 0.1 mpg over the standard, per vehicle. Historically, some manufacturers have opted to comply with the standards in this way. Beginning with MY 2019, NHTSA is scheduled to assess a civil penalty of $14 per 0.1 mpg over the standard as provided by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 within the Bipartisan Budget Act of 2015 ( P.L. 114-74 ) and subsequent rulemaking. Under the CAA, manufacturers that fail to comply with the GHG emissions standards are subject to civil enforcement. The EPA Administer and the U.S. Attorney General determine the amount of the civil penalty based on numerous factors, but it could be as high as $37,500 per vehicle per violation. As of MY 2015, EPA has not determined any manufacturer to be out of compliance with the light-duty vehicle GHG emissions standards. What Is the Midterm Evaluation? As part of the Phase 2 rulemaking, EPA and NHTSA made a commitment to conduct a midterm evaluation (MTE) for the latter half of the standards, MYs 2022-2025. The agencies deemed an MTE appropriate given the long time frame during which the standards were to apply and the uncertainty about how motor vehicle technologies would evolve. EPA, NHTSA, and California also have differing statutory obligations. That is, EPA, California, and some other states—through their authorities under the CAA, California AB 1493, and other state statutes—have finalized GHG emissions standards through MY 2025. Under the MTE, EPA and CARB were to decide whether to revise their standards. NHTSA, through its authorities under EPCA, has finalized standards only through MY 2021, and would require new rulemaking for the period MYs 2022-2025. Through the MTE, the EPA Administrator was to determine whether EPA's standards for MYs 2022-2025 were still appropriate given the latest available data and information. A final determination could result in strengthening, weakening, or retaining the current standards. If EPA determined that the standards were appropriate, the agency would "announce that final decision and the basis for that decision." If EPA determined that the standards should be changed, EPA and NHTSA would be required to "initiate a rulemaking to adopt standards that are appropriate." Throughout the process, the MY 2022-2025 standards were to "remain in effect unless and until EPA changes them by rulemaking." The Phase 2 rulemaking laid out several formal steps in the MTE process, including a Draft Technical Assessment Report issued jointly by EPA, NHTSA, and CARB with opportunity for public comment no later than November 15, 2017; a Proposed Determination on the MTE, with opportunity for public comment; and a Final Determination, no later than April 1, 2018. EPA, NHTSA, and CARB jointly issued the Draft Technical Assessment Report for public comment on July 27, 2016. This was a technical report, not a decision document, and examined a wide range of technology, marketplace, and economic issues relevant to the MY 2022-2025 standards. It found auto manufacturers are innovating in a time of record sales and fuel economy levels; the MY 2022-2025 standards could be met largely with more efficient gasoline-powered cars and with only modest penetration of hybrids and electric vehicles; and the "attribute-based" standards preserve consumer choice, even as they protect the environment and reduce fuel consumption. On November 30, 2016, the Obama Administration's EPA released a proposed determination stating that the MY 2022-2025 standards remained appropriate and that a rulemaking to change them was not warranted. The agency based its findings on a Technical Support Document, the previously released Draft Technical Assessment Report, and input from the auto industry and other stakeholders. On January 12, 2017, then-EPA Administrator Gina McCarthy finalized the determination, stating that "the standards adopted in 2012 by the EPA remain feasible, practical and appropriate." The final action arguably accelerated the timeline for the MTE, and EPA announced it separately from any NHTSA or CARB 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 MY 2022-2025 requirements and/or better aligning NHTSA's and EPA's standards. What Is the Status of CAFE and GHG Standards Under the Trump Administration? On March 15, 2017, after President Trump took office, EPA and NHTSA announced their joint intention to reconsider the Obama Administration's final determination and reopen the midterm evaluation process. EPA announced a 45-day public comment period on August 21, 2017, and held a public hearing on September 6, 2017, receiving more than 290,000 comments. On April 2, 2018, EPA released a revised final determination, stating that the MY 2022-2025 standards are "not appropriate and, therefore, should be revised." The notice states that the January 2017 final determination is based on "outdated information, and that more recent information suggests that the current standards may be too stringent." In making the revised determination, EPA Administrator Scott Pruitt cited and provided comment on several factors from the Phase 2 rulemaking that governed analysis for the midterm evaluation process. These factors include the availability and effectiveness of technology, and the appropriate lead time for introduction of technology; the cost to the producers or purchasers of new motor vehicles or new motor vehicle engines; the feasibility and practicability of the standards; the impact of the standards on emissions reduction, oil conservation, energy security, and fuel savings by consumers; the impact of the standards on the automobile industry; the impact of the standards on automobile safety; the impact of the GHG emissions standards on the CAFE standards and a national harmonized program; and the impact of the standards on other relevant factors. The revised final determination states that EPA and NHTSA will initiate a new rulemaking to consider revised standards for MY 2022-2025 vehicles. Until that new rulemaking is completed, the current standards remain in effect. Can EPA Reverse Its Decision to Grant California's Waiver for MYs 2017-2025? The CAA does not address the process or the requirements to reverse or revoke a preemption waiver. It is unclear what process EPA would follow if it were to reverse its grant of California's waiver. In 2013, EPA granted California a preemption waiver to regulate GHG emissions from light-duty vehicles through MY 2025 pursuant to CAA Section 209(b). In response to the announcements from the Trump Administration regarding potential revisions to standards, California restated its "continued support for the current National Program and California's standards." On March 24, 2017, CARB passed a resolution to accept its staff's midterm evaluation of the state's Advanced Clean Car program—which includes MY 2017-2025 vehicle GHG standards in line with EPA's 2017 final determination and the 2012 rulemaking. EPA and NHTSA have reportedly met with CARB to discuss the MTE and post-2025 GHG standards, on which CARB officials have said they are already working. Efforts have focused on establishing a single national standard for fuel economy and GHG emissions, in order to avoid a situation in which manufacturers must deal with a patchwork of competing state regulations. However, because EPA has concluded in its revised final determination that the MY 2022-2025 GHG emissions standards for light-duty vehicles "are not appropriate and, therefore, should be revised," the agency might decide to reconsider California's preemption waiver for the state's GHG standards for MYs 2017-2025. Although EPA has previously denied a request for a preemption waiver (and subsequently reversed its denial), the agency has never reversed its grant of a waiver. Similar to changing agency policy or reversing the denial of a waiver, EPA might determine that it has the ability to reverse its decision to grant the waiver so long as it is "aware that it is changing positions and that there are good reasons for the change in position." However, CAA Section 209(b), which provides the waiver requirements, does not address the process or requirements to reverse or revoke a preemption waiver. EPA has stated previously that its Section 209(b) waiver proceeding and actions are "informal adjudications." The Administrative Procedure Act (APA), which governs formal and informal rulemaking and judicial review of most types of final agency actions, contains no explicit procedures or requirements for informal adjudications or for reversing decisions made in previous informal adjudications. To reverse the grant of the waiver, EPA could decide to follow the requirements in CAA Section 209(b) that the agency followed when it reversed its 2008 denial of California's application for a waiver. CAA Section 209(b) directs EPA, after notice and opportunity for a public hearing, to grant preemption waivers unless certain factors warrant denial. The section provides that EPA "shall ... waive" the preemption on state emission standards "if the State determines that the State standards will be, in the aggregate, at least as protective of public health and welfare as applicable Federal standards." If California were to determine that its standards will be at least as protective as applicable federal standards, EPA could deny a preemption waiver request only if it finds that (1) California's determination is arbitrary and capricious; (2) California does not need state standards "to meet compelling and extraordinary conditions"; or (3) California's standards are technologically infeasible, or that California's test procedures impose requirements inconsistent with the federal test procedures under CAA Section 202(a). EPA would likely need to rely on one of these grounds to justify a potential reversal of its previous decision to grant the preemption waiver. As explained in a previous waiver determination, EPA must make "a reasonable evaluation of the information in the record in coming to the waiver decision." The APA permits judicial review of final agency actions, such as EPA's waiver determinations. The APA directs reviewing courts to "hold unlawful and set aside agency action, findings, and conclusions" that are, among other things, "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." The U.S. Court of Appeals for the District of Columbia Circuit cautioned that "if the [EPA] Administrator ignores evidence demonstrating that the waiver should not be granted, or if he seeks to overcome that evidence with unsupported assumptions of his own, he runs the risk of having his waiver decision set aside as arbitrary and capricious.'' What Is Meant by "Harmonizing" or "Aligning" the Standards? Many auto manufacturers and industry stakeholders have argued that the CAFE and GHG emission standards are intended to be a joint set of rules that would allow auto manufacturers to comply with both programs through a single unified fleet. In practice, however, differences in the test procedures, flexibilities, and credit systems used by NHTSA and EPA have created the possibility that a manufacturer's fleet may be in compliance with one agency's program but not the other's. Although the agencies have acted to integrate the standards, differences remain. Some stakeholders argue for statutory or regulatory changes to further integrate—or what they refer to as "harmonize" or "align"—the standards. Table 4 outlines a selection of the differences between the federal programs. Many of NHTSA's requirements are statutory; and thus, any potential adjustments to NHTSA's CAFE program would likely require legislation. Lawmakers have proposed several bills in the 114 th and 115 th Congresses to address some of the statutory limitations of the CAFE program vis-à-vis the GHG program. These include S. 1273 / H.R. 4011 (115 th ), the "Fuel Economy Harmonization Act," would amend 49 U.S.C. Chapter 329 to extend NHTSA's credit banking period, ease the limits on credit trading and transferring between fleets, and allow for Phase 1 off-cycle credits. H.R. 1593 (115 th ), the "CAFE Standards Repeal Act of 2017," would repeal 49 U.S.C. Chapter 329. S.Amdt. 3251 to S. 2012 (114 th ) would have modified the calculation of fuel economy for gaseous fuel dual fueled automobiles under 49 U.S.C. Chapter 329. Other differences between NHTSA's CAFE and EPA's GHG standards stem from the agencies' regulatory interpretations. These differences could potentially be addressed through new rulemaking. In June of 2016, the Alliance of Automobile Manufacturers and the Association of Global Automakers submitted to EPA and NHTSA a Petition for a Direct Final Rule. The petition asked the agencies to address some of the regulatory differences between the two programs, such as the calculations and applicability of off-cycle credits, air-conditioning efficiency credits, fuel savings adjustment factors, vehicle miles traveled (VMT) estimates, and alternative-fueled vehicle multipliers. NHTSA partially granted the petition for rulemaking on December 21, 2016, agreeing "to address the changes requested in the petition in the course of the rulemaking proceeding, in accordance with statutory criteria." Under the Trump Administration, both NHTSA and EPA have reportedly engaged with stakeholders in discussions of regulatory alignment. Most of these discussions have reportedly focused on loosening the stringency of NHTSA's statutory and regulatory requirements so that they more closely match the flexibilities under EPA's standards. In the near term, this could serve the purpose of allowing many auto manufacturers to avoid paying compliance penalties under NHTSA's CAFE program, as they would be allowed to account for more credits in a revised system. Greater alignment, however, could also be achieved through tightening some of EPA's flexibilities so that they more closely adhere to NHTSA's requirements. What Are Some of the Issues That Are Informing the Discussion on the Standards? Below is a selected list of broader policy issues regarding the CAFE and GHG emission standards, their design, purpose, and potential revision. The issues are organized according to the specific factors listed in the requirements for the midterm evaluation. (1) The Availability and Effectiveness of Technology The CAFE and GHG emissions standards are technology-forcing standards (i.e., they are standards that Congress authorized to set performance levels that, while not achievable immediately, are demonstrated to be achievable in the future based on information available today). Such policies date to the 1970s in environmental law and are now commonplace among health, safety, and environmental statutes. In the case of automotive controls, Congress enacted the Motor Vehicle Air Pollution Control Act (P.L. 89-272) in 1965, authorizing the Secretary of Health, Education, and Welfare to establish motor vehicle standards to reduce tailpipe emissions. Dissatisfied with the agency's lack of progress in the years following the law's enactment, Congress amended the statute to specify not only emission limits, but also deadlines for meeting the standards, and an enforcement program to ensure compliance. These changes became a major part of the Clean Air Act of 1970 (P.L. 91-604) and its subsequent amendments. Lawmakers recognized that the technology needed to meet the standards they enacted did not yet exist, and the schedule for compliance was ambitious; however most agreed that the only way to motivate the vehicle manufacturers to develop the necessary technology was to create the incentive to force such development. The MY 2017-2025 CAFE and GHG emissions standards are based on EPA's and NHTSA's technology analysis from the 2012 rulemaking. In a 2015 report by the National Research Council, the council "found the analysis conducted by NHTSA and EPA in their development of the [MY] 2017-2025 standards to be thorough and of high caliber on the whole" and "concurred with the Agencies' costs and effectiveness values for many technologies." But the council, as well as various stakeholders, expressed some concern that technologies may not be in place or achievable to attain the most stringent MY 2025 standards. According to EPA's most recent Manufacturers' Report (MY 2016), 7 of the 13 major auto manufacturers decreased CO 2 -equivalent emissions and 5 increased fuel economy from MY 2015 to MY 2016. Four of the manufacturers' average adjusted CO 2 -equivalent emissions declined between MY 2015 and MY 2016 due, in part, to their fleets' increase in the share of light trucks. Preliminary MY 2017 adjusted CO 2 -equivalent emissions are projected to be 352 grams per mile and fuel economy is projected to be 25.2 mpg. These projections, if realized, would be an improvement over MY 2016. Some stakeholders have noted that many new product lines are scheduled to be introduced over the next few MYs that may further facilitate manufacturers' compliance with the standards. EPA will not have final MY 2017 data until 2019. According to EPA's analysis, 26% of the MY 2017 vehicles already meet or exceed the MY 2020 emissions targets, with the addition of expected air conditioning improvements and off-cycle credits. The number of vehicles meeting or exceeding the MY 2020 standards has steadily increased with each model year (e.g., fewer than 5% of MY 2012 vehicles met or exceeded the MY 2020 standards). Looking ahead, about 5% of MY 2017 vehicles could meet the MY 2025 emissions targets. These vehicles are currently comprised solely of hybrids (HEV), plug-in hybrids (PHEV), electric vehicles (EV), and hydrogen fuel cell vehicles (FCV). EPA's Draft Technical Assessment Report released in July 2016 states that the technology needed to meet the MY 2025 standards would likely include "advanced gasoline vehicle technologies ... with modest levels of strong hybridization and very low levels of full electrification (plug-in vehicles)." Technologies considered in the report include more efficient engines and transmissions, aerodynamics, light-weighting, improved accessories, low rolling resistance tires, improved air conditioning systems, and others. Beyond the technologies the agencies considered in the 2012 final rule, several others have emerged, such as higher compression ratio, naturally aspirated gasoline engines, and an increased use of continuously variable transmissions. Further, the agencies expect other new technologies that are under active development to be in the fleet before MY 2025 (e.g., 48-volt mild hybrid systems). Stakeholders have heavily debated the level of advanced gasoline, hybrid, and/or electric penetration needed to meet the MY 2025 standards. Table 5 shows fleet-wide penetration rates for a subset of the technologies that could be utilized to comply with the MY 2025 standards, as assessed by each agency's separate evaluation in the Draft Technical Assessment Report. The 2018 revised final determination, however, reports that the Draft Technical Assessment Report's analysis "was optimistic in its assumptions and projections with respect to the availability and effectiveness of technology and the feasibility and practicability of the standards." It calls into question the prior assumptions regarding electrification and notes an overreliance on future and/or proprietary technologies. (2) The Cost on the Producers or Purchasers of New Motor Vehicles The addition of fuel efficiency technologies in the U.S. fleet of passenger cars and light trucks incurs an initial set of costs on manufacturers and, by extension, consumers. However, these initial, incremental costs may be recouped by consumers through fuel savings over the lifetime of the vehicles. Both EPCA and CAA contain provisions that require the agencies to consider costs when promulgating standards. The agencies are also subject to executive orders—such as E.O. 12866, "Regulatory Planning and Review"—that require the estimation of costs and benefits any time they develop "economically significant" regulations. E.O. 12866 further states that, "Each agency shall 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." Based on the updated assessments provided in the Draft Technical Assessment Report, the projections for the average, initial costs of meeting the MY 2025 standards (incremental to the costs already incurred to meet the MY2021 standards) are approximately $1,100 per vehicle. Total industry-wide costs of meeting the MY 2022-2025 GHG standards are estimated at approximately $36 billion (at a 3% discount rate). Benefits of the CAFE and GHG emission standards as measured by the agencies include impacts such as climate-related economic benefits from reducing emissions of CO 2 , reductions in energy security externalities caused by U.S. petroleum consumption and imports, the value of certain particulate matter-related health benefits (including premature mortality), the value of additional driving attributed to the VMT rebound effect, and the value of reduced refueling time needed to fill up a more fuel-efficient vehicle. According to the 2016 Draft Technical Assessment Report, EPA estimates that GHG emissions would be reduced by about 540 million metric tons (MMT) and oil consumption would be reduced by 1.2 billion barrels over the lifetimes of MY 2022-2025 vehicles. Consumer pretax fuel savings are estimated to be $89 billion over the lifetime of vehicles meeting the MY 2022-2025 standards. Net benefits (inclusive of fuel savings) are estimated at $92 billion. EPA's analysis indicates that, compared to the MY 2021 standards, the MY 2025 standards will result in a net lifetime consumer savings of approximately $1,500 per vehicle with a payback period of about 5 years. The 2018 revised determination, however, states that the Draft Technical Assessment Report may underestimate costs and overstate benefits. Referencing analyses provided by the Alliance of Automobile Manufacturers and Global Automakers, it identifies direct technology costs, indirect cost multipliers, and cost learning curves as areas that need further assessment. It also contends that the Draft Technical Assessment Report does not give appropriate consideration to the effect of the standards on low-income consumers. (3) The Feasibility and Practicability of the Standards In both the 2017 and 2018 final determinations, EPA interpreted an analysis of the feasibility and practicability of the standards to include an analysis of consumer choice. Many factors drive consumer buying decisions, including vehicle costs, the price of gas, and business and family needs. The CAFE and GHG emissions standards are designed with the intention that consumers can continue to buy the differing types of vehicles they need, from compact cars, to SUVs, to larger trucks suitable for towing and carrying heavy loads. Under the "attribute-based" standards, owners of every type of new vehicle are potentially afforded gasoline savings and improved fuel economy with a reduced environmental impact. Notwithstanding, the agencies continue to research consumer issues, including an assessment of vehicle affordability, a study of willingness-to-pay for various vehicle attributes, and the content analysis of auto reviews. During Phase 1 of the standards, vehicle sales were close to record levels; fuel efficiency, vehicle footprint, and horsepower had increased slightly; and the weight and the inflation-adjusted price of a new vehicle stayed relatively constant (see Figure 2 for the changes in some of these attributes since the passage of EPCA in 1975). Leading up to the Draft Technical Assessment Report, the agencies did not find evidence that the standards have posed significant obstacles to consumer acceptance. However, economic conditions change. The market has seen a sustained drop in fuel prices as a result of increased oil supply and/or reduced global demand since the origin of CAFE and GHG emission standards. Under these conditions, manufacturers are more challenged to design and sell advanced-technology, fuel-efficient vehicles at costs above the value of fuel savings captured by the new vehicle buyer. Research has shown a relationship between gasoline prices and the demand for fuel efficient vehicles. Accordingly, lower gasoline prices tend to incentivize consumers to purchase new vehicles with lower fuel economy. Under these conditions, consumers focus less on fuel efficiency and more on increased horsepower, size, safety, comfort, and other features. Additionally, consumers are less likely to consider alternative-fueled vehicles, such as hybrid and electric vehicles. Thus, while manufacturers may be able to engineer vehicles that meet the more stringent CAFE and GHG emission standards, the choice of consumers to focus less on fuel efficiency has presented challenges to some manufacturers' sales-weighted fleet-wide conformity. Further, as the standards become more stringent, uncertainties may arise as to which technologies will be necessary to achieve them. While the agencies have projected that the standards could be met primarily with gasoline vehicles, alternative-fueled vehicles may gain greater penetration in the years ahead. For gasoline vehicles, consumer acceptance would likely depend on the costs, effectiveness, and potential tradeoffs or synergies of those technologies with other vehicle attributes. For alternative-fueled vehicles, the higher standards could raise the possibility of new and additional challenges to consumer acceptance (e.g., availability, incentives, infrastructure, and the complexities of understanding cost, consumption, range, and recharging patterns). Finally, the 2018 revised final determination argues that increased prices for new motor vehicles due to advanced fuel-efficient technologies may have the unintended consequence of taking some consumers out of the market for new motor vehicles. The Administration contends that higher costs could delay fleet turnover, slow new vehicle sales, and keep less efficient vehicles on U.S. roads. In this case, fewer benefits in fuel economy and GHG emissions would be realized, as many consumers would retain their current vehicles or purchase used ones. (4) The Impact of the Standards on Reduction of Emissions, Oil Conservation, Energy Security, and Fuel Savings by Consumers In the final Phase 2 rulemaking, EPA and NHTSA estimated that the standards would save approximately 4 billion barrels of oil and reduce GHG emissions by the equivalent of approximately 2 billion metric tons over the lifetimes of those light-duty vehicles produced in MYs 2017-2025. Based on the updated assessments provided in the Draft Technical Assessment Report, EPA estimates that over the lifetime of vehicles meeting the second half of the standards (MYs 2022-2025), GHG emissions would be reduced by about 540 MMT and oil consumption would be reduced by 1.2 billion barrels. Consumer pretax fuel savings are estimated to be $89 billion over the lifetime of vehicles meeting the MY 2022-2025 standards. GHG Emissions and the Transportation Sector The statement of purpose in the CAA includes protecting against "air pollution which may reasonably be anticipated to endanger public health or welfare." EPA's 2009 endangerment finding determined that "the combined emissions of ... greenhouse gases from new motor vehicles and new motor vehicle engines contribute to the greenhouse gas air pollution that endangers public health and welfare under CAA section 202(a)." This finding formed the basis of EPA's GHG emission regulations on new motor vehicles. Various trends from the mid-1990s through today have informed the discussion on GHG emissions in the transportation sector. Transportation is one of the largest contributors to man-made GHG emissions in the United States. According to EPA's "Inventory of U.S. Greenhouse Gas Emissions and Sinks," transportation represented 27% of total U.S. GHG emissions in 2015 (up from 24% in 1990), and light-duty vehicles contributed 60% of the sector's total emissions (thus, passenger cars and light trucks represented one-sixth of all U.S. GHG emissions). In 2015, emissions from the transportation sector surpassed those from the electric-power sector for the first time. This transition was as much the product of the electric-power sector's increased efficiency (due to the substitution of renewables and natural gas for coal-fired power generation) as it was the transportation sector's continued growth. Nevertheless, transportation remains the only broad category of the economy in which emissions have risen in recent years (see Figure 3 ). Energy Conservation and the Transportation Sector The statement of purpose in EPCA includes requirements "to conserve energy supplies through energy conservation programs, and, where necessary, the regulation of certain energy uses ... and to provide for improved energy efficiency of motor vehicles." Further, in regard to NHTSA's specific requirement to set "the maximum feasible average fuel economy level that it decides the manufacturers can achieve in that model year," EPCA requires NHTSA to consider four factors: "technological feasibility, economic practicability, the effect of other motor vehicle standards of the Government on fuel economy, and the need of the United States to conserve energy." The United States Court of Appeals for the Ninth Circuit has stated that "EPCA clearly requires the agency to consider these four factors, but it gives NHTSA discretion to decide how to balance the statutory factors—as long as NHTSA's balancing does not undermine the fundamental purpose of the EPCA: energy conservation ." Various trends from the mid-1970s through today have informed the discussion on energy conservation in the transportation sector. As some of these trends highlight an increase in available petroleum products for the United States, various stakeholders have argued that more stringent fuel economy standards for vehicles are unnecessary. However, other trends show a movement away from energy conservation, and, arguably, a greater need to ensure fuel economy benefits in order to conserve oil. For example, in 1975, U.S. net imports (imports minus exports) of petroleum from foreign countries were equal to about 36% of U.S. petroleum consumption, according to the Energy Information Administration (EIA). However, as of late, U.S. production of petroleum (including crude oil and natural gas liquids) has reached a level not seen in decades; and net imports of petroleum have dropped to 24% of consumption. Nonetheless, net imports averaged 4.8 million barrels per day in 2016, and petroleum consumption has increased steadily since 2011 (see Figure 4 ). The price of gasoline at the pump has likewise seen fluctuations since 1975 (see Figure 5 ). The second half of the 1970s saw a doubling in the nominal price of gasoline. As recently as 2010-2014, the inflation-adjusted price of a gallon of regular grade gasoline had hovered over $3.50 per gallon (in constant 2018$). Lately, however, that price has returned to levels comparable to 1975 (approximately $2.50 per gallon in constant 2018$). EIA projects that gasoline will remain below $3.00 a gallon through 2019. Gasoline prices were $2.92 on May 21, 2018. Recent trends in the vehicle sector also affect the discussion on energy conservation. For nearly 25 years, the U.S. vehicle fleet has seen a decline in passenger car sales in favor of larger pickup trucks, SUVs, and crossover vehicles, a trend that has accelerated since the end of the 2008-2009 recession (see Figure 6 ). In 2000, 49% of U.S. light-duty vehicles sales were pickups and SUVs; by 2017 the share of that segment rose to 65%. The changing U.S. fleet mix is driven by several factors; newer SUVs and crossovers have more fuel-efficient engines that make them more attractive to car buyers than previous models with lower gas mileage; and offer more space and greater versatility of use than a standard passenger car. Further, some automakers reportedly have a low profit margin on their passenger cars, prompting the manufacturers to shift away from these vehicles. For compliance purposes, the CAFE and GHG emissions standards define vehicle categories slightly differently than industry. Nevertheless, the trend toward light trucks over passenger cars is similar, although not as pronounced (see Figure 7 ). Finally, another measure relevant to motor vehicle analysis is the total vehicle miles traveled (VMT) by on-road motor vehicles in the United States. Between 1975 and 2017, VMT increased nearly 150%, from approximately 1.3 trillion miles to 3.2 trillion miles. (5) The Impact of the Standards on the Automobile Industry In both the 2017 and 2018 final determinations, EPA interpreted an analysis of the impacts of the standards on the automotive industry to include an analysis of industry costs, vehicle sales, and automotive sector employment. While the 2017 final determination finds that the standards would impose a reasonable per vehicle cost to manufacturers, it returns no evidence in support of adverse impacts on vehicle sales or on other vehicle attributes, or on employment in the automotive industry sector. The 2018 final determination, however, finds that the standards potentially impose unreasonable per-vehicle costs resulting in decreased sales and potentially significant impacts to both automakers and auto dealers. Further, it states recognition of significant unresolved concerns regarding the impact of the current standards on U.S. auto industry employment. Notwithstanding, both determinations comment on the potential for the standards to lead to macroeconomic and employment benefits through their effects on innovation, investment in key technologies, and a competitive advantage for U.S. companies in the global marketplace. (6) The Impacts of the Standards on Automobile Safety The primary goals of the CAFE and GHG emission standards are to reduce fuel consumption and GHG emissions from the on-road light-duty vehicle fleet. But in addition to these intended effects, the agencies also consider the potential of the standards to affect vehicle safety. As a safety agency, NHTSA has long considered the potential for adverse safety consequences when establishing CAFE standards. Similarly, under the CAA, EPA considers factors related to public health and welfare, including safety, in regulating emissions of air pollutants from mobile sources. Research has shown that safety trade-offs associated with fuel economy increases have occurred in the past, particularly before NHTSA switched its CAFE program to an "attribute-based" standard. In a 2002 report, the National Research Council concluded that "the preponderance of evidence indicates that this downsizing of the vehicle fleet [in response to original CAFE program] resulted in a hidden safety cost, namely, travel safety would have improved even more had vehicles not been downsized." These past safety trade-offs occurred, in part, because manufacturers chose at the time to build smaller and lighter vehicles rather than adding more expensive fuel-saving technologies. The regulatory decision to move to an "attribute-based" standard in NHTSA's MY 2008-2011 light truck proposal—as well as in Phase 1 of the rulemaking—was due, in part, to these concerns over safety. Debate over the hidden safety cost of the CAFE and GHG emission standards has continued. Vehicles have gotten safer—vehicle fatalities per mile traveled are significantly lower than they were in the 1970s. However, some argue that fatalities would be even lower in the absence of the standards. Total fatalities and fatalities per mile traveled have declined by 15% and 65%, respectively, between 1975 and 2016 (see Figure 8 ). However, the fatality rate has been trending upward since 2013. Additionally, the 2016 fatality count is the highest since 2007 and the fatality rate is the highest since 2008. These trends may be due to many factors, including less use of restraints, alcohol impairment, speed, and distraction (e.g., cell phones and texting), as well as the downsizing and light-weighting of vehicles. The fatality rates also include the increased count of pedestrian fatalities. Nevertheless, vehicle design remains a concern, and the agencies continue to investigate the amount of mass reduction that is affordable and feasible while maintaining overall fleet safety and functionality, such as durability, drivability, noise, handling, and acceleration performance. Safety may be evaluated with other metrics, such as the health and welfare impacts of reduced air pollution. In addition to reducing the emissions of GHGs, the Phase 2 standards influence ''non-GHG'' pollutants, that is, ''criteria'' air pollutants, their precursors, and air toxics, which may lead to the reduction in the respiratory health effects of air pollution (e.g., the exacerbation of asthma symptoms, diminished lung function, adverse birth outcomes, and incidences of cancer). (7) The Impact of the Greenhouse Gas Emission Standards on the CAFE Standards and a National Harmonized Program The CAFE and GHG emission standards are a set of performance standards, based on an evaluation of future technological and economic feasibility. While fuel economy, rated in miles per gallon achieved, has risen from 13 mpg to 25 mpg under the CAFE standards (i.e., since 1978), the program is only one of many possible policy options that could conserve fuel and reduce GHG emissions. Some have argued that market-based approaches such as a gasoline tax, a GHG emissions fee on motor vehicles, or an economy-wide policy to constrain GHG emissions, could be more efficient and cost-effective. Similarly, in lieu of or in addition to a federally mandated performance standard, some state and local governments have proposed or promulgated policies to serve similar ends. These include—but are not limited to—mandates or incentives for the sale or use of alternative-fueled vehicles, access limits for petroleum-fueled vehicles in cities or on state highways, and congestion charges and other efforts to limit vehicle use. Further, other transportation-related policies are being fashioned that will have significant—albeit uncertain—impacts on fuel economy and GHG emissions. These include connected and autonomous vehicle technologies, ride-sharing services, and investments in mass transit and bicycle infrastructure, among others. As more city, state, and national governments investigate options to conserve fuel and reduce emissions, these and other policies are likely to become more common, potentially impacting the design and purpose of vehicle performance standards. The CAFE and GHG emission standards are a federal program, and both EPCA and CAA generally preempt state and local governments from regulating fuel economy and air pollution emissions from mobile sources. Auto manufacturers have been supportive of the regulatory certainty provided by a single national standard with a long lead time, partly because of concerns that states could implement divergent standards in the absence of a uniform federal standard. This regulatory certainty was a principal component of the agreement brokered between the auto manufacturers, EPA, NHTSA, and the State of California at the inception of the National Program. Revising the federal standards could reintroduce divergence if California and the Section 177 states choose to maintain higher standards. This possibility has generated discussion that spans from revoking California's CAA waiver to keeping the standards in place but providing greater compliance flexibilities. Finally, discussion of regulatory alignment also extends to the global marketplace. Auto manufacturers produce and sell vehicles in all major international markets and they increasingly see the benefit of aligning vehicle safety and emission standards in North America, Europe, and Asia. As the United States reconsiders its vehicle fuel economy and GHG emissions standards through MY 2025, the major auto manufacturers remain attuned to the standards being adopted by other countries. For example, Canada's vehicle standards closely align with the current CAFE and GHG emission standards; Canada has not announced that they are under review. China, India, Japan, South Korea, and many European nations have announced GHG emissions standards and alternative-fueled vehicle mandates that would be more stringent than the existing U.S. program (see Figure 9 ). As more foreign governments move to increase their standards, auto manufacturer may potentially pursue these developments in their product planning to stay competitive globally.

The Trump Administration announced on April 2, 2018, its intent to revise through rulemaking the federal standards that regulate fuel economy and greenhouse gas (GHG) emissions from new passenger cars and light trucks. These standards include the Corporate Average Fuel Economy (CAFE) standards promulgated by the U.S. Department of Transportation's National Highway Traffic Safety Administration (NHTSA) and the Light-Duty Vehicle GHG emissions standards promulgated by the U.S. Environmental Protection Agency (EPA). They are known collectively—along with California's Advanced Clean Car program—as the National Program. NHTSA and EPA promulgated the second (current) phase of CAFE and GHG emissions standards affecting model year (MY) 2017-2025 light-duty vehicles on October 15, 2012. Like the initial phase of standards for MYs 2012-2016, the Phase 2 rulemaking was preceded by a multiparty agreement, brokered by the White House. The agreement included the State of California, 13 auto manufacturers, and the United Auto Workers union. The manufacturers agreed to reduce GHG emissions from most new passenger cars, sport utility vehicles, vans, and pickup trucks by about 50% by 2025, compared to 2010, with fleet-wide fuel economy rising to nearly 50 miles per gallon. As part of the Phase 2 rulemaking, EPA and NHTSA made a commitment to conduct a midterm evaluation for the latter half of the standards (i.e., MYs 2022-2025, for which EPA had finalized requirements and NHTSA, due to statutory limits, had proposed "augural" requirements). On November 30, 2016, the Obama Administration's EPA released a proposed determination stating that the MY 2022-2025 standards remained appropriate and that a rulemaking to change them was not warranted. On January 12, 2017, EPA finalized the determination, stating "that the standards adopted in 2012 by the EPA remain feasible, practical and appropriate." After President Trump took office, however, EPA and NHTSA announced their joint intention to reconsider the Obama Administration's final determination and reopen the midterm evaluation process. EPA released a revised final determination on April 2, 2018. It stated the MY 2022-2025 standards were "not appropriate and, therefore, should be revised," and that key assumptions in the January 2017 final determination—including gasoline prices, technology costs, and consumer acceptance—"were optimistic or have significantly changed." With this revision, EPA and NHTSA announced that they would initiate a new rulemaking. Until that rulemaking is complete, the current standards would remain in force. In response to the announcements from the Trump Administration, California has restated its "continued support for the current National Program and California's standards." On March 24, 2017, the California Air Resources Board (CARB) passed a resolution to accept its staff's midterm evaluation of the state's Advanced Clean Car program—which includes MY 2017-2025 vehicle GHG standards in line with EPA's 2017 final determination and the 2012 rulemaking. EPA granted CARB a Clean Air Act preemption waiver for its GHG standards on July 8, 2009. A number of issues remain forefront regarding the CAFE and GHG emission standards, their design, purpose, and potential revision. These include (1) whether EPA has adequately justified its decision to revise the MY 2022-2025 standards and (2) whether California can continue to implement state standards that would be more stringent than the revised federal ones. These issues are informed by analyses regarding (1) whether the standards are technically and economically feasible; (2) the impact of the standards on GHG emissions and energy conservation; and (3) whether the standards adequately address consumer choice, safety, and other vehicle policies, both domestic and international.

Introduction A discussion draft of broad legislation to reduce greenhouse gas emissions was released March 31, 2009, by Representative Waxman, Chairman of the House Committee on Energy and Commerce, and Representative Markey, Chairman of the Energy and Environment Subcommittee. The draft legislation, titled the American Clean Energy and Security Act of 2009, proposes a "cap and trade" system to control carbon dioxide and other greenhouse gases that have been associated with global climate change. The proposed cap-and-trade system would cover electric utilities and other entities that together are responsible for 85% of U.S. greenhouse gas emissions. Covered entities would need permits (called allowances) to emit carbon dioxide and other greenhouse gases, and unused allowances could be banked for future use or sold. The number of allowances issued each year would be gradually reduced until greenhouse gas emissions from covered entities were cut 83% below 2005 levels in 2050. To address concerns that greenhouse gas controls could place U.S. manufacturers at a competitive disadvantage, the draft bill authorizes compensation to certain industrial sectors. If the President determined that competitive imbalances persisted despite those payments, foreign manufacturers and importers would have to purchase special allowances to cover the carbon emissions related to their imported products. The draft bill would require retail electricity suppliers to meet a certain percentage of their power load with electricity generated from renewable resources, starting at 6% in 2012 and gradually rising to 25% in 2025. Several major issues are not addressed by the draft bill and are still under discussion, such as how to allocate emission allowances and how to assist workers and consumers affected by the cap-and-trade system. Substantial controversy is also continuing over the draft bill's renewable energy mandate on electricity suppliers. The remainder of this report provides a brief summary of the provisions of the March 31 Waxman-Markey discussion draft. The summary focuses on general descriptions of the discussion draft's provisions, excluding most details and analysis. It is not designed to track the development and evolution of greenhouse gas legislation. This summary was prepared by CRS analysts in the following subject areas: Carbon capture and storage, [author name scrubbed], x[phone number scrubbed] Electricity grid, Stan Kaplan, x[phone number scrubbed] Energy efficiency, [author name scrubbed], x[phone number scrubbed] Global warming adaptation, Jane Leggett, x[phone number scrubbed] Pollution reduction programs, [author name scrubbed], x[phone number scrubbed], and Jonathan Ramseur, x[phone number scrubbed] Renewable energy, Richard Campbell, x[phone number scrubbed] Transportation, Brent Yacobucci, x[phone number scrubbed] Title I—Clean Energy Subtitle A—Renewable Energy Standard Sec. 101. Federal Renewable Electricity Standard Establishes a federal Renewable Electricity Standard to promote renewable energy production. Under the standard, each retail electricity supplier with annual sales of 1 million megawatt-hours (mwh) or more must earn or acquire Renewable Electricity Credits (RECs) for a portion of its retail electricity sales. The portion begins at 6% in 2012 and rises to 25% in 2025, remaining at that level through 2039. RECs can be traded or banked, and can be earned by producing electricity from any "renewable energy resource," including wind, solar, geothermal, marine or hydrokinetic, biomass, landfill gas, or qualified hydropower. "Distributed generation"—small-scale, non-combustion power production located at consumer sites—qualifies for three RECs for each mwh of eligible renewable electricity. Up to 20% of the RECs can be provided by complying with the Federal Energy Efficiency Resource Standard in sec. 611 of the draft. "Alternative compliance" payments can substitute for RECs. A new Renewable Electricity Deployment Fund would collect alternative compliance payments and civil penalties for non-compliance; the funds would be redistributed annually to retail electric suppliers that had submitted the required RECs. In establishing regulations for this program, the Secretary of Energy must, to the extent practicable, incorporate and preserve best practices of existing state-level renewable electricity programs and cooperate with states on minimizing administrative costs and burdens. Subtitle B—Carbon Capture and Sequestration Sec. 111. National Strategy Within 120 days of enactment, the Administrator of the U.S. Environmental Protection Agency (EPA), in consultation with the Secretary of Energy and the heads of other relevant federal agencies as the President may designate, must submit to Congress a report setting forth a unified and comprehensive strategy to address the key legal and regulatory barriers to the commercial-scale deployment of carbon capture and sequestration. Sec. 112. Regulations for Geologic Sequestration Sites Requires a coordinated certification and permitting process for geologic sequestration sites, considerating all relevant statutory authorities. In establishing such an approach, the Administrator shall take into account, and reduce redundancy with, the requirements of the Safe Drinking Water Act and, to the extent practicable, reduce the burden on certified entities and implementing authorities. Not later than two years after enactment, the Administrator is to promulgate regulations to protect human health and the environment by minimizing the risk of atmospheric release of carbon dioxide injected for geologic sequestration, including enhanced hydrocarbon recovery combined with geologic sequestration. Not later than two years after enactment, and at three-year intervals thereafter, the Administrator is to deliver to the relevant congressional committees a report on geologic sequestration in the United States, and to the extent relevant, other countries in North America. Amends the Safe Drinking Water Act by inserting a provision directing the EPA Administrator to promulgate regulations for the development, operation, and closure of carbon dioxide geologic sequestration wells. The regulations are to include requirements for maintaining evidence of financial responsibility for emergency and remedial response, well-plugging, site closure, post-injection site care, and related activities. Sec. 113. Studies and Reports Within 18 months, requires a report on the legal framework for geologic sequestration sites by a task force composed of an equal number of subject matter experts, nongovernmental organizations with expertise in environmental policy, academic experts with expertise in environmental law, state officials with environmental expertise, representatives of state attorneys general, and members of the private sector. The task force is to conduct a study of existing federal environmental statutes, state environmental statutes, and state common law that apply to geologic sequestration sites for carbon dioxide. Requires a study of carbon dioxide transportation by the Department of Energy (DOE), the Federal Energy Regulatory Commission (FERC), and other relevant federal agencies to assess the need for and barriers to the construction and operation of pipelines to transport carbon dioxide for sequestration or enhanced hydrocarbon recovery. The Secretary of Energy is to consider barriers or potential barriers, and regulatory, financing, or siting options that would mitigate market risks or help ensure the construction of pipelines dedicated to transporting carbon dioxide for sequestration or enhanced hydrocarbon recovery. Within 180 days after enactment, the Secretary is to submit a report describing the results of the study to the relevant congressional committees. Sec. 114. Carbon Capture and Sequestration Demonstration and Early Deployment Program Authorizes a Carbon Storage Research Corporation to establish and administer a program to accelerate the commercial availability of carbon dioxide capture and storage technologies and methods. The program is to include competitively awarded grants, contracts, and financial assistance to electric utilities, academic institutions, and other eligible entities. The corporation is to be established as follows: Qualified industry organizations may conduct, at their own expense, a referendum among the owners or operators of distribution utilities delivering fossil fuel-based electricity for the creation of a Carbon Storage Research Corporation. Such referendum shall be conducted by an independent auditing firm agreed to by the qualified industry organizations. Upon approval of those persons representing two-thirds of the total quantity of fossil fuel-based electricity delivered to retail consumers, the Corporation shall be established unless opposed by the State regulatory authorities. If 40 percent or more of the State regulatory authorities submit to the independent auditing firm written notices of opposition, the Corporation shall not be established notwithstanding the approval of the qualified industry organizations. The Corporation shall operate as a division or affiliate of the Electric Power Research Institute and be managed by a Board of not more than 15 voting members responsible for its operations. EPRI, in consultation with the Edison Electric Institute, the American Public Power Association and the National Rural Electric Cooperative Association, shall appoint the Board members from among candidates recommended by those organizations. The section establishes requirements for board members, compensation, and terms of service. Provides descriptions of the status of corporations, functions and administration of the corporation, and details of corporation administration, including the use of grants and contracts, intellectual property issues, budgeting, record keeping, audits, and reports. Provides assessment rates as follows: Fuel type Rate of assessment per kilowatt hour Coal ................................................................... $0.00043 Natural Gas ...................................................... $0.00022 Oil ..................................................................... $0.00032 This section provides specific provisions for the Electric Reliability Council of Texas (ERCOT), including the corporation factors listed above. Methods are specified for determining fossil-fuel-based electricity deliveries. Within five years, the Comptroller General of the United States must prepare an analysis and report to Congress assessing the Corporation's activities, including project selection and methods of disbursement of assessed fees, impacts on the prospects for commercialization of carbon capture and storage technologies, and adequacy of funding. Establishes a technical advisory committee to provide independent assessments and technical evaluations, as well as make non-binding recommendations to the Board, concerning Corporation activities and describes its role and management. Sec. 115. Commercial Deployment of Carbon Capture and Sequestration Technologies Not later than two years after the date of enactment, the EPA Administrator is to promulgate regulations establishing a program to distribute authorized funds to support the commercial deployment of carbon capture and sequestration technologies in both electric power generation and appropriate industrial operations. Eligibility for funds requires: an electric generating unit that has a nameplate capacity of 250 megawatts or more and derives at least 50% of its annual fuel input from coal, petroleum coke, or any combination of these fuels; or an industrial source that, absent carbon capture and sequestration technology, would emit over 250,000 tons per year of carbon dioxide equivalent. The section provides mechanisms and conditions for distribution of funds. Sec. 116. Performance Standards for Coal-Fueled Power Plants Amends title VIII of the Clean Air Act (CAA) by adding performance standards for new coal-fired power plants. Plants covered by this section include plants that have a permit issued under CAA title V to derive at least 30% of their annual heat input from coal, petroleum coke, or any combination of these fuels. A covered unit that is finally permitted after January 1, 2009, shall emit no more than 1,100 pounds of carbon dioxide per mwh. A covered unit that is finally permitted after January 1, 2020, shall emit no more than 800 pounds of carbon dioxide per mwh, or meet any more stringent standard that the Administrator may establish. Compliance is required by the earliest of the following: four years after the Administrator issues a determination that there are in commercial operation in the United States electric generating units equipped with carbon capture and sequestration technology that, in the aggregate, have a total of at least 2.5 gigawatts of nameplate generating capacity; and are capturing and sequestering in the aggregate at least 5 million tons of carbon dioxide per year; four years after the Administrator issues a determination that there are in commercial operation worldwide electric generating units equipped with carbon capture and sequestration technology that, in the aggregate, have a total of at least 5 gigawatts of nameplate generating capacity; and are capturing and sequestering in the aggregate at least 10 million tons of carbon dioxide per year; January 1, 2025. Not later than 2025 and at five-year intervals thereafter, the Administrator is to review the standards for new covered units under this section and shall reduce the maximum carbon dioxide emission rate for new covered units to a rate which reflects the degree of emission limitation achievable through the application of the best system of emission reduction which the Administrator determines has been adequately demonstrated. Subtitle C—Clean Transportation Sec. 121. Low Carbon Fuel Standard Requires the EPA Administrator to promulgate regulations to reduce the lifecycle greenhouse gas (GHG) emissions per unit of energy from transportation fuel. "Transportation fuel" includes fuels for motor vehicles and engines, nonroad vehicles and engines, and aircraft. At the Administrator's discretion, this "Low Carbon Fuel Standard" (LCFS) program may also include fuel for use in ocean-going vessels. After 2022, the renewable fuel standard (RFS) established by the Energy Policy Act of 2005 ( P.L. 109-58 ) and expanded by the Energy Independence and Security Act of 2007 ( P.L. 110-140 ) is eliminated. Not later than three years after enactment, the Administrator must determine the baseline emissions intensity of transportation fuel for calendar year 2005. For each year from 2014 through 2022, the transportation fuel GHG emissions per unit energy must not exceed the baseline. After 2022, lifecycle emissions per unit of energy must be 5% below the baseline. For 2030 and later, emissions must be 10% below the baseline. Regulations may not include a per-gallon emissions requirement, but must be based on average emissions intensity. Fuel providers may generate credits for achieving greater reductions than required. The Administrator may determine conditions for the use, duration, and trading of credits. The Administrator may (but is not required to) grant credits for producing electricity used as transportation fuel. A fuel provider not in compliance for a given year may carry a deficit forward to the following year as long as the deficit is offset in that year. If the Administrator determines that implementation of the LCFS would severely harm the economy or environment of the United States, or if there is inadequate domestic supply of low-carbon fuel, the Administrator may revise the percentage reduction requirement in a given year. A waiver decision may be granted in response to a petition by any state or fuel provider, or by the Administrator's own motion. Sec. 122. Electric Vehicle Infrastructure Electric utilities are required to develop plans to support the use of plug-in hybrid vehicles (PHEVs) and pure plug-in electric vehicles (EVs), including heavy-duty hybrids. Plans may include deployment of charging stations, battery exchanges, fast-charging infrastructure, and triggers for development based on vehicle market penetration. Infrastructure should be interoperable with products from all manufacturers, to the extent practicable. State regulatory authorities and utilities must establish protocols and standards for integrating plug-in vehicles into the electrical distribution system, and include the ability for each vehicle to be identified individually and associated with its owner's electric utility account, for the purposes of billing of electricity use and the crediting of any power returned to the grid by the vehicle's batteries. Within one year of enactment, state regulatory authorities must set a hearing date for considering the plan, and must make a determination on new standards within two years of enactment. State regulatory authorities must consider whether to allow cost recovery for the development and implementation of such plans. Sec. 123. Large-Scale Vehicle Electrification Program Requires the Secretary of Energy to establish a program to deploy and integrate plug-in vehicles in multiple regions. Any state or local government—either solely or jointly with electric utilities, automakers, technology providers, car sharing companies, or other entities—may apply to the Secretary for financial assistance. The Secretary is to determine the design elements and requirements for the program, including the type of financial assistance provided. Financial assistance may be used for various purposes: assisting in the purchase of new vehicles; deployment of recharging or battery exchange infrastructure; integration of plug-in vehicles into the grid; and other projects the Secretary deems appropriate to support large-scale deployment of plug-in vehicles. Sec. 124. Plug-in Electric Drive Vehicle Manufacturing Requires the Secretary of Energy to establish a program to provide financial assistance to automobile manufacturers to facilitate the manufacture of plug-in vehicles. The Secretary may provide assistance for the reconstruction or retooling of vehicles developed and produced in the United States, and for the purchase of domestically produced batteries for such vehicles. However, assistance may be granted only if the manufacturer is unable to finance the project without such assistance. The Secretary is to determine the design elements and requirements for the program, including the type of financial assistance provided. The Secretary is to give preference to facilities located in areas that have the greatest need for the facility. Subtitle D—State Energy and Environment Development Funds Sec. 131. Establishment of SEED Funds Directs the Department of Energy (DOE) to create a program that allows each state energy office to establish a State Energy and Environment Development (SEED) Fund. The state-level SEED Fund is to serve as a common repository that manages and accounts for federal financial assistance that is designated mainly for clean energy, energy efficiency, and climate change purposes. DOE is required to develop model regulations for SEED operations and to assist states with set-up and operations. Each state is allowed to deposit into its SEED Fund the appropriations from DOE's Weatherization Assistance Program (WAP), State Energy Program (SEP), and Energy Efficiency and Conservation Block Grant (EECBG) Program. Also, appropriations from the Department of Health and Human Services' Low Income Home Energy Assistance Program (LIHEAP) could be deposited in the SEED Fund. To the extent that amounts deposited in a SEED Fund are not tied to a specific use, such amounts may be used to support grants, loans, loan interest subsidies, and revolving loan programs. Subtitle E—Smart Grid Advancement Sec. 142. Incorporation of Smart Grid Capability in Energy Star Program Directs the Energy Secretary and EPA Administrator to evaluate appliances with smart grid capability for inclusion in the Energy Star appliance labeling program. Although not specifically defined in the section, the smart grid capable appliances are presumably appliances able to communicate with a home's smart meter (either through a wired or wireless connection). The smart meter collects information on the home's electricity usage and communicates with the local utility's control center. In the most advanced smart grid concept, these linkages allow the utility to directly regulate the consumer's home appliances during periods when electricity is expensive and/or scarce. For example, during peak periods on a hot day, when power is costly, the utility could cycle the consumer's air conditioner on and off, and/or change the thermostat setting in a residence. Smart grid-capable appliances found cost-effective are to be appropriately labeled. The labeling would indicate that the savings associated with the smart capability will only be available to the consumer if the consumer's utility has deployed other smart grid technology (e.g., the smart meters) on its system. The smart grid appliance analysis is to be completed within three years of enactment and the results reported to Congress. It is not clear if this appliance analysis is to be a one-time or ongoing effort. Sec. 143. Smart Grid Peak Demand Reduction Goals Requires load serving entities (i.e., utilities that sell electricity directly to customers) to establish and meet goals reducing peak electricity demand for the years 2012 and 2015. No targets are set in the draft bill itself, except that the goals should be "realistically achievable with an aggressive effort to deploy Smart Grid and peak demand reduction technologies and methods. This provision is mandatory for load serving entities with an annual baseline peak demand of at least 250 megawatts (equivalent to the output of a single medium-sized power plant). Goals can be set by individual load-serving entities, by states, or by "regional entities." The goals can be designed to cover a single load-serving entity or a region. Although this section is under the smart grid rubric, many of the listed measures for achieving peak demand reductions do not necessarily require deployment of smart grid technology. These include, for example, utility ability to cycle demand at industrial facilities that have signed up for demand response programs (in which they receive lower rates in return for giving the utility the option of interrupting service), and power supply from distributed generation. Other options, such as direct control of residential appliances, do require smart grid technology. FERC is ordered to implement this program in coordination, to the extent possible, with state demand response and peak reduction programs. There is no penalty for a load-serving entity's failure to reach goals, except for being identified in annual progress reports to Congress. The bill authorizes grant programs to help states and other entities achieve the peak reduction aim. Sec. 144. Reauthorization of Energy Efficiency Public Information Program to Include Smart Grid Information Modifies an energy efficiency public information program authorized by the Energy Policy Act of 2005 to make it into a smart grid and energy efficiency program. In addition to the change in emphasis, the end-date for the program is extended from 2010 to 2020. Sec. 145. Inclusion of Smart-Grid Features in Appliance Rebate Program Modifies an energy efficiency appliance rebate program authorized by the Energy Policy Act of 2005 to add appliances with smart grid capabilities. The section also amends the original language generally such that federal money can be used to fund 100% of the rebate amount instead of just administrative costs (states must still supply at least 50% of administrative costs). Subtitle F—Smart Grid Advancement Sec. 151. Transmission Planning Amends the Federal Power Act to create a new voluntary transmission planning process. FERC is to establish planning principles, receive all plans (effectively combining regional plans into super-regional or national plans), and attempt to resolve conflicts between plans. It is also to report to Congress on the status of the planning efforts three years after enactment and can recommend legislative changes to facilitate development of the transmission system. Does not direct FERC to select federally sponsored regional planning entities, does not give transmission projects included in final transmission plans any special benefits, and is not mandatory. The planning processes are directed to focus primarily on facilitating the "deployment of renewable and other zero-carbon" power sources. Other objectives are noted, such as power system reliability and cost-effective service, but these are to be met in the context of the overarching goal of facilitating renewable/zero-carbon power deployment. Specifies that the transmission planning processes should consider non-transmission solutions to power system needs, such as energy efficiency, distributed generation, and electricity storage. These requirements implicitly turn transmission planning into wider scope power system planning. FERC is to establish planning principles within a year after enactment, and participants in the process are to submit plans to FERC no more than 18 months later. FERC is to report to Congress as noted above not more than three years after enactment. The draft authorizes funding as necessary for FERC to assist the planning process with, for example, technical expertise, computer modeling support, and dispute resolution services. Subtitle G—Federal Purchases of Electricity Generated by Renewable Energy Sec. 161. Federal Purchases of Electricity Generated by Renewable Energy In general, federal government agencies may contract to acquire renewable energy for periods up to 30 years, as long as the renewable energy is not generated from municipal solid waste. The Federal Energy Management Program is to publish a standardized contractual agreement with terms and conditions for purchase of renewable energy by federal agencies. Title II Subtitle A—Building Energy Efficiency Programs Sec. 201. Greater Energy Efficiency in Building Codes Requires DOE to update the national model building energy codes at least once every three years. The target for nationwide energy savings is set 30% higher than the baseline for updates released after enactment, and then rises to 50% for updates released after January 1, 2016. All model code updates are coordinated with updates of specified industry standards. Federal training and funding assistance is provided to states that adopt advanced building efficiency codes. States are required to certify their code updates and code compliance with DOE. Sec. 202. Building Retrofit Program Creates a Retrofit for Energy and Environmental Performance (REEP) program to facilitate the retrofitting of existing buildings nationwide to achieve maximum cost-effective energy efficiency improvements and significant improvements in water use and other environmental attributes. EPA is charged with one part of the program: developing standards for a retrofit policy for single-family and multi-family residences. In creating and operating the residential REEP program, EPA is required to use existing programs, especially the Energy Star for Buildings program. DOE is charged with another part of the REEP program: developing standards for a retrofit policy for commercial buildings. In creating and operating the commercial REEP program, DOE is required to use existing programs, including delegating authority to the Director of Commercial High-Performance Green Buildings (established under 42 U.S.C. 17081) to designate and fund a High-Performance Green Building Partnership Consortium. Provides federal financial assistance to be deposited in each state's SEED Fund (sec. 131). DOE is required to administer financing for the REEP program. State and local agencies would have broad flexibility in REEP program operations. Sec. 203. Energy Efficient Manufactured Homes Authorizes DOE grants to states to provide rebates to low-income families residing in pre-1976 manufactured homes. The rebate could be applied only toward the purchase of a new Energy Star-rated manufactured home. The value of the rebates is capped at $7,500. Sec. 204. Building Energy Performance Labeling Program Directs EPA to establish a building energy performance labeling program that would apply broadly to residential and commercial building markets. The goal is to encourage owners and occupants to reduce energy use. EPA is required to consider existing programs, such as the Home Energy Rating System and DOE programs. Also, EPA is required to develop model performance labels for residential and commercial buildings and to use incentives and other means to spur the use of labels by public and private sector buildings. Subtitle B—Lighting and Appliance Energy Efficiency Programs Sec. 211. Lighting Efficiency Standards Sets four lighting standards. First, manufacturers of outdoor luminaires are required to achieve a minimum lighting efficiency of 50 lumens per watt by January 1, 2012, 70 lumens per watt by January 1, 2013, and 80 lumens per watt by January 1, 2015. By January 1, 2017, DOE is required to issue a final rule to amend that standard to "the maximum level that is technically feasible and economically justified." The amended standard would take effect by January 1, 2020. Second, manufacturers of outdoor high output lamps are required to achieve a standard of 45 lumens per watt by January 1, 2012. Third, manufacturers of portable light fixtures are required by January 1, 2012, to either meet Energy Star requirements for residential light fixtures or meet a minimum efficiency of 29 lumens per watt for LED light fixtures. DOE is required to publish amended standards by January 1, 2014, that would take effect on January 1, 2016. Fourth, certain technical requirements are set for art work light fixtures; and DOE is required to establish standards for certain incandescent reflector lamps, which would take effect three years after the law is enacted. Sec. 212. Other Appliance Efficiency Standards Sets four efficiency standards for certain commercial appliances, in addition to existing standards for a number of other types of residential and commercial equipment. First, by January 1, 2012, water dispensers are required to have a maximum standby energy use of 1.2 kilowatt-hours per day. Second, by January 1, 2012, commercial hot food holding cabinets are required to have a maximum idle energy use rate of 40 watts per cubic foot of interior volume. Third, by January 1, 2012, portable electric spas are required to have a maximum standby power use set by formula that depends on the volume of the spa. DOE is directed to consider revisions to each of the foregoing three standards and publish a final rule by January 1, 2013. Revised standards would take effect on January 1, 2016. Fourth, efficiency standards are set for commercial furnaces with an input heat rate of 225 thousand Btu per hour. Gas-fired furnaces are required to have a minimum combustion efficiency of 80% and oil-fired furnaces would have a minimum combustion efficiency of 81%. Sec. 213. Appliance Efficiency Determinations and Procedures Revises the criteria for prescribing new or amended standards to include the estimated value of reduced emissions of carbon dioxide and other greenhouse gases; the estimated impact on average consumer energy prices; and the estimated energy efficiency attributable to Smart Grid technologies. Further, the criteria would require that the carbon output of each covered product be included on the EnergyGuide labels. Other criteria for prescribing new or amended standards would require information about the commercial availability of products that meet higher standards; the standard's potential creation of a serious hardship on consumers or manufacturers; and the potential to avoid hardship through the prescription of regional standards. Requires manufacturers of covered products to submit annual reports and information to DOE regarding compliance, economic impact, annual shipments, facility energy and water use, and sales data that could support an assessment of the need for regional standards. Clarifies the definition of "energy conservation standard" to include energy efficiency for some covered equipment, water efficiency for some covered equipment, and both energy and water efficiency for still other equipment. Directs that state and local building codes use appliance efficiency requirements that are no less stringent than those set by federal standard. Revises other definitions and provisions, including the use of test procedures adopted elsewhere, updated test methods for televisions, a state waiver, waiver of federal preemption, and permitting states to seek injunctive enforcement. Sec. 214. Best-in-Class Appliances Deployment Program Directs DOE to establish a deployment program to reward retailers with bonuses for increasing the sales of best-in-class high-efficiency installed building equipment, high-efficiency consumer electronics, and high-efficiency household appliance models. The goal of the program is to reduce life-cycle costs for consumers, encourage innovation, and maximize energy savings and public benefits. DOE would determine the size of the bonus payments. The best-in-class products would include no more than 10% of the most efficient product models in a class, and that group must show a "distinctly greater" efficiency than the average for that class. Further, DOE would review the class annually and make upward adjustments in the criteria as appropriate. In parallel, DOE is to establish bounties to retailers for replacing and recycling old, inefficient, and environmentally harmful appliances. The size of the bounty is based on the increment of energy use above that for an average new product. DOE is allowed to require that a product bonus be accompanied by retirement of old products. Also, DOE is required to ensure that no product receiving a bounty is returned to active service. A bonus program is established for manufacturers that develop new "superefficient best-in-class" products. The structure of the program and calculation of bonuses is similar to that for the retail sector. DOE would have the authority to establish a standard, even if no product existed yet, if it determined that a mass-producible product could be made to meet the standard. Products that receive a sec. 45M federal tax credit would not be eligible for bonus payments. Sec. 215. Purpose of Energy Star Defines the purpose of the Energy Star program as "to assist consumers in selecting products for purchase that have demonstrated high energy efficiency and that are cost-effective from the consumer's perspective, ensuring that any incremental cost attributable to the energy-efficient features of such products will be more than recovered in the value of energy savings the products will make possible within several years of purchase, typically within 2 years but no more than 5 years.'' Subtitle C—Transportation Efficiency Sec. 221. Emissions Standards Requires the President to use all current statutory authorities to set motor vehicle GHG standards. Standards must be achievable by automakers, harmonize Corporate Average Fuel Economy (CAFE) standards with any standards set by the EPA Administrator under the Clean Air Act, achieve emissions reductions at least as much as those required by California under its current vehicle GHG standards, and not preempt California's authority to adopt and enforce new emissions standards. The EPA Administrator is also required to establish GHG standards for heavy-duty vehicles and engines, non-road vehicles and engines (including locomotives and marine vessels), and aircraft. Such standards must be based on various factors, including the relative contribution to GHG emissions from that class of vehicles, the costs of achieving reductions, technology available to meet the standards, and the effects on safety and energy consumption. The Administrator is granted the authority to establish provisions for averaging, banking, and trading emissions reduction credits within or across classes of vehicles and engines. Sec. 222. Greenhouse Gas Emissions Reductions Through Transportation Efficiency States must submit to EPA goals and plans to stabilize transportation-related GHG emissions in a "designated year" (determined by the state) and reduce emissions in subsequent years. States must consider establishing 2010 as the designated year, and must update goals every four years. If a state fails to submit goals or a plan, the EPA Administrator may prohibit the awarding of federal highway funds. Metropolitan planning organizations (MPOs) in areas with population exceeding 200,000 must update transportation plans and transportation improvement programs (TIPs) to achieve such goals. The EPA Administrator may award competitive grants to MPOs to develop or implement submitted plans. The Administrator is required to give priority to applicants based on total or per capita GHG reductions, and other factors the Administrator deems appropriate. Sec. 223. Smartway Transportation Efficiency Program Codifies EPA's existing SmartWay program (established under EPA's existing authority). The Administrator is required to quantify, demonstrate, and promote the benefits of technologies, products, fuels, and strategies to reduce petroleum consumption, air pollution, and GHG emissions from mobile sources. The Administrator must develop measurement protocols for fuel consumption and emissions reductions, thresholds for designating SmartWay technologies and strategies, develop programs to promote best practices, and promote the availability and adoption of SmartWay technologies and strategies. The Administrator is required to establish a SmartWay Transport Partnership to promote the efficient shipment of goods. Requires the EPA Administrator to establish a SmartWay Financing Program. Entities receiving funds are required use the funds to provide flexible loan and lease terms to public and private entities for the financing of low-GHG technologies and strategies. The Administrator is to determine the type of financial mechanism, the designation of eligible entities, and criteria for evaluating applications. Subtitle D—Utilities Energy Efficiency Sec. 231. Energy Efficiency Resource Standard for Retail Electricity and Natural Gas Distributors Adds a new sec. 611 to the Public Utility Regulatory Policies Act of 1978 (PURPA) to require all but the smallest gas and electric utilities to take steps to achieve energy efficiency goals established by the federal government: a reduction of electricity demand of 15% by 2020; and a reduction of natural gas demand of 10% by 2020. Sets annual savings goals for 2012 through 2020. Annual objectives for years after 2020 are to be established beginning in 2018 by the Secretary of Energy. Provides for mid-course corrections to the initial set of objectives in 2014 and every ten years thereafter, but only to increase the targeted savings. Requires DOE to establish regulations for the program, including the technical means of verifying the savings. DOE is also to review annually a report from each utility demonstrating that it has achieved that year's savings target. (Since there will be at least hundreds of such reports, this implies a significant administrative burden for DOE.) Utilities that fail to meet goals have to pay substantial civil penalties on each mwh of electricity and million Btus of natural gas not saved. As part of its annual review of utility reports, DOE is to verify not only that the targeted savings have been achieved, but that the utility actually "played a significant role in achieving the claimed savings. However, there is no requirement for state utility commissions, which regulate utility retail activities, to allow utilities to adjust their rates to recover the costs of energy efficiency programs. Not addressed is the issue that if a utility achieves a 15% reduction in energy sales, it will incur, other things being equal, a 15% reduction in revenues and profits. Authorizes utilities to purchase energy savings through bilateral contracts with other utilities (except that, without special state permission, the buyer and seller must serve the same state). Does not create a market in energy efficiency credits, analogous to some existing markets in air pollution reduction credits. DOE can delegate administration of the program to states, with state implementation to be reviewed roughly every four years. Subtitle E—Industrial Energy Efficiency Programs Sec. 241. Industrial Plant Energy Efficiency Standards Directs DOE to develop industrial plant energy efficiency certification standards as part of the existing DOE program of developing American National Standards Institute (ANSI) accredited standards for industrial benchmarking, and would seek ANSI accreditation of such standards. Sec. 242. Electric and Thermal Energy Efficiency Award Programs Directs DOE to establish a monetary award program for owners and operators of electric power generation facilities and thermal energy production facilities that use fossil or nuclear fuels. The award is to encourage innovative means for recovering thermal energy as a potentially useful byproduct of electric power generation or certain other electric or thermal energy production processes. The award is capped at the value of 25% of the energy projected to be recovered or generated during the first five years of facility operation that uses the innovative method. Further, DOE is directed to provide appropriate regulatory status for thermal energy byproduct businesses of regulated electric utilities. Owners and operators of electric and thermal energy facilities are eligible for SEED Fund loans for initial capital. Subtitle F—Improvements in Energy Savings Performance Contracts Sec. 251. Energy Savings Performance Contracts Amends the National Energy Conservation Policy Act (42 U.S.C. 8287(a)) to require competition for task or delivery orders under energy savings performance contracts. Subtitle G—Public Institutions Sec. 261. Public Institutions Amends the National Energy Conservation Policy Act (42 U.S.C. 8287(a)) to specifically include not-for-profit hospitals or not-for-profit inpatient health facilities or designated agents, and changes the financial limit from $1,000,000 to $2,500,000. Title III ─ Reducing Global Warming Potential Sec. 301. Short Title Provides suggested title ─ "Safe Climate Act." Subtitle A ─ Reducing Global Warming Pollution Sec. 311. Reducing Global Warming Pollution Amends the Clean Air Act (42 U.S.C. 7401 et seq.) by adding title VII, below. "Title VII ─ Global Warming Pollution Reduction Program" "Part A ─ Global Warming Pollution Reduction Goals and Targets" "Sec. 701. Findings and Purpose." Identifies threats posed by global warming. Highlights scientific studies that find links between manmade greenhouse gas (GHG) emissions and global warming. Determines that GHG emission control is vital to the mitigation of global warming and its impacts, some of which are listed. States that U.S. action is critical to engage other nations in international efforts. Names purpose as prevention, reduction, and mitigation of global warming and its impacts, to be accomplished by establishing a emissions trading market and advancing clean energy and efficiency technologies. "Sec. 702. Economy-Wide Reduction Goals." Lists GHG emission reduction goals as: 1. in 2012, U.S. GHG emissions not to exceed 97% of 2005 GHG emissions 2. in 2020, U.S. GHG emissions not to exceed 80% of 2005 GHG emissions 3. in 2030, U.S. GHG emissions not to exceed 58% of 2005 GHG emissions 4. in 2050, U.S. GHG emissions not to exceed 17% of 2005 GHG emissions "Sec. 703. Reduction Targets for Specified Sources." Directs EPA, no later than two years after enactment, to promulgate regulations that cap and reduce GHG emissions from capped sources so that the emission reduction goals in sec. 702 are applied to capped sources. For example, in 2012, GHG emissions from capped sources should not exceed 97% of GHG emissions from such sources in 2005. "Sec. 704. Supplemental Pollution Reductions." Instructs EPA to allot emission allowances to support international deforestation reduction efforts. Between 2012 and 2025, EPA is to transfer (per sec. 781) up to 5% of each year's emission allowances to nations that enter into and implement agreements (pursuant to Part E) relating to reduction of deforestation. The allotted percentage decreases to 3% between 2026 and 2030 and 2% between 2031 and 2050. The section's objective is to support emission reductions (through avoided deforestation) that is outside of and additional to those required by the U.S. emissions cap. For example, the 2020 goal is to achieve reductions equivalent to 10% of U.S. emissions in 2005. ''Sec. 705. Scientific review." Establishes process for scientific review to be conducted by the National Academy of Sciences (NAS). NAS is to prepare a report by July 1, 2012, and every four years thereafter. The report will include an analysis of (1) latest climate change science, (2) technological feasibility of GHG emission mitigation efforts, and (3) domestic and international efforts to mitigate climate change. (The first report will examine only the latest scientific information.) This section provides considerable detail regarding what the NAS is to provide in its reports, including recommendations and identification of improvements. ''Sec. 706. Presidential response and recommendations." Directs federal agencies ─ by July 1, 2017, and every four years thereafter ─ to address shortfalls identified in the periodic NAS reports (sec. 705). If NAS report finds that emission reduction targets (or atmospheric concentration or safe temperature thresholds) are not on schedule, the President is to submit a plan outlining additional domestic and international reduction efforts or legislative recommendations that would address these concerns. ''Part B ─ Designation and Registration of Greenhouse Gases" ''Sec. 711. Designation of greenhouse gases." Designates the following gases as GHGs: (1) carbon dioxide, (2) methane, (3) nitrous oxide, (4) sulfur hexafluoride, (5) hydrofluorocarbons emitted as a byproduct, (6) a perfluorocarbon, (7) nitrogen trifluoride. Sets up process by which EPA can designate other GHGs. Allows for any person to petition EPA for other manmade gases to be added as GHGs. ''Sec. 712. Carbon dioxide equivalent value of greenhouse gases." Lists the carbon dioxide equivalents of other GHGs. For example, one metric ton of methane equals 25 metric tons of carbon dioxide equivalent. Directs EPA to periodically review, not later than February 1, 2017, and every five years thereafter, the carbon dioxide equivalent values. Establishes process by which EPA can revise the values. ''Sec. 713. Greenhouse gas registry." Directs EPA, no later than six months after enactment, to establish a federal GHG emission registry. The registry will include data on (1) GHG emissions, (2) production/importation of fuels and products that lead to GHG emissions, and (3) electricity delivered to carbon-intensive industries. Reporting entities, including covered entities and other entities that EPA determines will help achieve overall goals of title VII, must submit 2007-2010 data by March 31, 2011. For calendar year 2011 and each subsequent year, reporting entities will submit quarterly data. In creating the registry, EPA is to consider best practices from ongoing state and regional efforts. EPA is to disseminate the data to states and tribes and publish the data online as soon as practicable. ''Part C ─ Program Rules" ''Sec. 721. Emission allowances." Instructs EPA to establish a specific quantity of emission allowances (the cap), starting in 2012, based on the table provided in sec. 721(e). Each allowance will have a unique identification number. From a legal standpoint, neither emission allowances, compensatory allowances, strategic reserve allowances, nor offset credits constitute a property right. EPA may adjust the annual caps, if specified assumptions are subsequently found to be inaccurate, such as 2005 emission levels and percentage of emissions from covered sources. Directs EPA to promulgate regulations to establish a process of providing compensatory allowances for several activities, including the use of fossil fuels (e.g., asphalt or plastic manufacturing) that does not lead to emissions. ''Sec. 722. Compliance obligation." Requires covered entities, starting April 1, 2013, and each year thereafter, to have one emission allowance for each ton of carbon dioxide equivalent of GHGs that were either, depending on the type of covered entity, (1) directly emitted by the entity in the previous year or (2) emitted downstream in the economy in relation to a covered entity's GHG inputs (e.g., fossil fuels) that were produced or imported for sale or distribution in the previous year. EPA will retire the held allowances after the annual deadline has passed. Covered entities are defined specifically in sec. 700 but include electricity generators, various fuel producers and importers, fluorinated gas producers and importers, geological sequestration sites, various industrial sources, and local distribution companies (LDCs) that deliver natural gas. Compliance provisions are phased in by entity: most entities start compliance in 2012; industrial stationary sources begin compliance in 2014; LDCs begin in 2016. EPA must review the emission threshold for relevant covered entities in 2020 (and every eight years thereafter). EPA may lower the emission threshold, which currently stands at 25,000 tons/year, to not less than 10,000 tons/year, after considering various factors, such as cost-effectiveness. Covered entities can use offset credits to satisfy compliance. Offsets are discounted: 1.25 offsets equals one emission allowance. In 2012, approximately 30% of an entity's allowance obligation can be satisfied with offsets (half from domestic and half from international sources). This percentage increases to 66% by 2050. Entities may also satisfy compliance with international emission allowances or compensatory allowances. EPA must launch an education and outreach program to assist covered entities with compliance obligations. ''Sec. 723. Penalty for noncompliance." Establishes penalties for noncompliance. A covered entity must pay a penalty to EPA for each allowance the entity should have held at the compliance deadline. The penalty amount equals the emissions generated in excess to the allowances held multiplied by twice the fair market value for emission allowances in the relevant calendar year. In addition, covered entities must submit, in the following calendar year or other time period determined by EPA, allowances to cover the excess emissions from the previous year. ''Sec. 724. Trading." Ensures that emission trading will not be restricted. Allows for both covered and non-covered entities to hold allowances. Holders of allowances may ask the EPA to retire the allowance. Allowance transfers are not effective until EPA receives written certification in accordance with regulations required by sec. 721. ''Sec. 725. Banking and borrowing." Allows for unlimited banking of emission allowances for compliance in future years. Allows entities to borrow (without interest) emission allowances from the calendar year (vintage) immediately following the compliance year. For example, vintage 2015 allowances can be used for compliance in 2014. This effectively creates a rolling two-year compliance period. In addition, covered entities may borrow at interest allowances (limited to 15% of compliance obligation) from up to five vintage years in the future. ''Sec. 726. Strategic reserve." Directs EPA to create a "strategic reserve" of about 2.7 billion allowances by setting aside a small number of allowances from each vintage year. EPA will conduct quarterly auctions of allowances from the strategic reserve. Only covered entities may participate in the auctions. The auctions will have a reserve price, which in 2012 will be twice the estimated emission allowance price for 2012 (to be provided by EPA). Subsequent year reserve prices are 100% above the average market price. Limits the number of allowances up for auction, and entities are limited in the number they may purchase at each auction. Unsold allowances replenish the reserve. EPA is to use the auction proceeds to purchase international (reduced deforestation) offsets (with the same 1.25 discount rate for offsets) that will replenish the strategic reserve. Under certain conditions, international (reduced deforestation) offsets may be sold by EPA at the strategic reserve auction. ''Sec. 727. Permits." Describes procedural requirements for sources that are also subject to title V of the Clean Air Act. Requires an entity's designated representative to file a certificate of representation. Describes procedural process for situations involving multiple owners or leasing arrangements. ''Sec. 728. International emission allowances." Lists process by which EPA can designate an international climate change program as "qualifying." Only international allowances from "qualifying" programs can be used by covered entities for compliance purposes. Requires covered entities to certify that international allowances used for U.S. compliance have not been used for compliance with other programs. Allows EPA to issue a rulemaking that would modify the percentage of international offsets a covered entity may use for compliance purposes. ''Part D ─ Offsets" ''Sec. 731. Offsets Integrity Advisory Board." Instructs EPA to create an independent Offsets Integrity Advisory Board, which will make recommendations that include (1) which offset types should be eligible for compliance purposes, and (2) methodologies for evaluating offset projects. The Board shall by 2017, and every five years thereafter, provide an analysis to EPA of the offset program and make recommendations regarding the offset program. ''Sec. 732. Establishment of offsets program." Directs EPA , not later than two years after enactment, to promulgate regulations that establish a program for issuing offsets for compliance purposes. EPA is to consult with other federal agencies and consider the Advisory Board's (sec. 731) recommendations. EPA must ensure that offsets are verifiable and additional, that sequestration projects are permanent, and that offsets avoid or minimize negative effects. EPA must set up an offset registry. The agency may collect fees from offset project representatives to cover administrative costs. ''Sec. 733. Eligible project types." Directs EPA (through the regulatory process) to develop a list of eligible offset project types, which can be revised at a later time. EPA must consider (and give priority to) the Advisory Board recommendations. Persons may petition EPA to add or remove offset project types from the list of eligibility. ''Sec. 734. Requirements for offset projects." Instructs EPA to include certain provisions in its regulations, including project-specific standards that address additionality, baseline calculations, measurement, leakage, and uncertainty. EPA is to develop a process that accounts for offset "reversals," including mechanisms such as an offsets reserve and/or insurance. EPA will specify the crediting period for each offset type. The periods must fall between five and 10 years, excepting sequestration projects. ''Sec. 735. Approval of offset projects." Describes the process by which an offset project representative seeks approval for a particular offset project. The representative must submit to EPA a petition that includes the information specified in EPA's forthcoming rulemaking. EPA must respond in writing to the petition within 90 days. Procedures for an appeal process are to be established by EPA. In addition, EPA is to establish a voluntary pre-approval review process as an option for project developers. ''Sec. 736. Verification of offset projects." Requires offset project representatives to provide to EPA with verification from an EPA-accredited third-party. EPA is to create a process to accredit third-parties for this function. Required information (e.g., tons reduced/avoided/sequestered, methodologies used) in the verification and the schedule for its submittal will be determined by EPA. ''Sec. 737. Issuance of offset credits." Directs EPA to make offset issuance determinations no later than 90 days after receipt of the third-party verification reports. EPA may issue offset credits only for approved projects (sec. 735) and only for reductions, avoidance, or sequestration that have already occurred (i.e., no forward crediting) during the project's crediting period. EPA will assign a unique serial number to each offset credit. ''Sec. 738. Audits." Authorizes EPA to conduct random audits of offset projects, credits, and practices of third-party verifiers. EPA is required to annually audit, at minimum, a representative sample of project types and geographic areas. EPA may delegate this duty to a state or tribal government. ''Sec. 739. Program review and revision." Requires EPA to review various components ─ methodologies, reversal policies, accountability measures ─ of its offset program at least once every five years. ''Sec. 740. Early offset supply." Directs EPA to issue offset credits, if specific conditions are met, for offsets issued under other regulatory or voluntary offset programs. The following are highlights of some of the conditions: An offset project must have started after January 1, 2001, but EPA can only issue offset credits for reduction/avoidance/sequestration tons that occur after January 1, 2009, and only for a limited period of time (three years after enactment or effective date of regulation, whichever is sooner). The other-program offsets must have been issued under a program that was established by state (or tribal) law or regulation. The offset standards must have been developed through a public consultation process. All projects must have been or will be verified by a state regulatory agency or accredited third-party. Offsets are ineligible if used for compliance with a state law. ''Sec. 741. Environmental considerations." Instructs EPA, if it lists forestry projects as eligible offset types, to develop regulations that address concerns particular to forestry offsets. The list of concerns includes biodiversity, invasive species, and non-native species. ''Sec. 742. Ownership and transfer of offset credits." States that initial offset ownership lies with the entity represented by the offset project representative. Allows offset credits to be sold, traded, or transferred, unless the credit has expired or been used for compliance purposes. ''Sec. 743. International offset credits." Authorizes EPA to issue (in consultation with Department of State) international offset credits. Directs EPA to promulgate regulations (considering recommendations from the Advisory Board) to carry out this section. EPA may only issue international offset credits if (1) the United States is a party to a bilateral or multilateral agreement that includes the nation hosting the offset project, and (2) the nation is a "developing country" (defined in sec. 700). Establishes a process through which EPA can issue international offset credits on a sectoral basis in developing nations if such an approach is deemed appropriate to ensure the integrity of the U.S. emissions cap against carbon leakage and would encourage other counties to take measures to reduce, avoid, or sequester greenhouse gases. Allows EPA to issue international offset credits that originate from international bodies established by the United Nations Framework Convention on Climate Change (UNFCCC), a UNFCCC protocol, or a treaty that succeeds the UNFCCC. This suggests that offsets that come from the Clean Development Mechanism may be available. Authorizes EPA to issue, if certain conditions are met, international offset credits for projects that reduce deforestation. The United States must be a party to a bilateral or multilateral agreement that includes the nation hosting the offset project. A national deforestation baseline must be established in accordance with an appropriate agreement (details for developing baselines are provided). Credits can only be issued after deforestation reduction has been demonstrated using "ground-based inventories, remote sensing technology, and other methodologies" to ensure carbon stocks are measured. EPA must make country-specific adjustments, such as discounting. EPA (with Department of State) is to prepare a list of developing nations that are eligible, based on the nation's ability to monitor/measure carbon fluxes from deforestation and its institutional capacities and governance. ''Part E ─ Supplemental Emissions Reductions from Reduced Deforestation" ''Sec. 751. Definitions." Includes definitions of five terms relevant to Part E. ''Sec. 752. Findings." States that (1) deforestation amounts to approximately 20% of global GHG emissions, (2) reducing deforestation is cost-effective compared to other GHG emission mitigation efforts, and (3) reducing deforestation yields secondary benefits, such as biodiversity. ''Sec. 753. Supplemental emissions reductions through reduced deforestation." Directs EPA, in consultation with the Departments of State and Agriculture, to promulgate regulations that create a program to allot emission allowances for supporting reduced deforestation efforts. Identifies objectives as (1) achieving a cumulative emission reduction of 6 billion tons by 2025, (2) building institutional capacities in developing nations, and (3) preserving intact, native forests. ''Sec. 754. Requirements for international deforestation reduction program." Authorizes EPA to support efforts only in developing nations whose forest carbon stock present a deforestation risk and have entered a bilateral or multilateral agreement with the United States. EPA may support a wider variety of efforts than those in sec. 743, including pilot activities that are "subject to significant uncertainty." EPA may support projects directly or distribute allowances to established international funds. EPA must promulgate standards to ensure emission reductions (from reduced deforestation) are additional, measureable, verifiable, permanent, monitored, and account for leakage and uncertainty. National baselines (for deforestation) must be established. EPA must develop a publicly available registry of the supplemental emission reductions. ''Sec. 755. Reports and reviews." Directs EPA to submit, by January 1, 2014, a report that lists the quantity of emission reductions under the program, a breakdown of allowances provided, and the accomplishments supported. EPA is to conduct a review of the supplemental emission reduction program four years after enactment and every five years thereafter. The review will include an assessment of emission reductions achieved per participating nation and an examination of related factors, such as governance, biodiversity, and leakage. ''Sec. 756. Legal effect of part." States that Part E does not supersede, limit, or affect restrictions imposed by federal law on any interaction between an entity in the United States and an entity in another country. ''Part F ─ Carbon Market Assurance" ''Sec. 761. Oversight and assurance of carbon markets." Provides for the Federal Energy Regulatory Commission (FERC) to regulate the cash market in emission allowances and offsets created under title VII and directs the President to delegate regulatory authority for the derivatives market to "an appropriate agency." FERC is to promulgate regulations for the establishment, operation, and oversight of the cash market, within 18 months of enactment, designed to prohibit fraud, market manipulation, and excess speculation, and provide measures to limit unreasonable allowance price fluctuations. Participants are limited to no more than a 10% position in any class of regulated allowance, and FERC has the authority to suspend or revoke the registration of any trading entity violating any rule or order issued under this subsection. Taking into consideration the recommendations of an interagency working group created under the bill, the President is to delegate to appropriate agencies the authority to promulgate regulations for the establishment, operation, and oversight of all markets for regulated allowance derivatives. The purposes of the derivatives provisions are similar to those above for the cash market. Each federal agency that is designated under these provisions shall have the same authority to enforce compliance as does the Commodity Futures Trading Commission (CFTC). Sec. 312. Definitions Amends title VII of the Clean Air Act (created by this legislation) by adding a definitions section before Part A. ''Sec. 700. Definitions." Provides definitions for terms relevant to title VII. Subtitle B—Disposition of Allowances Sec. 321. Disposition of Allowances for Global Warming Pollution Reduction Program Adds Part H to the new title VII of the Clean Air Act. ''PART H—DISPOSITION OF ALLOWANCES" ''Sec. 781. Allocation of allowances for supplemental reductions." Instructs EPA to allot particular percentages of emission allowances to support supplemental reduction efforts, the avoided deforestation projects described in Part E. For ("vintage year" allowances) 2012 through 2025, the program receives 5% of each year's allotment; for 2026 through 2030, 3%; for 2031 through 2050, 2%. Directs EPA to modify these percentages as necessary to meet the 2020 reduction objective (annual reductions equivalent to 10% of U.S. emissions in 2005) and the cumulative 2025 objective (achieve total reduction of 6 billion tons). Unused allowances are to be sold at an auction (sec. 791) in the following year, and the following vintage year's allotment (for supplemental reduction) is increased by the number of unused allowances from the previous year. ''Sec. 782. Disbursement of allowances and proceeds from auctions of allowances." Directs EPA to allocate emission allowances. Recipients and precise amounts "to be supplied." Directs EPA to auction emission allowances. Amounts of allowances auctioned "to be supplied." Establishes a Strategic Reserve Fund in the U.S. Treasury. Other funds "to be supplied." ''Sec. 783-789 [Sections Reserved]" ''Sec. 790. Exchange for State-issued allowances." Instructs EPA to promulgate regulations that would establish a process by which any person can exchange emission allowances issued before December 31, 2011, by California or the Regional Greenhouse Gas Initiative (RGGI) for emission allowances under this title. The exchange will not necessarily be a one-to-one swap. EPA's regulations will provide that a person exchanging a "state allowance" receive a title III allowance that is "sufficient to compensate" for the cost of obtaining (this is specifically defined) and holding a state allowance. Title III allowances allotted for this purpose will be deducted from the sec. 782 auction allowance pool. ''Sec. 791. Auction procedures." Establishes auction format and procedures. Directs EPA to promulgate regulations, within 12 months of enactment, that govern allowance auctions. Auctions will be held quarterly, starting no later than March 31, 2011. At each auction, EPA will offer both current and some proportion of future vintage allowances. Auctions will follow a single-round, sealed-bid, uniform price format (similar to RGGI auctions). Auctions will be open to any person. EPA may require demonstrations of financial assurance as a condition of participation. Persons may not purchase more than 5% of allowances offered in any auction. This section does not mention a price floor (reserve price). EPA may revise auction design (through the regulatory process) if the agency determines an alternative design is more effective. ''Sec. 792. Auctioning allowances for other entities." Allows for any holder of an emission allowances to request that EPA auction their allowances. EPA will sell the allowances during one of the quarterly auctions per sec. 791. EPA may permit allowance holders to set a reserve price for their allowances. However, allowance holders from foreign nations (selling allowances received per avoided deforestation projects) may not request a reserve price. EPA is to promulgate regulations to implement this section within 24 months of enactment. Subtitle C—Additional Greenhouse Gas Standards Sec. 331. Greenhouse Gas Standards Amends the Clean Air Act to include a new subtitle C at the end of the new title VII. ''Title VIII—Additional Greenhouse Gas Standards" ''Sec. 801. Definitions." Provides a revised definition of "stationary source" under this title (title VIII). ''Part A ─ Stationary Source Standards" ''Sec. 811. Standards of performance." Generally provides that EPA promulgate New Source Performance Standards (NSPS) under sec. 111 of the Clean Air Act for categories of uncapped stationary sources that emit more than 10,000 tons of carbon dioxide equivalent annually. Stipulates the schedule for promulgation of the NSPS for various categories that is not subject to judicial review. Sources of enteric fermentation are expressly exempted from these provisions. In setting the appropriate NSPS, EPA is to take into account projections of allowance prices to ensure that the marginal costs imposed by such standards are not expected to exceed those projected allowance prices. Part C ─ Exemptions from Other Programs ''Sec. 831. Criteria pollutants." Provides that a greenhouse gas can not be listed as a criteria air pollutant under sec. 108(a) of the Clean Air Act on the basis of its effect on climate change. ''Sec. 832. Hazardous air pollutants." Provides that a greenhouse gas can not be added to the list of hazardous air pollutants under sec. 112 of the Clean Air Act unless such gas meets the listing criteria of sec. 112(b) on a basis other than its climate change effects. ''Sec. 833. New source review." Provides that a greenhouse gas can not be subject to the New Source Review provisions of the Prevention of Significant Deterioration (Part C of the Clean Air Act) program solely on the basis of its effect on climate change or its regulation under title VII. ''Sec. 834. Title V permits." Provides that in determining whether a source is covered under the permitting provisions of title V of the Clean Air Act, EPA shall not consider the source's GHG emissions. Sec. 332. HFC Regulation Creates a separate cap-and-trade program to reduce emissions of hydrofluorocarbons (HFCs). Basically, puts 20 HFC substances in a new class II, group II category to be regulated under title VI of the Clean Air Act. Beginning in 2012, producers and importers of any class II, group II substance is required to hold an allowance or destruction offset credit for each CO2-equivalent ton of class II, group II substance. The allowances available are capped and that cap is steadily reduced from 96% of the average annual consumption during a 2004-2006 baseline to 15% of that baseline after 2038. Beginning in 2012, 20% of 80% of available consumption allowances are auctioned, increasing steadily to 100% of 80% in 2020 and thereafter. Only covered entities may participate in the auction. The remaining 20% of consumption allowances are to be offered for sale at the auction clearing price by EPA . Allowances may be banked for future use. Other provisions include the regulation of substances used in motor vehicle air conditioners. Sec. 333. Black Carbon Requires EPA to submit a report to Congress on black carbon abatement within one year of enactment. ''Part E ─ Black Carbon" ''Sec. 851. Black carbon." Authorizes EPA to propose either a finding that existing Clean Air Act provisions adequately address black carbon emissions or a regulation to reduce black carbon emissions. Sec. 334. States Amends sec. 116 Clean Air Act ─ which allows for states to implement more stringent air pollution standards for stationary sources than the federal government ─ to clarify that the phrase "standard or limitation respecting emissions of air pollutants" includes provisions relating to GHG emission controls. Sec. 335. State Programs Amends title VIII of the Clean Air Act) by adding Part F ─ "Miscellaneous." ''Part F ─ Miscellaneous" ''Sec. 861. State programs." Prohibits states from implementing or enforcing a GHG emission cap that covers any (federally) capped emissions during the years 2012 through 2017. Clarifies that a cap does not include fleet-wide motor vehicle emission requirement or life-cycle fuel standards. This section is "notwithstanding section 116." Sec. 116 allows states to implement more stringent standards at stationary sources, including (per sec. 334 of this proposal) GHG emission controls. Sec. 336. Enforcement Amends sec. 304 of the Clean Air Act with respect to citizen suits to include climate change in its provisions, and to mitigate potential implementation delays due to ligation. ''Sec. 862. Judicial review." Amends sec. 304 of the Clean Air Act to provide for judicial review and remedies for any failure by a federal agency to perform a nondiscretionary act under title VII. Sec. 337. Conforming Amendments Makes various conforming amendments to existing law. Title IV ─ Transitioning to a Clean Energy Economy Subtitle A—Ensuring Domestic Competitiveness Part 1 ─ Preserving Domestic Competitiveness Sec. 401. Purposes Lists five environmental and economic purposes for the provisions of Part 1. Sec. 402. Definitions Part 1 generally uses the same definitions as those used in title VII of the Clean Air Act above. Sec. 403. Distribution of Rebates Creates a rebate program directed at energy/greenhouse gas-intensive, trade-exposed industries harmed by the direct emissions reduction costs and indirect increased energy input costs from implementing title VII of the Clean Air Act. Based on the best data available, EPA is to provide the rebate to eligible companies based on a two-part formula: (1) 85% of the industry's average emissions per unit of output times the company's output; (2) average emissions per kilowatt-hour of electricity purchased by the company times 85% of the industry average electricity used per unit of output. Entities not covered by title VII are eligible for the indirect emissions rebate. Sec. 404. Reports to Congress Requires EPA to transmit to Congress a report on carbon leakage and the effectiveness of sec. 403 one year after the first year of the rebate program. Sec. 405. Modification or Elimination of Distribution of Rebates Program is to be phased out over a 10-year period, starting in 2021 (subject to annual review). Sec. 406. Cessation of Qualifying Activities Eligible entities who are no longer engaged in eligible sectors or subsectors are to no longer receive rebates from the EPA. Sec. 407. Authorization of Appropriations Part 2─International Reserve Allowance Program Sec. 411. Definitions Defines a covered good under Part 2, including iron, steel, steel mill products, aluminum, cement, glass, pulp, paper, chemicals, and industrial ceramics. Sec. 412. Purposes Defines the purpose of Part 2 in terms of environmental goals and encouraging effective international actions. Sec. 413. International Negotiations States the policy of the United States is to achieve effective international agreements on climate change that require all major greenhouse gas-emitting nations to contribute equitably to reducing emissions. Sec. 414. Report to Congress and Finding Requires the President by June 30, 2017, to submit a report to Congress that analyzes the impact of title VII of the Clean Air Act compliance costs on industries that manufacture covered goods, related jobs, carbon leakage, and the degree to which the rebates provided in Part 1 mitigates these factors. If the President finds that title VII compliance is still having adverse economic and environmental effects after initiation of Part 1, then the President shall initiate Part 2. Sec. 415. Prohibition Under Part 2, no person may import a covered good without submitting the required number of international reserve allowances in accordance with rules promulgated by EPA. Sec. 416. International Reserve Allowance Program Within 24 months of President's determination, EPA is to promulgate rules establishing an appropriate price and distribution system for international reserve allowances. These allowances will be required for importation into the United States of any covered good as determined by the President. Exemptions are provided for least developed countries or countries who emit less than 0.5% of global greenhouse gas emissions. The purpose of the program is to address the competitive imbalance of production costs resulting from the direct and indirect costs of implementing title VII of the Clean Air Act. Subtitle B—Green Jobs and Worker Transition Sec. 421. Clean Energy Curriculum Development Grants The Secretary of Education may competitively award grants to eligible partnerships for developing programs focused on emerging careers and jobs in renewable energy, energy efficiency, and climate change mitigation. Partnerships shall include at least one local agency eligible for funding under sec. 131 of the Perkins Career and Technical Education Act of 2006 (PCTEA), or an area career and technical education school or education service agency; at least one post-secondary institution eligible for PCTEA funding; representatives of the community (including business, labor or industry) with experience in clean energy. Application criteria and priorities are prescribed. A peer review panel (comprised of educators and clean energy professionals) is to review applications and recommend awards. Sec. 422. Workforce Training and Education Directs the Secretary of Labor to carry out a program for workforce training and education in industries and practices in clean energy, energy efficiency, or sustainable practices. Half of the funds awarded in each fiscal year shall go to institutes of higher education with pre-existing programs leading to particular certificates or degrees in specified areas. A peer review panel (composed of educators and clean energy professionals) will review applications and recommend awards. Sec. 423. Wage Rate Requirements Recipients of support from funding in this subtitle shall provide reasonable assurance that all those employed in the authorized programs, or by contractors (or subcontractors) will be paid at wage rates not less than those prevailing on similar work in the locality. Subtitle C—Consumer Assistance (draft text not available) Subtitle D—Exporting Clean Technology Sec. 451. Purposes Provides developing countries with assistance from the United States to encourage widespread deployment of technologies that reduce GHG emissions, and encourage developing countries to adopt policies and measures that will reduce GHG emissions. Sec. 452. Definitions Appropriate Congressional Committees —House: Energy and Commerce, Foreign Affairs. Senate: Environment and Public Works, Energy and Natural Resources, Foreign Relations. Developing Country —Country eligible to receive assistance from the World Bank. Eligible Country —A developing country determined by the President under sec. 454 as eligible to receive assistance from the International Clean Technology Fund (ICTF). Interagency Group —Group established by the President under sec. 453 to administer the ICTF. Sec. 453. Fund Establishment and Governance Establishes an International Clean Technology Fund in the U.S. Treasury. An Interagency Group is to consist of the Secretaries of State, Energy, and Treasury; the EPA Administrator; and any other federal agency head or executive branch appointee the President designates. The Secretary of State is to chair the Group. Sec. 454. Determination of Eligible Countries Directs the President to publish a list of countries eligible for assistance no later than January 1, 2012, and revise this list annually. Criteria for eligibility shall include developing countries that have signed and ratified an agreement or treaty to undertake GHG mitigation activities; a determination by the President that such activities will achieve substantial, measurable and verifiable GHG reductions (relative to business as usual); and such other criteria as the President determines. Sec. 455. Funding Authorizes the Secretary of State, in consultation with the Interagency group, to provide assistance from the ICTF for projects in eligible countries. Assistance may be in the form of grants, loans or other assistance. Distribution of assistance from the ICTF may be direct, via the World Bank or other international development bank or institution, through an international fund created by the UNFCCC, or through some combination of these mechanisms. The Interagency Group will establish criteria for project selection. The Secretary of State shall monitor project performance and shall have authority to terminate assistance in whole or part for noncompliance with the approved proposal. Sec. 456. Annual Reports Requires the President to submit annual reports on assistance from the program, beginning no later than March 1, 2012. Subtitle E. Adapting to Climate Change Parts 1 and 2 support domestic and international assessments of vulnerabilities to climate change, development of adaptation strategies and plans, and authorization of funding to assist adaptation to climate change. Part 1 establishes three overlapping domestic programs with distinct interagency coordination bodies, program offices, requirements for assessments, adaption plans and strategies, funding mechanisms, and reporting requirements. Part 2 addresses an international adaptation assistance program. Part 1. Domestic Adaptation Subpart A. National Climate Change Adaptation Program Establishes the National Climate Change Adaptation Council for interagency coordination among 16 or more federal agencies. The Council is chaired by the representative of the National Oceanic and Atmospheric Administration (NOAA) and supported by a new National Climate Change Adaptation Program within NOAA. The Council is to serve as a forum for interagency consultation and coordination on federal policies relating to the assessment of, and adaptation to, the effects of climate change on the United States and its territories. Establishes a National Climate Change Program within NOAA to increase the effectiveness of federal climate change adaptation efforts. Under this Program, among other duties, the Administrator of NOAA must produce a quadrennial National Assessment evaluating the nation's vulnerability to the effects of climate change. The Assessment is to be comprised of Regional Assessments and a National Synthesis. Several factors for inclusion in regional assessments are listed. In each assessment cycle, the Administrator of NOAA must convene workshops in each identified region and one nationally. Establishes a National Climate Service within NOAA to be an information clearinghouse for data and services on the effects of climate change and adaptation, and to provide technical assistance to other agencies, as well as state, local and tribal government decision-makers. Further, the Administrator of NOAA is authorized to deploy observation and monitoring systems for adaptation. Each department or agency serving on the Council must prepare a detailed adaptation plan to address the effects of climate change on matters within its jurisdiction. These adaptation plans are due to the President for approval within one year of publication of each National Assessment, and must be submitted to Congress, after Presidential approval, within 18 months of publication of each National Assessment. Establishes a National Climate Change Adaptation Fund in the Department of the Treasury by 2013 to provide financial assistance to regions, states, localities, and tribes for implementing projects that reduce their vulnerability to the effects of climate change, as well as other project categories. Subpart B. Public Health and Climate Change States that the federal policy of the United States is to "use all practicable means and measures" to assist the efforts of public health professionals and communities to adjust health systems to address impacts of climate change, and to encourage further understanding of health effects due to climate change. Requires the Secretary of Health and Human Services (HHS) to promulgate a national strategy to mitigate public health impacts of climate change in the United States, in consultation with relevant agencies and stakeholders. Subpart C. Natural Resource Adaptation States that federal policy is "to use all practicable means and measures to assist natural resources to become more resilient and adapt to and withstand the impacts of climate change and ocean acidification" (hereiafter "adapt to"), and establishes a Program to that effect. Directs the Chair of the Council on Environmental Quality (CEQ) to advise the President on development and implementation of a Natural Resources Climate Change Adaptation Strategy and federal natural resource agency adaptation plans. Within one year of each Strategy, each agency represented on the Panel must produce a Federal Natural Resource Agency Adaptation Plan. Establishes a new Natural Resources Climate Change Adaptation Panel to coordinate related federal agencies' adaptation strategies, plans, programs and activities (CEQ is to chair the Panel). The Panel must be established within 90 days of enactment of the law, include heads of five additional agencies (NOAA, the Department of the Interior, EPA, the Department of Agriculture, and the Army Corps of Engineers), and is to develop a Natural Resources Climate Change Adaptation Strategy within two years of enactment. Directs the Administrator of NOAA and the Director of the U.S. Geological Survey (USGS) to establish a Natural Resource Climate Change Adaptation Science and Information Program, to be implemented through the USGS National Global Warming and Wildlife Center and counterpart programs in NOAA. This Program is to provide technical assistance, research, tools to assist development of adaptation strategies and plans, supplemented by five-year surveys of adversely affected natural resources and decision support needs. An appointed Science Advisory Board will advise the Program. Funding is expected to be available for states to implement adaptation plans. To be eligible for more than three years for funding from a new Natural Resource Climate Change Adaptation Fund, each state must prepare a State Natural Resources Adaptation Plan, to include performance measures and to be reviewed and updated every five years. Directs percentages of the Fund to support a variety of agencies, governments, and programs. Part 2. International Climate Change Adaptation Program The Secretary of State, with the Administrators of the U.S. Agency for International Development (USAID) and EPA, is to establish an International Climate Change Adaptation Program within USAID to assist developing countries most vulnerable to climate change. Foreign aid can be given to any private or public group to assist with the development of adaptation plans and projects, including specific investments and research to improve capacity building and resilience to climate change, and engagement with communities and other stakeholders. The Administrator of USAID must report within 180 days after enactment, and later annually, to the President and Congress. The report would detail priorities, provide assessments of vulnerabilities, describe how funds were spent, and discuss cooperation with other countries and international organizations. Requires the Administrator to distribute 40-60% of program funds to relevant international fund(s), providing at least 15 days advance notice to Congress. To receive funding, an international fund must meet specific criteria. For these funds, the Administrator of USAID also must establish performance goals, evaluate the effectiveness of the assistance provided, and report annually to Congress.

A discussion draft of legislation to reduce greenhouse gas emissions was released March 31, 2009, by Representative Waxman, Chairman of the House Committee on Energy and Commerce, and Representative Markey, Chairman of the Energy and Environment Subcommittee. The draft legislation, titled the American Clean Energy and Security Act of 2009, proposes a "cap and trade" system to control carbon dioxide and other greenhouse gases that have been associated with global climate change. The proposed cap-and-trade system would cover electric utilities and other entities that together are responsible for 85% of U.S. greenhouse gas emissions. Covered entities would need permits (called allowances) to emit carbon dioxide and other greenhouse gases, and unused allowances could be banked for future use or sold. The number of allowances issued each year would be gradually reduced until greenhouse gas emissions from covered entities were cut 83% below 2005 levels in 2050. To address concerns that greenhouse gas controls could place U.S. manufacturers at a competitive disadvantage, the draft bill authorizes compensation to certain industrial sectors. The discussion draft indicates that provisions to assist workers and consumers affected by the cap-and-trade system remain to be written. The draft bill would require retail electricity suppliers to meet a certain percentage of their power load with electricity generated from renewable resources, starting at 6% in 2012 and gradually rising to 25% in 2025. A state could meet up to one-fifth of that requirement with energy efficiency measures. Deployment of "smart grid" technologies would be encouraged, as would technologies to capture and sequester carbon emissions. Standards would be required to reduce carbon emissions from motor vehicle fuel, and federal support for building electric vehicles would be authorized. Energy efficiency provisions in the draft bill include state incentives for adopting advanced building efficiency codes, codification of appliance efficiency standards, and transportation efficiency goals. Several major issues are not addressed by the draft bill and are still under discussion. A key unanswered question is how to allocate emission allowances. Industry groups contend that allowances should initially be provided at no cost, to reduce economic disruption. Others have proposed that allowances be auctioned to raise revenue for consumer protection, industry rebates, and other transitional programs. Substantial controversy is also continuing over the draft bill's renewable energy mandate on electricity suppliers. Regional differences in renewable energy resources have prompted criticism that a national renewable electricity standard would be unworkable, or that the goal of 25% renewables by 2025 is unrealistic.

Introduction 1 According to the Federal Trade Commission, identity theft is the most common complaint from consumers in all 50 states, and accounts for over 35% of the total number of complaints the Identity Theft Data Clearinghouse received for calendar years 2004, 2005, and 2006. In calendar year 2006, of the 674,354 complaints received, 246,035 or 36% were identity theft complaints. The identity theft victim's information was misused for credit card fraud in 25% of the identity theft complaints; for phone or utilities fraud in 16% of the identity theft complaints; for bank fraud in 16% of the identity theft complaints; for employment-related fraud in 14% of the identity theft complaints; for government documents or benefits fraud in 5% of the identity theft complaints; for loan fraud in 5% of the identity theft complaints; and other types of identity theft fraud made up 24% of the complaints. As a result of identity theft, victims may incur damaged credit records, unauthorized charges on credit cards, and unauthorized withdrawals from bank accounts. Sometimes, victims must change their telephone numbers or even their social security numbers. Victims may also need to change addresses that were falsified by the impostor. With media reports of data security breaches increasing, concerns about new cases of identity theft are widespread. This report provides an overview of the federal laws that could assist victims of identity theft with purging inaccurate information from their credit records and removing unauthorized charges from credit accounts, as well as federal laws that impose criminal penalties on those who assume another person's identity through the use of fraudulent identification documents. This report will be updated as warranted. Federal Laws Related to Identity Theft Identity Theft Assumption and Deterrence Act While not exclusively aimed at consumer identity theft, the Identity Theft Assumption Deterrence Act prohibits fraud in connection with identification documents under a variety of circumstances. Certain offenses under the statute relate directly to consumer identity theft, and impostors could be prosecuted under the statute. For example, the statute makes it a federal crime, under certain circumstances, to knowingly and without lawful authority produce an identification document, authentication feature , or false identification document; or to knowingly possess an identification document that is or appears to be an identification document of the United States which is stolen or produced without lawful authority knowing that such document was stolen or produced without such authority. It is also a federal crime to knowingly transfer or use, without lawful authority, a means of identification of another person with the intent to commit, or aid or abet, any unlawful activity that constitutes a violation of federal law, or that constitutes a felony under any applicable state or local law. The punishment for offenses involving fraud related to identification documents varies depending on the specific offense and the type of document involved. For example, a fine or imprisonment of up to 15 years may be imposed for using the identification of another person with the intent to commit any unlawful activity under state law, if, as a result of the offense, the person committing the offense obtains anything of value totaling $1,000 or more during any one-year period. Other offenses carry terms of imprisonment up to three years. However, if the offense is committed to facilitate a drug trafficking crime or in connection with a crime of violence, the term of imprisonment could be up to twenty years. Offenses committed to facilitate an action of international terrorism are punishable by terms of imprisonment up to twenty-five years. Identity Theft Penalty Enhancement Act The Identity Theft Penalty Enhancement Act was signed on July 15, 2004, ( P.L. 108-275 ). The act amends Title 18 of the United States Code to define and establish penalties for aggravated identity theft and makes changes to the existing identity theft provisions of Title 18. Under the law, aggravated identity theft occurs when a person "knowingly transfers, possess, or uses, without lawful authority, a means of identification of another person" during and in relation to the commission of certain enumerated felonies. The penalty for aggravated identity theft is a term of imprisonment of two years in addition to the punishment provided for the original felony committed. Offenses committed in conjunction with certain terrorism offenses are subject to an additional term of imprisonment of five years. The act also directs the United States Sentencing Commission to "review and amend its guidelines and its policy statements to ensure that the guideline offense levels and enhancements appropriately punish identity theft offenses involving an abuse of position" adhering to certain requirements outlined in the legislation. In addition to increasing penalties for identity theft, the act authorized appropriations to the Justice Department "for the investigation and prosecution of identity theft and related credit card and other fraud cases constituting felony violations of law, $2,000,000 for FY2005 and $2,000,000 for each of the 4 succeeding fiscal years." Fair Credit Reporting Act While the Fair Credit Reporting Act (FCRA) does not directly address identity theft, it could offer victims assistance in having negative information resulting from unauthorized charges or accounts removed from their credit files. The purpose of the FCRA is "to require that consumer reporting agencies adopt reasonable procedures for meeting the needs of commerce for consumer credit, personnel, insurance, and other information in a manner which is fair and equitable to the consumer, with regard to the confidentiality, accuracy, relevancy, and proper utilization of such information." The FCRA outlines a consumer's rights in relation to his or her credit report, as well as permissible uses for credit reports and disclosure requirements. In addition, the FCRA imposes a duty on consumer reporting agencies to ensure that the information they report is accurate, and requires persons who furnish information to ensure that the information they furnish is accurate. The FCRA allows consumers to file suit for violations of the act, which could include the disclosure of inaccurate information about a consumer by a credit reporting agency. A consumer who is a victim of identity theft could file suit against a credit reporting agency for the agency's failure to verify the accuracy of information contained in the report and the agency's disclosure of inaccurate information as a result of the consumer's stolen identity. Under the FCRA, as recently amended, a consumer may file suit not later than the earlier of two years after the date of discovery by the plaintiff of the violation that is the basis for such liability, or five years after the date on which the violation occurred. Fair and Accurate Credit Transactions (FACT) Act of 2003 The FACT Act, signed on December 4, 2003, includes, inter alia , a number of amendments to the Fair Credit Reporting Act aimed at preventing identity theft and assisting victims. Generally, these new provisions mirror laws passed by state legislatures and create a national standard for addressing consumer concerns with regard to identity theft and other types of fraud. Credit card issuers, who operate as users of consumer credit reports, are required, under a new provision of the FCRA, to follow certain procedures when the issuer receives a request for an additional or replacement card within a short period of time following notification of a change of address for the same account. In a further effort to prevent identity theft, other new provisions require the truncation of credit card account numbers on electronically printed receipts, and, upon request, the truncation of social security numbers on credit reports provided to a consumer. Consumers who have been victims of identity theft, or expect that they may become victims, are now able to have fraud alerts placed in their files. Pursuant to the new provisions, a consumer may request a fraud alert from one consumer reporting agency and that agency is required to notify the other nationwide consumer reporting agencies of the existence of the alert. In general, fraud alerts are to be maintained in the file for 90 days, but a consumer may request an extended alert which is maintained for up to seven years. The fraud alert becomes a part of the consumer's credit file and is thus passed along to all users of the report. The alert must also be included with any credit score generated using the consumer's file, and must be referred to other consumer reporting agencies. In addition to the fraud alert, victims of identity theft may also have information resulting from the crime blocked from their credit reports. After the receipt of appropriate proof of the identity of the consumer, a copy of an identity theft report, the identification of the alleged fraudulent information, and a statement by the consumer that the information is not information relating to any transaction conducted by the consumer, a consumer reporting agency must block all such information from being reported and must notify the furnisher of the information in question that it may be the result of identity theft. Requests for the blocking of information must also be referred to other consumer reporting agencies. Victims of identity theft are also allowed to request information about the alleged crime. A business entity is required, upon request and subject to verification of the victim's identity, to provide copies of application and business transaction records evidencing any transaction alleged to be a result of identity theft to the victim or to any law enforcement agency investigating the theft and authorized by the victim to take receipt of the records in question. Fair Credit Billing Act The Fair Credit Billing Act (FCBA) is not an identity theft statute per se , but it does provide consumers with an opportunity to receive an explanation and proof of charges that may have been made by an impostor and to have unauthorized charges removed from their accounts. The purpose of the FCBA is "to protect the consumer against inaccurate and unfair credit billing and credit card practices." The law defines and establishes a procedure for resolving billing errors in consumer credit transactions. For purposes of the FCBA, a "billing error" includes unauthorized charges, charges for goods or services not accepted by the consumer or delivered to the consumer, and charges for which the consumer has asked for an explanation or written proof of purchase. Under the FCBA, consumers are able to file a claim with the creditor to have billing errors resolved. Until the alleged billing error is resolved, the consumer is not required to pay the disputed amount, and the creditor may not attempt to collect, any part of the disputed amount, including related finance charges or other charges. The act sets forth dispute resolution procedures and requires an investigation into the consumer's claims. If the creditor determines that the alleged billing error did occur, the creditor is obligated to correct the billing error and credit the consumer's account with the disputed amount and any applicable finance charges. Electronic Fund Transfer Act Similar to the Fair Credit Billing Act, the Electronic Fund Transfer Act is not an identity theft statute per se , but it does provide consumers with a mechanism for challenging unauthorized transactions and having their accounts recredited in the event of an error. The purpose of the Electronic Fund Transfer Act (EFTA) is to "provide a basic framework establishing the rights, liabilities, and responsibilities of participants in electronic fund transfer systems." Among other things, the EFTA limits a consumer's liability for unauthorized electronic fund transfers. If the consumer notifies the financial institution within two business days after learning of the loss or theft of a debt card or other device used to make electronic transfers, the consumer's liability is limited to the lesser of $50 or the amount of the unauthorized transfers that occurred before notice was given to the financial institution. Additionally, financial institutions are required to provide a consumer with documentation of all electronic fund transfers initiated by the consumer from an electronic terminal. If a financial institution receives, within 60 days after providing such documentation, an oral or written notice from the consumer indicating the consumer's belief that the documentation provided contains an error, the financial institution must investigate the alleged error, determine whether an error has occurred, and report or mail the results of the investigation and determination to the consumer within 10 business days. The notice from the consumer to the financial institution must identify the name and account number of the consumer; indicate the consumer's belief that the documentation contains an error and the amount of the error; and set forth the reasons for the consumer's belief that an error has occurred. In the event that the financial institution determines that an error has occurred, the financial institution must correct the error within one day of the determination in accordance with the provisions relating to the consumer's liability for unauthorized charges. The financial institution may provisionally recredit the consumer's account for the amount alleged to be in error pending the conclusion of its investigation and its determination of whether an error has occurred, if it is unable to complete the investigation within 10 business days. Identity Theft Task Force The President's Identity Theft Task Force reported its final recommendations April 2007, and recommended a plan that is intended to harness government resources to crack down on the criminals who traffic in stolen identities, strengthen efforts to protect the personal information, help law enforcement officials investigate and prosecute identity thieves, help educate consumers and businesses about protecting themselves, and increase the safeguards on personal data entrusted to federal agencies and private entities. The Plan focuses on improvements in four key areas: keeping sensitive consumer data from identity thieves through better data security and education; making it more difficult for identity thieves who obtain consumer data; assisting the victims of identity theft in recovering from the crime; and deterring identity theft by more aggressive prosecution and punishment. Several recommendations made by the Task Force are aimed at closing the gaps in federal criminal statutes used to prosecute identity theft-related offenses to ensure increased federal prosecution. They are as follows: Amend the identity theft and aggravated identity theft statutes to ensure that identity thieves who misappropriate information belonging to corporations and organizations can be prosecuted Add new crimes to the list of predicate offenses for aggravated identity theft offenses Amend the statute that criminalizes the theft of electronic data by eliminating the current requirement that the information must have been stolen through interstate communications Penalize creators and distributors of malicious spyware and keyloggers Amend the cyber-extortion statute to cover additional, alternate types of cyber-extortion Ensure that an identity thief's sentence can be enhanced when the criminal conduct affects more than one victim Real ID In accordance with the REAL ID Act of 2005, on January 11, 2008, the Department of Homeland Security (DHS) published the final rule for State-issued driver's licenses and identification cards that federal agencies would accept for official purposes on or after May 11, 2008, in accordance with the REAL ID Act of 2005. The Real ID Rule establishes standards to meet the minimum requirements of the REAL ID Act. These standards involve a number of aspects of the process used to issue identification documents, including information and security features that must be incorporated into each card; proof of identity and U.S. citizenship or legal status of an applicant; verification of the source documents provided by an applicant; and security standards for the offices that issue licenses and identification cards. All states submitting requests will receive extensions until December 31, 2009. In addition, states that meet certain benchmarks for the security of their credentials and licensing and identification processes will be able to obtain a second extension until May 10, 2011. The Rule extends the enrollment time period to allow states determined by DHS to be in compliance with the act to replace all licenses intended for official purpose with REAL ID-compliant cards by December 1, 2014, for people born after December 1, 1964, and by December 1, 2017, for those born on or before December 1, 1964. The rule is effective March 31, 2008.

According to the Federal Trade Commission, identity theft is the most common complaint from consumers in all fifty states, and complaints regarding identity theft have grown for seven consecutive years. Victims of identity theft may incur damaged credit records, unauthorized charges on credit cards, and unauthorized withdrawals from bank accounts. Sometimes, victims must change their telephone numbers or even their social security numbers. Victims may also need to change addresses that were falsified by the impostor. This report provides an overview of the federal laws that could assist victims of identity theft with purging inaccurate information from their credit records and removing unauthorized charges from credit accounts, as well as federal laws that impose criminal penalties on those who assume another person's identity through the use of fraudulent identification documents. This report will be updated as events warrant.

Introduction The health of the U.S. manufacturing sector has long been of great concern to Congress. The large decline in manufacturing employment since the start of the 21 st century has stimulated particular congressional interest. Over the years, Members have introduced hundreds of bills intended to support domestic manufacturing activity in various ways. The proponents of such measures frequently contend that the United States is in some way falling behind other countries in manufacturing and argue that this relative decline can be mitigated by government policy. Examining U.S. manufacturing in isolation sheds little light on the causes of changes in the manufacturing sector. While some of those changes may be a result of factors specific to the United States, others may be attributable to technological advances, shifting consumer preferences, or macroeconomic forces such as exchange-rate movements. This report is designed to inform the debate over manufacturing policy by examining changes in the manufacturing sector in comparative perspective. It does not describe or discuss specific policy options. The charts and tables on the pages that follow depict the position of the United States relative to other major manufacturing countries according to various metrics. Not all countries compile information on each subject. This report draws on data from a number of sources, and has certain unavoidable statistical problems of which the reader should be aware. Despite meaningful progress in standardization, countries define "manufacturing" in different ways. Some associate manufacturing with factory production, while others may label a self-employed artisan as a manufacturing worker. Some countries have sophisticated sampling systems to collect data about production and employment from firms and households, whereas others rely heavily on estimates drawn from macroeconomic models or collect data only from a non-random subset of enterprises. International comparisons of compensation data are especially difficult because of national differences in taxation and employee benefits. Complicating matters further, the organizations that compile statistics obtained from national governments may adjust the raw data in different ways to improve compatibility, such that certain figures used to prepare this report may not be identical to those published by national statistical services. Additionally, analysis of trends in manufacturing is complicated by often arbitrary distinctions between manufacturing and non-manufacturing activity. If, for example, a manufacturing firm owns the trucks that deliver its goods, statisticians may count the truck drivers as manufacturing-sector workers, and their wages may be included in manufacturing value added. If the manufacturer instead contracts with a separate trucking company to deliver its goods, statisticians will consider the truck drivers to be transport-sector workers and their wages will be included in transport-sector value added, making the manufacturing sector appear smaller—even though there has been no change in the total amount of labor or the tasks performed. All of these factors argue for caution in the use of these data, and warn against unwarranted assumptions of precision. How the U.S. Manufacturing Sector Ranks The standard measure of the size of a nation's manufacturing sector is not manufacturers' sales, but rather their value added. Value added attempts to capture the economic contribution of manufacturers in designing, processing, and marketing the products they sell. At the level of an individual firm, value added can be calculated as total sales less the total cost of purchased inputs, such as raw materials and electricity. Thus, a firm that purchases raw materials and processes them only slightly may have substantial sales, but will produce little value added. Alternatively, a firm's value added can be measured as the sum of its employee compensation, business taxes (less subsidies), and profits. The size of a country's manufacturing sector cannot be determined simply by adding up the value added of its manufacturers. If a domestic manufacturer uses inputs from its plants abroad, those inputs contain value added by the firm, but not domestically. Calculating total value added in manufacturing thus requires adjustments for imported parts and components incorporated into the output of domestic factories, and also for domestic goods and services that were exported and used in another country to make products that were subsequently imported. According to U.N. estimates, China displaced the United States as the largest manufacturing nation in 2010. In 2016, according to the U.N. figures, China's value added in manufacturing exceeded $3 trillion, compared to $2.2 trillion for the United States. These estimates are calculated in U.S. dollars, and the reported manufacturing value added of some countries, including China, Mexico, and Russia, declined in 2016 due to the declines of those countries' currencies against the dollar. Japan, which ranked third in manufacturing value added at $979 billion in 2016 (see Figure 1 ), saw its reported manufacturing value added fall 27% between 2012 and 2015, a period in which its currency fell 40% in dollar terms, before rising 10% as the yen steadied against the dollar in 2016. The U.S. share of global manufacturing value added has declined over time, from 29% in the early 1980s to 18.1% in 2015 and 2016 (see Figure 2 ). Similarly, the global shares of Japan and Germany have contracted significantly from their peaks in the 1990s. The declining shares of these and other wealthy economies are a consequence of the very rapid increase in manufacturing activity in emerging economies, notably China. However, China's share of global manufacturing output has steadied in the range of 25% to 26% since 2014, according to U.N. data. It is important to note that global shares are measured in U.S. dollars, so each country's share in a given year is greatly affected by the strength of its currency against the dollar. Manufacturing value added in the United States, as measured by the U.S. Bureau of Economic Analysis in inflation-adjusted 2009 dollars, rose 41% from 1997 to 2016. Globally, manufacturing contributed 17% of all economic value added, according to U.N. calculations. This figure has changed little in recent years. Manufacturing value added amounted to 12% of total U.S. gross domestic product (GDP) in 2016. Manufacturing is more significant in the United States, relative to the size of the economy, than in the United Kingdom, France, and Canada, but much less important than in Japan, Indonesia, Germany, China, and South Korea (see Figure 3 ). The manufacturing share of total economic output in China declined from 32% in 2010 to 27% in 2016, while the share of manufacturing in the U.S. economy remained relatively stable. In this respect, it is important to note that a high ratio of manufacturing value added to GDP is not necessarily a sign of economic vibrancy. To the contrary, a high ratio may indicate that various policies or practices, such as labor regulations, credit subsidies, or protection from imports, are standing in the way of a reallocation of capital and labor from manufacturing to other sectors in which they might contribute more to economic growth. Despite its relatively low rank in manufacturing as a share of GDP, the United States appears to have outperformed many other wealthy countries in the growth of manufacturing value added in recent years. Between the recession year of 2008 and 2016, U.S. value added in manufacturing, adjusted for inflation, rose 2.7%, according to U.N. data. This was faster than the growth of manufacturing value added over the same period in Canada, Brazil, Italy, Japan, and the United Kingdom. China, South Korea, Mexico, and Germany had much faster growth in manufacturing value added than the United States over the same period, after adjusting for inflation (see Figure 4 ). These data are expressed in terms of each country's currency, adjusted for its domestic inflation, so exchange-rate changes play no role. U.S. manufacturers, like those in other countries, rely on and participate in international supply chains. However, U.S.-made goods appear to have less foreign content than goods produced in most other major manufacturing countries, with the exception of Japan. Some 78% of the value of U.S. exports in 2014 was added in the United States, according to estimates by the Organisation for Economic Co-operation and Development (OECD). By contrast, less than 65% of the value of manufactured goods exported by China, Canada, South Korea, and Mexico was added in those countries (see Figure 5 ). The proportion of domestic content varies considerably by product, depending mainly on the extent of international supply chains. For example, an estimated 66% of the value of U.S. exports of motor vehicles in 2014 was added in the United States. This was on a par with South Korea and far more than Canada and Mexico, but considerably less than Japan (see Figure 6 ). With respect to exports of computers and electrical and optical equipment, on the other hand, the share of value added domestically was greater for the United States (89%) than for any other country. Although China is by far the largest exporter of such products, less than half the value of its exports is Chinese in origin. The United States has performed well in manufacturing, compared to other high-income economies, when viewed over a longer time period. From 1990 through 2016, the only high-income countries with faster growth in manufacturing value added were a handful of smaller economies including Austria, Finland, Israel, and Sweden, as well as South Korea. Additionally, data on inflows of foreign investment suggest that the United States has been an attractive manufacturing location relative to other high-income countries in recent years. In 2016, according to OECD data, 45% of foreign direct investment coming into the United States went into the manufacturing sector. Of this, some $89 billion, or 44%, involved investment in pharmaceutical manufacturing. The limited data on other wealthy countries show much smaller flows of foreign investment into manufacturing. However, it is possible that recent data on foreign investment in U.S. manufacturing have been affected by "inversions," in which U.S. corporations become wholly owned subsidiaries of foreign corporations for tax reasons. If a U.S. manufacturer moves its headquarters abroad as the result of an inversion, its stock of fixed capital in the United States is reclassified as foreign-owned, and any future capital investment will be counted as foreign direct investment rather than domestic investment. Data permitting international comparisons of capital investment in manufacturing are available for only a few countries. These indicate that U.S. gross investment in fixed manufacturing capital, such as factories and equipment, is in about the same range as in West European economies, but much lower than in South Korea (see Figure 7 ). Interpreting these data on investment in manufacturing is problematic. A high ratio of gross fixed capital formation to output is not necessarily positive from an economic point of view; if such investment is generating a low return, then high capital investment could indicate inefficient use of capital. The relatively low level of gross investment in the United States might therefore indicate that U.S. manufacturers pay greater attention to return on capital than their counterparts in other countries. Another explanation might be that U.S. manufacturers face comparatively few obstacles to contracting fabrication or assembly work to manufacturers abroad, whereas other nations may have policies in place to promote domestic fabrication and assembly or to discourage foreign sourcing. The Role of Services in Manufacturing Measuring manufacturing activity is not without challenges, largely because of the imperfect line between manufacturing and services. U.S. statistical agencies, for example, consider work performed at establishments whose principal business is manufacturing to be manufacturing, regardless of the specific tasks involved. Similarly, all activities occurring at establishments whose principal business is services are considered service activities. The following three examples illustrate the statistical confusion that can result. If workers at a manufacturing establishment design and fabricate a product, the design activities generally will be counted as value added in manufacturing and the workers engaged will be tabulated as manufacturing employees. If the design is created within the manufacturing firm but at a location where no physical production occurs, it could conceivably be counted as either a manufacturing-sector product or a service-sector product. If the manufacturer purchases the design from a specialist design firm, the value added in the design process will be credited to the service sector, and the workers involved will be considered service-sector employees. In all three cases, total employment and total value added are identical; all that differs is the economic sector to which the employment and value added are attributed. Identifying manufacturing work has become even more difficult in recent years for a variety of reasons. As of May 2016, more than 760,000 people engaged in production occupations typical of manufacturing, such as assemblers and fabricators, were employed by employment services firms in the United States; they were likely counted as service-sector workers, as they were not employed directly by the manufacturing establishments in which they labored. Similarly, more than 28,000 workers at U.S. warehousing and storage facilities were engaged in manufacturing production activities such as assembly, fabrication, and packaging in May 2016. Although these workers were engaging in traditional manufacturing tasks, their output is unlikely to have been captured as value added in manufacturing. Moreover, determining the location at which value is added to a service that is used in a manufactured product can be all but impossible. Manufacturers frequently procure components from many suppliers in lengthy international supply chains, and each of those suppliers is likely to purchase service inputs to at least a limited extent. The service providers themselves may be international firms, and their involvement in a given production process may involve workers on several continents. Efforts to measure the value of manufacturing-related services more accurately are still in their infancy. According to 2011 data, U.S. exports of manufactured products include a lesser proportion of services content than exports of most other advanced economies (see Figure 8 ). As a result, only 5% of U.S. service sector jobs depended on manufacturing exports in 2015, compared with nearly 8% in Japan and 10%-23% in European Union states. However, U.S. manufacturers made comparatively little use of imported services content in exports. For example, 17.8% of the value of Chinese manufactured exports and 16.4% of the value of South Korean manufactured exports in 2011 comprised imported services, according to the Organisation for Economic Co-operation and Development (OECD), compared with 8.0% of the value of U.S. manufactured exports. The figures illustrated in Figure 8 show only the importance of services purchased by manufacturers from outside firms. One possible interpretation of these data is that U.S. manufacturers may be more vertically integrated than those in other countries and therefore less reliant on services purchased from other firms. A partial explanation is that a comparatively efficient transportation system requires U.S. exporters to spend less on purchasing transportation than their competitors in other countries: the cost of transportation and communications services came to only 5.0% of the value of U.S. manufactured exports in 2011, compared with 6.1% in Germany and 6.4% in China. The steps involved in producing goods such as electrical equipment and automobiles may be dispersed across many countries, forming what economists refer to as "global value chains." Attempts to study this phenomenon on a global basis suggest that activities that are close to the producer, such as design and finance, or close to the consumer, such as marketing and sales, tend to be located in high-wage countries and to pay relatively high wages wherever they occur, whereas activities in between those two stages—such as physical production—tend to be located in lower-wage countries and to pay lower wages no matter where they are located. This finding reinforces the general conclusion that services account for an increasing share of the value of products that are sold to end users as manufactured goods. Manufacturing Work International comparisons of manufacturing employment trends are hampered by inadequate data, particularly for emerging economies. Some major manufacturing countries, notably China and India, do not report complete information on manufacturing employment at the national level. Mexico has had consistent nationwide data available only since 2005. All the advanced economies for which data are available have experienced long-term declines in manufacturing employment. Manufacturing employment in the United States, measured on a basis compatible with internationally agreed definitions, fell by 4% from 2008 through 2016, despite the economic recovery that began in 2009. Canada, France, Italy, Japan, the Netherlands, Sweden, and the United Kingdom all saw larger declines over that period (see Figure 9 for data on selected countries). Over the quarter-century between 1990 and 2016, manufacturing employment fell by a much lower percentage in the United States than in the United Kingdom, France, Sweden, and Japan and by about the same percentage as in Germany, the Netherlands, and Canada (see Figure 10 ). The number of manufacturing workers also has declined in some countries with less advanced economies, and has declined as a share of the labor force in many countries, including Mexico and Brazil. These figures indicate that the diminished importance of manufacturing as a source of jobs is not limited to the United States. The international comparison of manufacturing employment is somewhat different if viewed in terms of hours worked rather than by the number of workers. By this metric, Germany experienced a similar decline in manufacturing work to that of the United States over the 1990-2016 period, while the declines in France, Japan, and the United Kingdom were larger. The timing differed among countries, with manufacturing work hours falling faster in other countries during the 1990s and the United States experiencing a comparatively steep drop in the 2000-2010 period. Since 2010, hours worked in manufacturing (as defined internationally) have grown 8% in the United States; among the countries for which the Conference Board maintains data, only South Korea and the Czech Republic have shown faster growth in manufacturing work hours. The long-term reduction in demand for labor in manufacturing is directly related to improved labor productivity. From 2002 to 2016, manufacturing labor productivity, measured in terms of output per worker hour, increased much more rapidly in the United States than in Canada, most West European countries, and Japan (see Figure 11 ). Since 2010, however, U.S. labor productivity in manufacturing has declined, whereas it has improved in several other major manufacturing countries ( Figure 12 ). The comparatively poor U.S. performance by this metric may indicate that U.S. manufacturers are slower to invest in labor-saving technology than those in other countries. A recent report by the International Federation of Robotics, for example, estimated that Korea used 621 industrial robots per 10,000 manufacturing workers in 2016, Germany 309, Japan 303, and the United States 189. Average compensation per employee in U.S. manufacturing, measured on an internationally comparable basis, was $39.01 per hour in 2016. This figure, which is not adjusted for taxes and social insurance benefits, was in the same range as hourly costs in most northern and central European countries and considerably higher than average manufacturing compensation in Japan, South Korea, and southern Europe ( Table 1 ). Accurate nationwide data on manufacturing compensation costs in China are not available. Chinese government statistics point to an average wage in urban manufacturing of approximately $4.26 per hour in 2016. This figure, which is consistent with Conference Board estimates, is not comparable to the direct pay in other countries shown in Table 1 , as it excludes workers in rural areas, where wages generally are lower than in urban areas. For India, the Conference Board estimates average wages at formally registered manufacturing enterprises to have been $1.47 per hour in 2014. However, these figures probably overstate Indian manufacturing labor costs, as they do not cover workers in unorganized or informal manufacturing. The data on hourly compensation costs can be misleading, as they are not adjusted for differences in the industrial mix. In most countries, including the United States, labor costs vary greatly among industries; the average hourly wage of production workers at U.S. sawmills is around $18.60, whereas the average in aircraft manufacturing exceeds $40. The most recent data, from 2016, show total U.S. labor costs to be similar to those in the major economies of continental Europe, although well above those in emerging economies (see Table 2 ). Technology and Research in Manufacturing High-technology manufacturing has been a particular focus of public-policy concern for many years. There is no standard definition of high-tech manufacturing, but commentators have long asserted that high-technology production has especially beneficial economic spillovers. Although definitions of "high-tech industry" vary, the OECD considers that manufacturing of pharmaceuticals; office, accounting, and computing machinery; radio, television, and communications equipment; medical, precision, and optical instruments; and aircraft and spacecraft is particularly technology-intensive, based on those industries' research and development (R&D) expenditures and on the amount of R&D embodied in their products. It is important to note in this context that some industries that may have a considerable technological component, such as automobile and machinery manufacturing, are not considered high-technology industries by the OECD. Manufacturers in the United States spend far more on research than those in any other country save China (see Figure 13 ). Adjusted for differences in purchasing power, Chinese manufacturers' R&D spending has grown more rapidly than that of manufacturers in the United States, and as of 2015 was 18% larger. Manufacturing R&D in the United States and other high-income economies lagged during the international financial crisis of the last decade, but has grown more rapidly since 2010. R&D spending by manufacturers has increased much more quickly in some Asian economies, notably China, South Korea, and Taiwan, than in the United States and Europe (see Figure 14 ). Manufacturers have been responsible for around 68% of all R&D conducted by businesses in the United States in recent years. This is far lower than in Germany, Japan, South Korea, and China, where manufacturers account for 85%-90% of all business-financed R&D. Conversely, the service sector is relatively more important in undertaking R&D in the United States than in many other countries. The most notable exception is the United Kingdom, where service companies account for nearly three-fifths of all business R&D spending. The research intensity of U.S. manufacturing increased significantly in the years leading up to the most recent recession, but data measuring R&D relative to manufacturing value added indicate that U.S. manufacturers' research intensity has not increased since 2008. In 2000, U.S. manufacturers spent 8% of sales on R&D; this figure has varied between 10.5% and 11.3% since 2008. A similar trend is evident in most other countries with substantial R&D in manufacturing. U.S. manufacturers spend more on R&D, relative to value added, than those in other large manufacturing countries, with the exceptions of Japan and South Korea (see Figure 15 ). One reason for national differences in R&D intensity is variation in the composition of the manufacturing sector. Industries such as aircraft, spacecraft, and electronic instrument manufacturing are among the most research-intensive in every country, and, all other things equal, countries in which these sectors are relatively large may be expected to have greater R&D intensity in manufacturing than countries in which they are less important. As Table 3 confirms, a very large proportion of U.S. manufacturers' R&D takes place in high-technology sectors, particularly pharmaceuticals, electronics, and aircraft manufacturing, whereas in most other countries save South Korea, a far greater proportion of manufacturers' R&D outlays occur in medium-technology sectors such as motor vehicle and machinery manufacturing.

The health of the U.S. manufacturing sector has long been of great concern to Congress. The decline in manufacturing employment since the start of the 21st century has stimulated particular congressional interest, leading Members to introduce hundreds of bills over many sessions of Congress intended to support domestic manufacturing activity in various ways. The proponents of such measures frequently contend that the United States is by various measures falling behind other countries in manufacturing, and they argue that this relative decline can be mitigated or reversed by government policy. This report is designed to inform the debate over the health of U.S. manufacturing through a series of charts and tables that depict the position of the United States relative to other countries according to various metrics. Understanding which trends in manufacturing reflect factors that may be unique to the United States and which are related to broader changes in technology or consumer preferences may be helpful in formulating policies intended to aid firms or workers engaged in manufacturing activity. This report does not describe or discuss specific policy options. The main findings are the following: The United States' share of global manufacturing activity declined from 28% in 2002, following the end of a U.S. recession, to 16.5% in 2011. By 2016, the U.S. share rose to over 18%, the largest share since 2009. These estimates are based on the value of each country's manufacturing in U.S. dollars; part of the decline in the U.S. share was due to a 23% decline in the value of the dollar between 2002 and 2011, and part of the subsequent rise is attributable to a stronger dollar. China displaced the United States as the largest manufacturing country in 2010. Again, part of China's rise by this measure has been due to the appreciation of its currency, the renminbi, against the U.S. dollar. The reported size of China's manufacturing sector decreased in 2015 and 2016 due to currency adjustments. Manufacturing output, measured in each country's local currency adjusted for inflation, has been growing more slowly in the United States than in China, South Korea, Germany, and Mexico, but more rapidly than in many European countries and Canada. Employment in manufacturing has fallen in most major manufacturing countries over the past quarter-century. In the United States, manufacturing employment since 1990 has declined in line with the changes in Western Europe and Japan, although the timing of the decline has differed from country to country. U.S. manufacturers' spending for research and development (R&D) rose 10.5% from 2010 to 2015, adjusted for inflation. Manufacturers' R&D spending rose more rapidly in several other countries. Manufacturers in many countries have increased spending on R&D, relative to value added in the manufacturing sector, but U.S. manufacturers' R&D intensity has changed little since 2008. A large proportion of U.S. manufacturers' R&D takes place in high-technology sectors such as pharmaceutical, electronics, and aircraft manufacturing, whereas in most other countries the largest share of R&D occurs in medium-technology sectors such as automotive and machinery manufacturing.

Introduction Federal regulations generally result from an act of Congress and are the means by which statutes are implemented and specific requirements are established. Congress delegates rulemaking authority to agencies for a variety of reasons and in a variety of ways. The Patient Protection and Affordable Care Act (PPACA; P.L. 111-148 , as amended) is a particularly noteworthy example of congressional delegation of rulemaking authority to federal agencies. PPACA is a comprehensive overhaul of the health care system that includes such provisions as the expansion of eligibility for Medicaid, amendments to Medicare that are intended to reduce its growth, an individual mandate for the purchase of health insurance, and the establishment of insurance exchanges through which individuals and families can receive federal subsidies to help them purchase insurance. A previous CRS report identified more than 40 provisions in PPACA that require or permit the issuance of rules to implement the legislation. The rules that agencies issue pursuant to PPACA are expected to have a major impact on how the legislation is implemented. For example, in an article entitled "The War Isn't Over" that was posted on the New England Journal of Medicine's Health Care Reform Center shortly after PPACA was signed into law, Henry J. Aaron and Robert D. Reischauer wrote: Making the legislation a success requires not only that it survive but also that it be effectively implemented. Although the bill runs to more than 2000 pages, much remains to be decided. The legislation tasks federal or state officials with writing regulations, making appointments, and giving precise meaning to many terms. Many of these actions will provoke controversy.... Far from having ended, the war to make health care reform an enduring success has just begun. Winning that war will require administrative determination and imagination and as much political resolve as was needed to pass the legislation. Mandatory and Discretionary Rulemaking Provisions The manner in which Congress delegates rulemaking authority to federal agencies determines the amount of discretion the agencies have in crafting the rules and, conversely, the amount of control that Congress retains for itself. Some of the more than 40 rulemaking provisions in PPACA are quite specific, stipulating the substance of the rules, whether certain consultative or rulemaking procedures should be used, and deadlines for their issuance or implementation. Other provisions in PPACA permit, but do not require, the agencies to issue certain rules (e.g., stating that the head of an agency "may issue regulations" defining certain terms, or "may by regulation" establish guidance or requirements for carrying out the legislation). As a result, the agency head has the discretion to decide whether to issue any regulations at all, and if so, what those rules will contain. Still other provisions in PPACA require agencies to establish programs or procedures but do not specifically mention regulations. By December 2010, federal agencies had already issued at least 18 final rules implementing sections of PPACA. Although the legislation specifically required or permitted some of the rules to be published, other rules implemented PPACA provisions that did not specifically mention rulemaking. The use of rulemaking in these cases does not appear to be either improper or unusual; if the requirements in those rules were intended to be binding on the public, rulemaking may have been the agencies only viable option to implement the related statutory provisions. Congressional Oversight and the Unified Agenda In his book Building a Legislative-Centered Public Administration , David H. Rosenbloom noted that rulemaking and lawmaking are functionally equivalent (the results of both processes have the force of law), and that when agencies issue rules they, in effect, legislate. He went on to say that the "Constitution's grant of legislative power to Congress encompasses a responsibility to ensure that delegated authority is exercised according to appropriate procedures." Congressional oversight of rulemaking can deal with a variety of issues, including the substance of the rules issued pursuant to congressional delegations of authority and the process by which those rules are issued. For Congress to oversee the regulations being issued to implement PPACA, it would help to have an early sense of what rules the agencies are going to issue, and when. The previously mentioned CRS report identifying the provisions in the act that require or permit rulemaking can be useful in this regard. However, the legislation did not indicate when some of the mandatory rules should be issued, some of the rules that the agencies are permitted (but not required) to issue may never be developed, and many of the rules that the agencies have already issued to implement PPACA were not specifically mentioned in the act. The Unified Agenda A potentially better way for Congress to identify upcoming PPACA rules is by reviewing the Unified Agenda of Federal Regulatory and Deregulatory Actions (hereafter, Unified Agenda), which is published twice each year (usually in the spring and fall) by the Regulatory Information Service Center (RISC), a component of the U.S. General Services Administration, for the Office of Management and Budget's (OMB) Office of Information and Regulatory Affairs (OIRA). The Unified Agenda helps agencies fulfill two current transparency requirements: The Regulatory Flexibility Act (5 U.S.C. § 602) requires that all agencies publish semiannual regulatory agendas in the Federal Register describing regulatory actions that they are developing that may have a significant economic impact on a substantial number of small entities. Section 4 of Executive Order 12866 on "Regulatory Planning and Review" requires that all executive branch agencies "prepare an agenda of all regulations under development or review." The stated purposes of this and other planning requirements in the order are, among other things, to "maximize consultation and the resolution of potential conflicts at an early stage" and to "involve the public and its State, local, and tribal officials in regulatory planning." The executive order also requires that each agency prepare, as part of the fall edition of the Unified Agenda, a "regulatory plan" of the most important significant regulatory actions that the agency reasonably expects to issue in proposed or final form during the upcoming fiscal year. The Unified Agenda lists upcoming activities, by agency, in five separate categories or stages of the rulemaking process: prerule stage (e.g., advance notices of proposed rulemaking that are expected to be issued in the next 12 months); proposed rule stage (i.e., notices of proposed rulemaking that are expected to be issued in the next 12 months, or for which the closing date of the comment period is the next step); final rule stage (i.e., final rules or other final actions that are expected to be issued in the next 12 months); long-term actions (i.e., items under development that agencies do not expect to take action on in the next 12 months); and completed actions (i.e., final rules or rules that have been withdrawn since the last edition of the Unified Agenda). All entries in the Unified Agenda have uniform data elements, including the department and agency issuing the rule, the title of the rule, its Regulation Identifier Number (RIN), an abstract describing the nature of action being taken, and a timetable showing the dates of past actions and a projected date (sometimes just the projected month and year) for the next regulatory action. Each entry also contains an element indicating the priority of the regulation (e.g., whether it is considered "economically significant" under Executive Order 12866, or whether it is considered a "major" rule under the Congressional Review Act). There is no penalty for issuing a rule without a prior notice in the Unified Agenda, and some prospective rules listed in the Unified Agenda never get issued, reflecting the fluid nature of the rulemaking process. Nevertheless, the Unified Agenda can help Congress and the public know what regulatory actions are about to occur, and it arguably provides federal agencies with the most systematic, government-wide method to alert the public about their upcoming proposed rules. A previously issued CRS report indicated that about three-fourths of the significant proposed rules published after having been reviewed by OIRA in 2008 were previously listed in the "proposed rule" section of the Unified Agenda. This Report The July 7, 2011, edition of the Unified Agenda and Regulatory Plan is the second edition that RISC has compiled and issued after the enactment of PPACA. Federal agencies were required to submit data to RISC for the Unified Agenda by February 25, 2011, but some items were subsequently updated during the OIRA review process. This report examines the July 7, 2011, edition of the Unified Agenda and identifies upcoming proposed and final rules and long-term actions that were expected to be issued pursuant to PPACA in the next 12 months. To identify those upcoming rules and actions, CRS searched all fields of the Unified Agenda (all agencies) using the term "Affordable Care Act," focusing on the proposed rule and final rule stages of rulemaking, and also including the "long-term actions" category. The results of the search for proposed and final rules are provided in the Appendix to this report. For each upcoming proposed and final rule listed, the table identifies the department and agency expected to issue the rule, the title of the rule and its RIN, an abstract describing the nature of the rulemaking action, and the date that the proposed or final rule was expected to be issued. The abstracts presented in the table were taken verbatim from the Unified Agenda entries. Within the proposed and final rule sections of the table, the entries are organized by agency. Because agencies were compiling the information early in the year, their estimates for when upcoming proposed and final rules would be issued may have been out of date by the time the Unified Agenda was published. To provide the most up-to-date information, on August 3, 2011, CRS electronically searched the Federal Register to see whether the proposed and final rules listed in the Unified Agenda had been published. This information is provided in the table. If the proposed or final rule was published as of August 3, the Federal Register citation is also provided. Upcoming PPACA Proposed Rules The July 7, 2011, edition of the Unified Agenda listed 41 PPACA-related actions in the "proposed rule stage" (indicating that the agencies expected to issue proposed rules on the topics within the next 12 months, or for which the closing dates of the comment periods are the next step). Thirty-three of the 41 upcoming proposed rules were expected to be issued by components of the Department of Health and Human Services (HHS): the Health Resources and Services Administration (HRSA, four actions); the Food and Drug Administration (FDA, two actions); Indian Health Service (IHS, two actions); the Centers for Medicare and Medicaid Policy (CMS, 21 actions); the Administration on Aging (AOA, one action); and the Office of the Secretary (OS, three actions). Other proposed rules were expected to be issued by the Department of Labor's (DOL) Employee Benefits Security Administration (EBSA, one action); the DOL's Office of Workers' Compensation Programs (OWCP, one action); the Treasury Department's Departmental Offices (DO, one action); the Internal Revenue Service (IRS, two actions); and the Office of Personnel Management (OPM, three actions). Timing of the Proposed Rules The agencies indicated that 17 of the 41 items in the "proposed rule" section of the Unified Agenda would be issued by the end of July 2011. As of August 3, 2011, 9 of these 17 anticipated notices of proposed rulemaking (NPRMs) had been published, and 8 had not yet been published. Some of the rules for which NPRMs have been published include an HHS/HRSA rule on "340B Orphan Drug Exclusion;" an HHS/FDA rule on "Food Labeling: Nutrition Labeling for Food Sold in Vending Machines;" an HHS/CMS rule on "Availability of Medicare Data for Performance Measurement;" and an HHS/CMS rule on "Establishment of the Consumer Operated and Oriented Plan Program." Some of the eight proposed rules that were expected to be published by the end of July 2011, but that had not been published as of August 3, 2011, include an HHS/HRSA rule on "Elimination of Duplication Between the Healthcare Integrity and Protection Data Bank and the National Practitioner Data Bank;" an HHS/CMS rule on "Administrative Simplification: Standard Unique Identifier for Health Plans;" an HHS/CMS rule on "Medicaid Eligibility Expansion Under the Affordable Care Act of 2010;" and a Treasury/IRS rule on "Development and Utilization of Uniform Explanation of Coverage Documents, Definitions, and Requirements To Provide Information Under the Patient Protection and Affordable Care Act." Several other proposed rules were expected to be issued later in 2011, including an HHS/IHS rule on "Standards for the Planning, Design, Construction and Operation of Health Care and Sanitation Facilities" (expected to be published in December 2011); an HHS/CMS rule on "Implementing Regulations for Reauthorization of the Children's Health Insurance Program (CHIP)" (expected to be published in December 2011); an HHS/OS rule on "Nondiscrimination Under the Affordable Care Act" (expected to be published in September 2011); and an OPM rule on "Federal Employees Health Benefits Program; Disputed Claims and External Review Requirements" (expected to be published in September 2011). Notable Proposed Rules HHS agencies considered 4 of the 41 items in the "proposed rule" section of the Unified Agenda important enough to be included in the regulatory plan: Two HHS/FDA rules on "Food Labeling: Nutrition Labeling for Food Sold in Vending Machines," which the agency published as an NPRM on April 6, 2011; and "Food Labeling: Nutrition Labeling of Standard Menu Items in Restaurants and Similar Retail Food Establishments," which the agency published as an NPRM on April 6, 2011; An HHS/CMS rule on "Medicare Shared Savings Program: Accountable Care Organizations," which the agency published as an NPRM on April 7, 2011; and An HHS/AOA rule on "Community Living Assistance Services and Supports (CLASS) Program—Designation of the CLASS Independence Benefit Plan and Enrollment Rules," which the agency expects to publish as an NPRM in October 2011. Economically Significant or Major Proposed Rules In addition to the PPACA-related "proposed rule" actions that were listed in the regulatory plan, the Unified Agenda listed eight other actions that the agencies considered "economically significant" or "major" (one definition of "economically significant" or "major," for example, is that the rule is expected to have at least a $100 million annual effect on the economy). Examples include an HHS/CMS rule on "Medicaid Eligibility Expansion Under the Affordable Care Act of 2010," which was expected to be published as an NPRM sometime during June 2011, but had not been published as of August 3, 2011; an HHS/CMS rule on "Requirements To Implement American Health Benefit Exchanges and Other Provisions of the Affordable Care Act," which was published as an NPRM on July 15, 2011; and an HHS/OCIIO rule on "Public Use Files of Health Plan Data," which is expected to be issued sometime during December 2011. "Other Significant" Proposed Rules In addition to the above-mentioned rules, the agencies characterized 27 of the 41 actions that were listed in the "proposed rule" section of the Unified Agenda as "other significant," indicating that although they were not listed in the regulatory plan or expected to be "economically significant," they were expected to be significant enough to be reviewed by OIRA under Executive Order 12866. These proposed rules included an HHS/IHS rule on "Confidentiality of Medical Quality Assurance Records; Qualified Immunity for Participants," which the agency expects to publish in February 2012; an HHS/CMS rule on "Face-to-Face Requirements for Home Health Services; Policy Changes and Clarifications Related to Home Health," which the agency published on July 12, 2011; an HHS/AOA rule on "Community Living Assistance Services and Supports (CLASS) Program—Designation of the CLASS Independence Benefit Plan and Enrollment Rules," which the agency expects to issue in October 2011; and a DOL/OWCP rule on "Regulations Implementing Amendments to the Black Lung Benefits Act: Determining Coal Miners and Survivors Entitlement to Benefits," which the agency expects to issue in March 2012. Effects on Small Entities The Regulatory Flexibility Act (5 U.S.C. §§ 601-612) generally requires federal agencies to assess the impact of their forthcoming regulations on "small entities" (i.e., small businesses, small governments, and small not-for-profit organizations). Three of the previously-mentioned PPACA-related rules listed in the "proposed rule" section were expected to affect small businesses, small governments, or both, and were expected to require a regulatory flexibility analysis: Two HHS/FDA rules on "Food Labeling: Nutrition Labeling for Food Sold in Vending Machines," and "Food Labeling: Nutrition Labeling of Standard Menu Items in Chain Restaurants;" and An HHS/CMS rule on "Medicaid Eligibility Expansion Under the Affordable Care Act of 2010." In addition to these rules, eight other actions listed in the "proposed rule" section were expected to have an effect on small businesses, small governments, or small not-for-profits, but the agencies either did not expect to the rules to trigger the requirements of the Regulatory Flexibility Act, or were undecided as to whether they would do so. These actions included an HHS/CMS rule on "Administrative Simplification: Standard Unique Identifier for Health Plans;" an HHS/CMS rule on "Durable Medical Equipment (DME) Face to Face Encounters and Written Orders Prior to Delivery;" and a DOL/EBSA rule on "Ex Parte Cease and Desist and Summary Seizure Orders Under ERISA Section 521." Upcoming PPACA Final Rules The July 7, 2011, edition of the Unified Agenda listed 13 PPACA-related actions in the "final rule stage" section (indicating that the agencies expected to issue final rules on the subjects within the next 12 months). Eight of the upcoming final rules were expected to be issued by CMS; two by the IRS; and one each by HRSA, the Occupational Safety and Health Administration (OSHA) within DOL, and the Social Security Administration. Timing of Final Rules The agencies indicated that 6 of the 13 items in the "final rule" section of the Unified Agenda would be issued by the end of July 2011. As of August 3, 2011, four of these rules had been issued: An HHS/CMS rule on "Administrative Simplification: Adoption of Authoring Organizations for Operating Rules and Adoption of Operating Rules for Eligibility and Claims Status;" which was published as an interim final rule on July 8, 2011; An HHS/CMS rule on "Payment Adjustment for Provider—Preventable Conditions Including Health Care-Acquired Conditions," which was published as a final rule on June 6, 2011; An HHS/CMS rule on "Enhanced Federal Funding for Medicaid Eligibility Determination and Enrollment Activities," which was published as a final rule on April 19, 2011; and An HHS/CMS rule on "Internal Claims, Appeals, and External Review Processes Under the Affordable Care Act," which was originally published as an interim final rule on July 23, 2010, followed by a second interim final rule on June 24, 2011. As of August 3, 2011, the remaining two final rules that the agencies indicated would be published by the end of July 2011 had not been published: An HHS/CMS rule on "Changes to the Demonstration Review and Approval Process," and An IRS rule on "Development and Utilization of Uniform Explanation of Coverage Documents, Definitions, and Requirements To Provide Information Under the Patient Protection and Affordable Care Act." The agencies indicated that six other final rules would be published sometime in 2011: An HHS/HRSA rule on "Designation of Medically Underserved Populations and Health Professional Shortage Areas," which was expected to be issued in November 2011; An HHS/CMS rule on "Administrative Simplification: Adoption of Standard and Operating Rule for Electronic Funds Transfer (EFT) and Operating Rule for Remittance Advice," which was expected to be issued in December 2011; An HHS/CMS rule on "Medicaid Recovery Audit Contractors," which was expected to be issued in August 2011; An HHS/CMS rule on "Community First Choice Option," which was expected to be issued in August 2011; A DOL/OSHA rule on "Procedures for the Handling of Retaliation Complaints Under Section 1558 of the Affordable Care Act," which was expected to be issued in September 2011; and An IRS rule on "Indoor Tanning Services," which was expected to be issued in December 2011. Notable Final Rules None of the rules that were listed in the "final rule" section of the Unified Agenda were considered important enough to be included in the agencies' regulatory plans. Economically Significant or Major Final Rules The Unified Agenda listed three entries in the "final rule" section that were considered "economically significant" or "major" (e.g., that were expected to have at least a $100 million annual effect on the economy). All three rules were CMS rules: (1) "Medicaid Recovery Audit Contractors;" (2) "Community First Choice Option;" and (3) "Enhanced Federal Funding for Medicaid Eligibility Determination and Enrollment Activities." "Other Significant" Final Rules In addition to the above-mentioned rules, eight other entries in the "final rule" section of the Unified Agenda were characterized as "other significant," indicating that although they were not listed in the regulatory plan or expected to be "economically significant," they were expected to be significant enough to be reviewed by OIRA under Executive Order 12866. These final rules included an HHS/HRSA rule on "Designation of Medically Underserved Populations and Health Professional Shortage Areas;" an HHS/CMS rule on "Administrative Simplification: Adoption of Standard and Operating Rule for Electronic Funds Transfer (EFT) and Operating Rule for Remittance Advice;" a DOL/OSHA rule on "Procedures for the Handling of Retaliation Complaints Under Section 1558 of the Affordable Care Act of 2010;" and a Social Security Administration rule on "Regulations Regarding Income-Related Monthly Adjustment Amounts to Medicare Beneficiaries' Prescription Drug Premiums." Effects on Small Entities Two of the upcoming final rules were expected to trigger the requirements of the Regulatory Flexibility Act because of their effects on small businesses: the CMS rule on "Enhanced Federal Funding for Medicaid Eligibility Determination and Enrollment Activities," and the IRS rule on "Indoor Tanning Services." Three other CMS rules were expected to have an effect on small businesses, governments, or other organizations, but were not expected to require a regulatory flexibility analysis: (1) "Administrative Simplification: Adoption of Standard and Operating Rule for Electronic Funds Transfer (EFT) and Operating Rule for Remittance Advice;" (2) "Administrative Simplification: Adoption of Authoring Organizations for Operating Rules and Adoption of Operating Rules for Eligibility and Claims Status;" and (3) "Medicaid Recovery Audit Contractors." PPACA Long-Term Actions As noted earlier in this report, the Unified Agenda also identifies "long-term actions"—that is, regulatory actions that are under development in the agencies that the agencies do not expect to take action on in the next 12 months. The July 7, 2011 edition of the Unified Agenda listed 27 long-term actions related to PPACA. In comparison with the proposed and final rules previously discussed, it is much less clear when the PPACA-related long-term actions are expected to occur; in 17 of the 27 cases, the agencies said that the dates for the actions were "to be determined." Of the remaining ten long-term actions, six were expected in June 2012, one in August 2012, one in calendar year 2013, and two in calendar year 2014. Nature of the Long-Term Actions Of the 27 long-term actions, 15 were upcoming final rules that were expected to be issued once the agency had considered the comments received in response to previously issued interim final rules. These actions included an HHS/CMS rule on "Requirements for Long-Term Care Facilities: Notification of Facility Closure;" with the final rule expected to be published in February 2014;" and a DOL/EBSA rule on "Preexisting Condition Exclusions, Lifetime and Annual Limits, Rescissions and Patient Protections Under the Affordable Care Act," with the date of the final rule "to be determined." The eight other long-term actions were upcoming final rules that the agency expected to issue after considering the comments received in response to a previously issued notice of proposed rulemaking. These actions included an HHS/CMS rule on "Affordable Care Act Waiver for State Innovation; Review and Approval Process;" and an IRS rule on "Requirements Applicable to Group Health Plans and Health Insurance Issuers Under the Patient Protection and Affordable Care Act, I." The four other PPACA-related long-term actions included an HHS/CMS NPRM on "Long-Term Care Facility Quality Assessment and Performance Improvement Dementia Management and Abuse Prevention Training," and a DOL/EBSA unspecified rulemaking action on "Automatic Enrollment in Health Plans of Employees of Large Employers Under FLSA Section 18A ;" Notable Long-Term Actions The agencies identified 10 of the 27 PPACA-related long-term actions as "economically significant," "major," or both. Nine of these actions were cases in which the agencies had issued interim final rules and were reviewing the comments received. These included two HHS/CMS actions on such topics as "Preexisting Condition Exclusions, Lifetime and Annual Limits, Prohibition on Discrimination and Patient Protections;" "Preventive Services Under the Affordable Care Act;" "Affordable Care Act Waiver for State Innovation; Review and Approval Process;" and a DOL/EBSA action entitled "Group Health Plans and Health Insurance Coverage Relating to Status as a Grandfathered Health Plan Under the Patient Protection and Affordable Care Act." One other long-term action that was identified as major was a CMS rule on "Affordable Care Act Waiver for State Innovation; Review and Approval Process." The agency published an NPRM on March 14 and will be taking final action at a later date "to be determined." The agencies considered 12 of the 27 actions to be "other significant," meaning that the agencies considered them significant enough to be reviewed by OIRA under Executive Order 12866, but not "economically significant." These actions included an HHS/IHS rule on "Catastrophic Health Emergency Fund (CHEF);" two HHS/CMS actions entitled "Health Care Reform Insurance Web Portal Requirements" and "Student Health Insurance Coverage;" and a DOL/EBSA action on "Automatic Enrollment in Health Plans of Employees of Large Employers Under FLSA Section 18A." Congressional Oversight Options As noted earlier in this report, when federal agencies issue substantive regulations, they are carrying out legislative authority delegated to them by Congress. Therefore, it is appropriate for Congress to oversee the rules that agencies issue to ensure that they are consistent with congressional intent and the rulemaking requirements established in various statutes and executive orders. For Congress to oversee the rules being issued pursuant to PPACA, it must first know that they are being issued—ideally as early as possible. The Unified Agenda is perhaps the best vehicle to provide that early information, describing not only what rules are expected to be issued, but also providing information regarding their significance and timing. Congress has a range of tools available to oversee the rules that federal agencies are expected to issue to implement PPACA, including oversight hearings and confirmation hearings for the heads of regulatory agencies. Individual Members of Congress may also participate in the rulemaking process by, among other things, meeting with agency officials and filing public comments. Congress, committees, and individual Members can also request that the Government Accountability Office (GAO) evaluate the agencies' rulemaking activities. Another option is the Congressional Review Act (CRA; 5 U.S.C. §§801-808), which was enacted in 1996 to establish procedures detailing congressional authority over rulemaking "without at the same time requiring Congress to become a super regulatory agency." The act generally requires federal agencies to submit all of their covered final rules to both houses of Congress and GAO before they can take effect. It also established expedited legislative procedures (primarily in the Senate) by which Congress may disapprove agencies' final rules by enacting a joint resolution of disapproval. The definition of a covered rule in the CRA is quite broad, arguably including any type of document (e.g., legislative rules, policy statements, guidance, manuals, and memoranda) that the agency wishes to make binding on the affected public. After these rules are submitted, Congress can use the expedited procedures specified in the CRA to disapprove any of the rules. CRA resolutions of disapproval must be presented to the President for signature or veto. For a variety of reasons, however, the CRA has been used to disapprove only one rule in the 14 years since it was enacted. Perhaps most notably, it is likely that a President would veto a resolution of disapproval to protect rules developed under his own administration, and it may be difficult for Congress to muster the two-thirds vote in both houses needed to overturn the veto. Congress can also use regular (i.e., non-CRA) legislative procedures to disapprove agencies' rules, but such legislation may prove even more difficult to enact than a CRA resolution of disapproval (primarily because of the lack of expedited procedures in the Senate), and if enacted may also be vetoed by the President. Although the CRA has been used only once to overturn an agency rule, Congress has regularly included provisions in the text of agencies' appropriations bills directing or preventing the development of particular regulations. Such provisions include prohibitions on the finalization of particular proposed rules, restrictions on certain types of regulatory activity, and restrictions on implementation or enforcement of certain provisions. Appropriations provisions can also be used to prompt agencies to issue certain regulations, or to require that certain procedures be followed before or after their issuance. The inclusion of regulatory provisions in appropriations legislation as a matter of legislative strategy appears to arise from two factors: (1) Congress's ability via its "power of the purse" to control agency action, and (2) the fact that appropriations bills are considered "must pass" legislation. Congress's use of regulatory appropriations restrictions has fluctuated somewhat over time, and previous experience suggests such use they may be somewhat less frequent when Congress and the President are of the same party. Appendix. Upcoming Proposed and Final Rules Pursuant to the Patient Protection and Affordable Care Act

Congress delegates rulemaking authority to agencies for a variety of reasons and in a variety of ways. The Patient Protection and Affordable Care Act (PPACA; P.L. 111-148) is a particularly noteworthy example of congressional delegation of rulemaking authority to federal agencies. A previous CRS report identified more than 40 provisions in PPACA that require or permit the issuance of rules to implement the legislation. One way for Congress to identify upcoming PPACA rules is by reviewing the Unified Agenda of Federal Regulatory and Deregulatory Actions, which is published twice each year (spring and fall) by the Regulatory Information Service Center (RISC), a component of the U.S. General Services Administration, for the Office of Management and Budget's (OMB) Office of Information and Regulatory Affairs (OIRA). The Unified Agenda lists upcoming activities, by agency, in five separate categories or stages of the rulemaking process: the prerule stage, the proposed rule stage, the final rule stage, long-term actions, and completed actions. All entries in the Unified Agenda have uniform data elements, including the department and agency issuing the rule, the title of the rule, its Regulation Identifier Number (RIN), an abstract describing the nature of action being taken, and a timetable showing the dates of past actions and a projected date for the next regulatory action. Each entry also contains an element indicating the priority of the regulation (e.g., whether it is considered "economically significant" under Executive Order 12866, or whether it is considered a "major" rule under the Congressional Review Act). This report examines the most recent edition of the Unified Agenda, published on July 7, 2011 (the second edition that RISC compiled and issued after the enactment of PPACA). The report identifies upcoming proposed and final rules listed in the July 7, 2011, Unified Agenda that are expected to be issued pursuant to PPACA. (A previous CRS report identified the rulemaking actions that were listed in the December 2010 version of the Unified Agenda.) The Appendix lists these upcoming proposed and final rules in a table. The report also briefly discusses the long-term actions listed in the Unified Agenda, as well as some options for congressional oversight over the PPACA rules.

Overview of the Budget Reconciliation Process Under the Congressional Budget and Impoundment Control Act of 1974 ( P.L. 93-344 , as amended), the House and Senate are required to adopt at least one budget resolution each year. The budget resolution, which takes the form of a concurrent resolution and is not sent to the President for his approval or veto, serves as a congressional statement in broad terms regarding appropriate revenue, spending, and debt policies, as well as a guide to the subsequent consideration of legislation implementing such policies at agency and programmatic levels. Budget resolution policies are enforced through a variety of mechanisms, including points of order. The House and Senate Budget Committees, which were created by the 1974 act, exercise exclusive jurisdiction over budget resolutions and are responsible for monitoring their enforcement. In developing a budget resolution, the House and Senate Budget Committees rely on baseline budget projections prepared by the Congressional Budget Office (CBO). A budget resolution typically reflects many different assumptions regarding legislative action expected to occur during a session that would cause revenue and spending levels to be changed from baseline amounts. However, most revenue and direct spending occurs automatically each year under permanent law. Therefore, if the committees with jurisdiction over the revenue and direct spending programs do not report legislation to carry out the budget resolution policies by amending existing law, revenue and direct spending for these programs will likely continue without change. The budget reconciliation process is an optional procedure that operates as an adjunct to the budget resolution process. The chief purpose of the reconciliation process is to enhance Congress's ability to change current law to bring revenue and spending levels into conformity with the policies of the budget resolution. Accordingly, reconciliation is probably the most potent budget enforcement tool available to Congress for a large portion of the budget. Reconciliation is a multi-stage process. First, reconciliation instructions are included in the budget resolution directing the appropriate committees to develop legislation achieving the desired budgetary outcomes. The instructed committees submit their legislative recommendations to their respective Budget Committees by the deadline prescribed in the budget resolution. The Budget Committees then incorporate them into an omnibus budget reconciliation bill without making any substantive revisions. The second step involves consideration of the resultant reconciliation legislation by the House and Senate under expedited procedures. Among other things, debate in the Senate on any reconciliation measure is limited to 20 hours (and 10 hours on a conference report), and amendments must be germane. The House Rules Committee typically sets limitations on debate and the offering of amendments during consideration of reconciliation measures in the House. In cases where only one committee has been instructed, the process allows that committee to report its reconciliation legislation directly to its parent chamber, thus bypassing the Budget Committee. In some years, budget resolutions included reconciliation instructions that afforded the House and Senate the option of considering two or more different reconciliation bills. Once the reconciliation legislation called for in the budget resolution has been approved or vetoed by the President, the process is concluded. Congress cannot develop another reconciliation bill in the wake of a veto without first adopting another budget resolution containing reconciliation instructions. Reconciliation was first used by the House and Senate during the administration of President Jimmy Carter in calendar year 1980 for FY1981. As an optional procedure, it has not been used every year. Since FY1981, 20 omnibus reconciliation measures have been enacted into law, and four have been vetoed (see Table 1 ). In some years, reconciliation was proposed by one or both chambers but not activated. The FY1999 budget resolution passed by the House ( H.Con.Res. 284 , 105 th Congress), for example, included reconciliation directives to nine House committees, but the Senate-passed budget resolution ( S.Con.Res. 86 ) did not contain reconciliation directives. Ultimately, the House and Senate did not reach final agreement on the FY1999 budget resolution, and reconciliation procedures were not used that year. Similarly, the FY2013 budget resolution agreed to by the House ( H.Con.Res. 112 , 112 th Congress) contained reconciliation directives to six House committees. Although the House and Senate did not come to agreement on a budget resolution, the six specified House committees submitted their reconciliation language to the House Budget Committee by the specified deadline, and the House passed H.R. 5652 , the Sequester Replacement Reconciliation Act. The House was able to develop and consider H.R. 5652 as a reconciliation measure because the budget resolution passed by the House was "deemed" enforceable by the House as if the Senate had agreed to it ( H.Res. 614 , 112 th Congress). Because Congress had not agreed to the underlying budget resolution, the House reconciliation bill, H.R. 5652 , was not considered a reconciliation measure in the Senate and, therefore, was not eligible for consideration in the Senate under reconciliation procedures. From 1980 into the 1990s, reconciliation was used to reduce the deficit through reductions in mandatory spending, revenue increases, or a combination of the two. Reconciliation has also been used, however, to reduce revenues and, in a few instances, to increase spending levels in particular areas. In 2006, reconciliation was used to reduce mandatory spending and revenues, yielding a net increase in the deficit. In the first session of the 110 th Congress, the Senate adopted a rule prohibiting the use of reconciliation in a manner that would increase the deficit or reduce the surplus, but this point of order was repealed in 2015. The House adopted a similar rule at the beginning of the 110 th Congress but amended the rule at the beginning of the 112 th Congress to prohibit the use of reconciliation in a manner that would cause a net increase in direct spending (House Rule XXI, Clause 7). With regard to spending reductions, the reconciliation process for the most part has applied to mandatory spending programs and not discretionary spending programs (which are subject to other budget enforcement procedures). In some years, the reconciliation process has been used to increase the statutory debt limit (which is typically addressed through different procedures). In 2000, efforts were made in the reconciliation process to reduce the debt held by the public. Timing of Legislative Action Time of Year That Reconciliation Is Scheduled to Occur As originally framed, the 1974 Congressional Budget Act required the adoption of two budget resolutions each year. By May 15 of each year, the House and Senate were scheduled to complete action on a budget resolution setting advisory targets. By September 15, just before the beginning of the fiscal year on October 1, the two chambers were scheduled to adopt a budget resolution setting binding limits. It was contemplated that reconciliation would be used in conjunction with the second budget resolution as a device to make any "last minute" changes in pending legislation or current law necessary to bring the budget resolution policies to fruition. The 1974 act prescribed a 10-day period to accomplish reconciliation, requiring that the process be concluded by September 25. After several years' experience with the congressional budget process, congressional leaders realized that reconciliation could not be used to make major changes in revenue and direct spending laws and still fit within such a compressed time frame and occur so late in the session. Therefore, when the House and Senate first employed reconciliation in 1980, it was initiated in the first budget resolution, which was adopted in the late spring. The following year, reconciliation was again used in connection with the first budget resolution. Shortly thereafter, the House and Senate abandoned altogether the practice of adopting a second budget resolution. These changes in congressional practice were formally incorporated into the 1974 Congressional Budget Act several years later under amendments made by the Balanced Budget and Emergency Deficit Control Act of 1985 (Title II of P.L. 99-177 ). The changes, which first took effect for FY1987 and still remain in effect, require the annual adoption of only one budget resolution and authorize the inclusion of any reconciliation instructions in it. The deadline for the adoption of the budget resolution was advanced by one month to April 15. Under the revised timetable, two months are allowed for reconciliation. Congress established a deadline of June 15 for the completion of action on any required reconciliation legislation. To enforce this deadline in the House, a prohibition against the consideration of a July adjournment resolution if reconciliation is not completed was placed in Section 310(f) of the 1974 Act. The Senate has no comparable provision. Overall Record of Experience The record of experience with reconciliation legislation over the period covering 1980 to the present indicates considerable variation in the time needed to process such measures from the date the reconciliation instructions take effect (upon final adoption of the budget resolution) until the resultant reconciliation legislation is approved or vetoed by the President. As Figure 2 shows, the processing interval for the 20 enacted and four vetoed reconciliation measures ranged from a low of 27 days (for the Omnibus Budget Reconciliation Act of 1990) to a high of 384 days (for the Tax Increase Prevention and Reconciliation Act of 2006). On average, completing the process took about five months (155 days), well beyond the two months contemplated by the timetable in the 1974 Congressional Budget Act. With regard to the use of reconciliation by congressional session, Congress has not ostensibly favored one session over the other. As Table 2 shows, action on 11 such measures was completed during the first session and on 13 such measures during the second session. It should be noted, however, that six of the measures (the Omnibus Budget Reconciliation Act of 1983; the Consolidated Omnibus Budget Reconciliation Act of 1985; the Deficit Reduction Act of 2005; the Tax Increase Prevention, Reconciliation Act of 2005; the Healthcare and Education Reconciliation Act of 2010; and the Restoring Americans' Healthcare Freedom Reconciliation Act of 2015) were enacted (or vetoed) between January and May of the second session and were from reconciliation directives included in the prior session. Congress and the President have shown the ability to initiate the reconciliation process and conclude it reasonably early in the same session: In the case of eight bills (for seven different years), reconciliation measures were enacted or vetoed before the end of August. On the other hand, the reconciliation process can be lengthy and drawn out: In four instances, reconciliation measures were not enacted or vetoed until December, and in six other instances, they carried over until the following year. Adoption of Reconciliation Instructions During the period covering from 1980 to the present, Congress adopted 21 budget resolutions containing reconciliation instructions (see Table 3 ). The House and Senate adopted four of these budget resolutions (for FY1994, FY2000, FY2001, and FY2004) on time, but the others were adopted behind schedule. As Table 3 shows, most of the budget resolutions that contained reconciliation instructions were adopted in April, May, or June, but one was adopted as late as August and another in October. During years when reconciliation was used, budget resolutions were adopted, on average, about 47 days after the prescribed deadline. Timely adoption of the budget resolution can facilitate timely enactment of reconciliation legislation, just as tardy adoption of the budget resolution can delay completion of the reconciliation process. For example, the FY2002 budget resolution was adopted only 25 days after the deadline, and the reconciliation process for that year was completed in another 28 days (compared to the average of 155 days). Conversely, the FY1986 budget resolution was adopted 108 days after the deadline, and the reconciliation process took another 249 days to complete. Nonetheless, timely or tardy adoption of a budget resolution does not necessarily ensure that the reconciliation process will proceed quickly or slowly. For example, in two of the years that the budget resolution was adopted on time (FY1994 and FY2000), 131 days and 161 days, respectively, were taken to complete action on reconciliation legislation. In 2005, the FY2006 budget resolution was adopted only 13 days behind schedule, but the second of two reconciliation measures generated thereunder was not enacted into law until 384 days later. Another factor that can affect how quickly or slowly reconciliation legislation is processed is the amount of time given to committees to prepare their reconciliation recommendations. As Table 3 indicates, the initial deadline for committee submissions, included in the budget resolution, ranged from about one week to over five months after adoption of the budget resolution. The longer deadlines were used largely to accommodate the August recess. In some cases, the submission deadline was extended one or more times. House and Senate Action on Omnibus Reconciliation Legislation As indicated previously, the House and Senate together completed action on 24 different budget reconciliation bills since 1980; 20 of them were enacted into law, and four were vetoed. (The text of one or more other measures considered separately was sometimes incorporated later into an omnibus budget reconciliation bill.) On occasion, one chamber has considered reconciliation legislation that was not considered by the other chamber. During the second session of the 106 th Congress, for example, the House and Senate passed the Marriage Tax Relief Reconciliation Act of 2000, but it was vetoed by President Clinton. The House passed five other reconciliation measures during the session, but the Senate did not act on any of them. Table 4 provides information on the dates of initial consideration by the House and Senate of these 24 measures, as well as the dates that the two chambers acted on the relevant conference reports. As the table shows, the Senate devoted more than twice as many days (81 days) to initial consideration of these measures than did the House (33 days). Initial Senate consideration of these measures ranged from two to eight days, while House consideration took one or two days, except in 1989 (when the House considered the Omnibus Budget Reconciliation Act of 1989 for six days). Of the 155 days needed (on average) to develop, consider, and enact into law (or veto) a reconciliation bill, about half were required to secure initial passage in the House and Senate. The remaining days were taken up by conference meetings, adoption of the conference report, enrollment of the legislation, and consideration and approval by the President.

The budget reconciliation process is an optional procedure under the Congressional Budget Act of 1974 that operates as an adjunct to the annual budget resolution process. The chief purpose of the reconciliation process is to enhance Congress's ability to change current law in order to bring revenue and spending levels into conformity with the policies of the budget resolution. Accordingly, reconciliation may be the most potent budget enforcement tool available to Congress for a large portion of the budget. Reconciliation is a two-stage process in which reconciliation instructions are included in the budget resolution directing the appropriate committees to develop legislation achieving the desired budgetary outcomes, and the resultant legislation (usually incorporated into an omnibus bill) is considered under expedited procedures in the House and Senate. Reconciliation was first used by the House and Senate in calendar year 1980 for FY1981. As an optional procedure, it has not been used every year. Since 1980, 20 reconciliation measures have been enacted into law, and four have been vetoed. Most recently, President Obama vetoed the Restoring Americans' Healthcare Freedom Reconciliation Act of 2015 on January 8, 2016. Under a revised timetable in effect since FY1987, the annual budget resolution is scheduled for final adoption by the House and Senate by April 15. The current timetable prescribes June 15 as the deadline for completing action on any required reconciliation legislation, but there is no explicit requirement to that effect. The record of experience with reconciliation legislation over the period since 1980 indicates considerable variation in the time needed to process such measures from the date the reconciliation instructions take effect (upon final adoption of the budget resolution) until the resultant reconciliation legislation is approved or vetoed by the President. The interval for the 24 reconciliation measures ranged from a low of 27 days (for the Omnibus Budget Reconciliation Act of 1990) to a high of 384 days (for the Tax Increase Prevention and Reconciliation Act of 2005). On average, completing the process took about five months (155 days), well beyond the two months contemplated by the timetable in the 1974 Congressional Budget Act. With regard to the use of reconciliation by congressional session, action was completed on 11 such measures during the first session and on 13 such measures during the second session. The time taken to initiate and conclude the reconciliation process has varied greatly. In some cases, reconciliation measures were enacted or vetoed before the end of August. On the other hand, the reconciliation process can be lengthy and drawn out: In some instances reconciliation measures were not enacted or vetoed until the following calendar year. This report will be updated as developments warrant.

ESA Section 9: The "Take" Prohibition ESA section 9 makes it unlawful for any person to "take" an animal listed as endangered under the ESA. "Take" is defined broadly by the ESA to include "harm" to an endangered animal (or plant). And "harm," critically for the climate change argument above, has been administratively defined to include indirect harm to listed species members through certain significant habitat modifications . Thus, at first glance an argument appears to exist that because a significant GHG emitter contributes to climate change, which melts the polar bear's sea-ice, the emitter violates the section 9 "take" prohibition. If blessed by the courts, this argument would require a significant GHG emitter to obtain an "incidental take permit," allowing incidental takes of polar bears after the emitter submits a conservation plan and the FWS finds that the applicant will minimize the impacts of such taking. This argument has some flaws. First, section 9, as noted, prohibits "takes" only as to endangered species, while the polar bear was listed as threatened. Here matters become more complex. By general rule, the FWS long ago extended the section 9 "take" prohibition to threatened species as well. Threatened species with atypical management needs, however, are subject instead to "special rules." The FWS has great flexibility in writing special rules, because the ESA requires only that regulations protecting threatened species be "necessary and advisable to provide for the conservation of such species" —not that they be the same as the act's protections for endangered species. When the FWS listed the polar bear as threatened, it simultaneously issued a special rule for the species, also known as a "4(d) rule" after the relevant ESA subsection. The polar bear 4(d) rule has been controversial. The rule narrows the section 9 "take" prohibition that normally would apply through the general rule above, by two exceptions. Only one is substantially relevant to climate change. It exempts from the section 9 prohibitions "any taking of polar bears that is incidental to, but not the purpose of, ... an otherwise lawful activity within any area subject to the jurisdiction of the United States except Alaska." The effect of this exemption would appear to be that a coal-fired power plant anyplace in the United States except Alaska could not be deemed to "take" polar bears through its GHG emissions. Unless the section 4(d) rule is judicially invalidated, then, any effort to use the polar bear listing to reduce GHG emissions through a "take" argument will almost certainly be unsuccessful. A second flaw in the GHG-emissions-take-polar-bears argument is that of causal proximity. GHG sources (anywhere in the U.S.) do not affect polar bears directly, but through the intermediary steps of atmospheric mixing, Arctic warming, and sea-ice melting. Is this a close enough nexus between activity and "take" to trigger section 9? Section 9 case law indicates that, for a violation to occur, there has to be a causal connection between the activity and the "take," and "imminent harm" must be "reasonably certain to occur." Case law further indicates that indirect effects can constitute "takes," but does not explicate further. Given these vague standards, one can say only that the argument that a source of substantial GHG emissions "takes" polar bears is plausible. Greater certainty as to the argument's chances of success is impossible given that the decided cases involve facts very different from climate change. Judicial attitudes toward the causal proximity required by the ESA may be influenced by a Supreme Court decision in 2007, Massachusetts v. EPA , holding that EPA has authority under the Clean Air Act (CAA) to regulate GHGs from new motor vehicles. Relevant here is the Court's discussion of Massachusetts's standing to bring the suit. There, it found that the reduction in automobile GHG emissions sought by the state was likely to yield a non-negligible benefit to the state—slowing down its loss of shorelands to sea level rise—thus satisfying the "redressability" requirement of standing doctrine. The analogy between Massachusetts's loss of shoreland and the polar bears' loss of sea ice is evident, though standing law and the ESA are admittedly very different contexts. Finally, there is the question of whether the effect of a particular GHG emissions source on polar bear habitat is de minimis. ESA Section 7: Consultation with FWS While section 9 applies to persons, section 7 applies only to federal agencies. It demands that each federal agency "insure that any action authorized, funded, or carried out by such agency ... is not likely to jeopardize the continued existence of any endangered species or threatened species or result in the destruction or adverse modification of [designated critical habitat]." To minimize the chance of "jeopardy" or "adverse modification," section 7 creates a consultation process. If any listed species is present in the area of the proposed action, the agency proposing to act prepares a "biological assessment" identifying any such species likely to be affected, and setting out relevant details of the action and available information on its potential effects. The agency must then consult with the FWS, which prepares a "biological opinion" as to how the proposed action will affect the species or designated critical habitat. If the biological opinion finds jeopardy or adverse modification, the FWS must propose "reasonable and prudent alternatives" that the action agency or permit applicant can take to eliminate jeopardy or adverse modification. Based on the argument above for "takes," the argument may be made that the proposal of a federal action "authoriz[ing], fund[ing], or [carrying] out" substantial emissions of GHGs triggers section 7 consultation. And just as section 9 has a habitat modification component, so does section 7, though only where critical habitat has been formally designated. Moreover, case law supports the triggering of section 7 consultation even when the effect of an agency action is remote from the area of agency action. If sanctioned by the courts, this argument for section 7 consultation would effectively require an agency to adopt any reasonable and prudent alternatives proposed by the FWS, which presumably could include reduction of GHG emissions. As with the section 9 "take" argument, the section 7 consultation argument has its vulnerabilities. The major one is causation. FWS regulations say that section 7 consultation evaluates the "direct and indirect effects" of the proposed action. "Indirect effects" are "those that are caused by the proposed action and are later in time, but still are reasonably certain to occur." The listing preamble strongly insists that the "caused by" requirement is not satisfied in the case of GHG emissions and the plight of the polar bear. States the preamble: "The best scientific information available to us today ... has not established a causal connection between specific sources and locations of emissions to specific impacts posed to polar bears or their habitat." Moreover, recently proposed amendments to the consultation regulations would make it even less likely that FWS would regard climate change-related impacts on the polar bear as an indirect effect of a federal action, triggering consultation. The preamble reference to "[t]he best scientific information available to us today" acknowledges that new scientific information may provide the requisite causal connection. A second point is that while the causal nexus between "specific sources" and adverse effects on polar bear habitat may be elusive, some federal actions—such as CAA regulations—may increase GHG emissions from enough sources that the linkage may be more clear. Third, in contrast with the section 9 prohibitions, the FWS cannot by special rule narrow the range of circumstances that trigger section 7 consultation—though its views on the causal nexus between GHG emissions and polar bears, or lack thereof, will likely be accorded deference by a court. A final point is that as with the causation issue under section 9, Massachusetts v. EPA may be influential here as well. As with section 7, a de minimis argument exists for consultation. Another problem with use of section 7 for polar bears is that the May 15, 2008 listing was not accompanied by designation of critical habitat for the bear. The Center for Biological Diversity sued, challenging this failure to designate. In the meantime, any effort to force a section 7 consultation based on a proposed activity's GHG emissions will have to argue that the emitting source satisfies the "jeopardy" trigger for consultation. Other Listing Petitions Related to Climate Change Though the polar bear petition was the most publicized, several other listing petitions have been filed for animals alleged to be endangered or threatened due, in whole or in part, to climate change. The Center for Biological Diversity is the sole petitioner in almost all of these, reflecting its campaign to use the ESA to address climate change. Besides the polar bear, only one of these petitions has reached a final listing determination—that for the elkhorn and staghorn coral, in 2006. Seven other petitions are currently pending, and are listed below. To understand their status, the procedural stages in the ESA listing process must be reviewed. First, the 90-day finding . Upon receipt of a petition, the appropriate Secretary (of the Interior, or of Commerce) must determine if it "presents substantial ... information indicating that the petitioned action may be warranted," and must do so within 90 days, if practicable. Second, the 12-month finding. If the 90-day finding is positive, the Secretary must determine whether listing is warranted, not warranted, or warranted but precluded by other pending proposals that require immediate attention, within 12 months of receiving the petition. If the 12-month finding concludes that listing is warranted, the Secretary must promptly publish a proposed rule to list. Third, the final listing determination. Within one year of publishing the proposed rule, the Secretary must publish a final listing determination either listing or withdrawing the proposal. The seven pending listing petitions related to climate change, together with the year each petition was filed and current status, are— Kittlitz's murrelet, 2001. This Arctic sea bird has been in "warranted but precluded" status for several years. That status is being challenged in court on the ground that the Secretary of the Interior has not satisfied the ESA prerequisite for such status that "expeditious progress is being made" in adding and deleting other species from the endangered or threatened list. Twelve species of penguin, 2006. The failure to make a 12-month finding as to 10 of these species is being challenged in court. (In contrast to other species in this list, these twelve species are found exclusively outside the United States.) American pika, 2007. The failure to make a 90-day finding for this small alpine mammal is being challenged in court. (A similar suit attacks California's rejection of a listing petition for the pika under that state's Endangered Species Act). Ashy storm petrel, 2007. A positive 90-day finding for this seabird was made on May 15, 2008. Ribbon seal, 2007. A positive 90-day finding was made on March 28, 2008. Pacific walrus, 2008. The failure to make a 90-day finding has led to submission of 60 days' notice of a future citizen suit. Ringed, bearded, and spotted seal, 2008. Petition to list filed May 28, 2008. Other Efforts to Adapt Existing Laws to Addressing Climate Change The Center for Biological Diversity's campaign to use the ESA against climate change is only part of a broad effort by states, public interest groups, and individuals to use existing laws for this purpose. Climate change-related litigation has invoked the CAA, wildlife protection statutes (the ESA and Marine Mammal Protection Act), energy statutes (the Energy Policy and Conservation Act and Outer Continental Shelf Lands Act), information statutes (including the National Environmental Policy Act), nuisance law, and state laws governing electric utilities. The number of case filings has proliferated in recent years. Under either the ESA or other statutes, however, it is likely that complainants fully understand the inability of these laws to produce broad schemes for dealing with climate change. Rather, these suits have almost certainly been filed, in part, to pressure Congress or international negotiators to adopt comprehensive solutions tailored to the specifics of climate change.

On May 15, 2008, the Fish and Wildlife Service (FWS) listed the polar bear as a threatened species under the Endangered Species Act (ESA). At the same time, it published a "special rule" limiting the application of ESA prohibitions to activities affecting the bear. The listing and special rule attracted attention due to the likelihood that the listing will be used as a legal basis to attempt to force reductions of greenhouse gas emissions from sources nationwide. At least two arguments might be made. First, the ESA prohibition of "takes" could be argued to be violated by major greenhouse gas sources. The special rule seeks to bar this argument, but has been challenged in court. Second, the ESA might require consultation with the Fish and Wildlife Service before a federal agency can authorize a major source of greenhouse gases, though the Service argues that current science does not support an adequate causal nexus between specific sources of greenhouse gases and specific effects on polar bears.

Introduction Advances in genomics technology and information technology infrastructure, together with policies regarding the sharing of research data, support expanded genomic research efforts but also raise new issues with respect to privacy, and specifically the effort to balance "the potential of scientific progress with privacy and respect for persons." The development of new genomic sequencing technologies has allowed for the generation of big data, and recent changes in information technology infrastructure—including, for example, cloud data storage—have facilitated big data storage and analytics. These developments are expected to support significant changes in health research and, eventually, in health care delivery. Specifically, researchers hope to leverage big data by combining genetic, environmental, clinical, behavioral, and other data to facilitate precision medicine. Precision medicine is the idea of providing health care to individuals based on specific patient and disease characteristics, and is a priority of the National Institutes of Health (NIH). Genetic and genomic research have generated large amounts of genetic data. If these "large-scale genomic data" are generated as a part of research funded by the National Institutes of Health (NIH), then they are subject to specific data sharing policies and are often held in publicly available databases. "Large-scale genomic data," as defined for the purposes of NIH's data sharing policy, include genome-wide association studies (GWAS), as well as genome sequence, gene expression, and other data. Among other things, advances in sequencing technology have enabled this research, and have made available large amounts of data at a rate that has generally outpaced the ability to both store and analyze that data (see "What is DNA Sequencing?" text box, above). Sequencing output has been increasing at approximately a fivefold rate per year in recent years, and the sequence data from a single individual's genome uses about 100 gigabytes of storage space. As a result, "[g]enomic databases increasingly surpass the storage abilities of individual researchers—and even of large institutions—and consequently are stored increasingly frequently in the 'cloud.'" , For example, the National Cancer Institute (NCI) at NIH has launched and funded its Cancer Genomics Cloud Pilots, an initiative to develop up to three public cancer genomics cloud pilots, where large data repositories will be colocated with computing resources. Storage of sequence data in "clouds" facilitates faster, more widespread, and increased access to this information. Genomic Data Sharing Advances in genomics research—for example, studying the genetic underpinnings of common diseases such as diabetes—have been facilitated by the data-banking of large quantities of data that are in turn available as a result of policies that encourage or require data sharing. NIH has established a comprehensive policy for the sharing of genomic data that "applies to all NIH-funded research that generates large-scale human or non-human genomic data as well as the use of these data for subsequent research." This policy requires investigators to outline their data sharing plans as part of their funding applications; if investigators fail to submit the required data, NIH may withhold funding. Investigators are required to de-identify the data prior to submitting it to NIH-designated data repositories. Data should be de-identified—stripped of identifiers such as an individual's name—according to the requirements of both the (1) HHS Common Rule and (2) the Health Insurance Portability and Accountability Act (HIPAA) Privacy Rule. In addition, NIH requires the assignment of random and unique codes to the data, with the key linking the codes with individual identifiers to be held by the submitting institution. The data are submitted to relevant NIH-designated databases (e.g., NIH database of Genotypes and Phenotypes, or dbGaP ) by the investigator, and the institution's Institutional Review Board (IRB) determines whether the data may be held in unrestricted-access repositories or should be available only through controlled-access. This determination is made based on the informed consent under which the research was conducted and specifically language in the informed consent about the use of the data for future research purposes, as well as for broad data sharing purposes. Investigators wishing to use controlled-access data for the purposes of secondary research must first get NIH approval to use the data for their specific research project. This requirement is in contrast to unrestricted-access data, which are publicly available to anyone, without requiring prior approval for use in secondary research. Some databases provide differing levels of access to data, depending on the type of data involved. For example, the dbGaP has both open- and controlled-access levels. This flexibility allows for the "broad release of non-sensitive data, while providing oversight and investigator accountability for sensitive data sets involving personal health information." De-identified Genomic Sequence Data and Privacy Considerations Collecting the large quantities of data needed to answer questions about the genetic underpinning of common diseases, and to support precision medicine, requires individuals who are willing to participate in research studies. "The willingness of individuals and communities to assume some risk to participate in biomedical research depends on the scientific community's ability to maintain the public's trust." This trust is developed in many ways, including honest and complete disclosure of risks upfront (through informed consent) and safeguards to protect privacy. With respect to research studies, privacy may be considered in terms of three components, or decision points: (1) the individual's decision to disclose personal data, (2) decisions about controls on access to the data, and (3) decisions about appropriate uses (and what constitutes "misuse") of the data. Relevant law and regulation—including the HIPAA Privacy Rule, the Genetic Information Nondiscrimination Act (GINA), and the Common Rule—govern aspects of these components, including the informed consent process for human research subjects, prohibited uses of the data, and access to the data (and in what form). To date, the privacy of data has been largely considered in the context of identifiability; that is, whether data or information may be readily linked with an individual. NIH defines de-identified data as that data where information that could be used to associate the data with an individual has been removed. Where data is considered to be "de-identified," relevant laws and regulations generally treat it as not posing the potential for a breach of individual privacy. This issue is illustrated by large-scale genomic sequence data, which are generated in large quantities, often entered into the public domain, and generally agreed to be de-identified in the absence of other data sources. In other words, such data were not able to be linked back to a specific individual, or to be "reidentified." Reidentification of Individuals Using De-identified Genomic Sequence Data Experts have noted that "[r]ecent work reveals the need to re-examine the current paradigms for managing the potential identifiability of genomic data." Recent studies suggest that different types of genomic data may be more likely to raise privacy issues than had been previously understood. One study, in particular, has challenged the traditional paradigm that de-identified personal genome data could not be reidentified. In January 2013, a study by Gymrek et al. was published wherein researchers were able to reidentify nearly 50 participants in the International HapMap Project. Researchers were able to reidentify these individuals using their publicly available de-identified personal genome data and other publicly available data. Essentially, to reidentify de-identified personal genome data, a researcher needs to be able to match the de-identified data to a second source of genetic data that is, in turn, linked to some (or multiple) pieces of identifying data. The January 2013 study by Gymrek et al. accomplished this by using a public genealogy database containing genetic information linked to surnames as its second source of genetic data. The study matched the de-identified personal genome data with the genetic information contained in the genealogy database, allowing the researchers to link the de-identified genome data with a surname and other identifying pieces of data (e.g., geographical location). The researchers then used public databases to combine surname, year of birth, and state of residence to identify specific individuals. As noted, the 2013 Gymrek study relied on genealogy data. For this reason, the study's findings cannot be assumed to be broadly generalizable to the whole population; that is, the risk of reidentification using this particular second source of genetic data may not be uniform throughout the general population. In addition, this study relied on the 1000 Genomes database, which is open access; conversely, most NIH data repositories maintain some or all data in a controlled-access manner, which makes accessing data more time-consuming and makes it more difficult to access multiple databases at one time. However, genetic genealogy and other genomic databases are growing, and "the more genomic data collected, and the more refined the connections between genetic variations, disease states, and other personal characteristics, the easier it becomes to reidentify an individual and discover private information." Given the technical feasibility of reidentification demonstrated by the 2013 Gymrek study, along with the increasing amount of genetic data and analytics available, it is reasonable to expect that, over time, the risk of reidentification will expand to encompass more of the general population. Genomic Data Sharing and Current Law The NIH and others see value in genomic research and prioritize funding it and widely sharing the resulting data. However, the generation, handling, and release of these data require privacy and security protections. The recent reidentification of research participants demonstrates that privacy and security concerns are not merely theoretical. Given this, policymakers may decide to monitor both NIH's evolving genomic data sharing policies and relevant federal law. Relevant law includes (1) the Health Insurance Portability and Accountability Act (HIPAA) Privacy and Security Rules; (2) the HHS Regulations for the Protection of Human Research Subjects, or the Common Rule; (3) GINA; and (4) the Freedom of Information Act (FOIA). FOIA is relevant, not in the sense that it protects information from a potential privacy breach, but in that it allows public access to much of the information held by the federal government. The remaining sections of this report provide an overview of each of these relevant laws and regulations. Genomic Data Privacy and Security26 NIH's Genomic Data Sharing (GDS) Policy addresses both the submission of genomic data by NIH-funded researchers to an NIH data repository and the subsequent access and use of that data by other investigators. Generally, NIH-funded researchers conducting human genomic research must adhere to the Common Rule and have their studies approved by an Institutional Review Board (IRB). For research that falls under the scope of the GDS Policy, the IRB must review the informed consent materials to ensure that they explain to research participants the risks and benefits of submitting genomic data to NIH so that it can be shared with other investigators for secondary research use. NIH has developed a set of points for IRBs to consider when reviewing such genomic research proposals. Investigators seeking to download controlled-access data from an NIH data repository must sign a Data Use Certification Agreement and abide by the NIH Genomic Data User Code of Conduct. The Data Use Certification includes a series of data privacy and security requirements to which an investigator and his or her institution must agree. This section of the report discusses the privacy and security safeguards incorporated in the GDS Policy. First, it provides some background on the Common Rule as well as the HIPAA Privacy and Security Rules, with which the Common Rule intersects. Both sets of standards have been criticized for their treatment of research data. Some privacy advocates complain that neither the Common Rule nor HIPAA adequately protects patient privacy, while researchers claim that HIPAA impedes their access to data and places limitations on its secondary use. There are also concerns about inconsistencies between the two sets of standards. Some of these concerns were addressed by HHS in a 2013 final rule that made numerous other amendments to the Privacy Rule pursuant to the Health Information Technology for Economic and Clinical Health (HITECH) Act. Common Rule Under the Common Rule—the core federal regulations governing the protection of human subjects in government-supported research—research protocols must be approved by an Institutional Review Board (IRB) to ensure that the rights and welfare of the research subjects are protected. The rule lists several criteria for IRB approval, including the requirement that researchers obtain the informed consent of their research subjects. In addition, it sets out the types of information that must be provided to prospective research subjects during the informed consent process, including an explanation of the purpose of the research, a description of the research procedures, and a description of the risks and benefits of the research. An IRB may decide to waive the informed consent requirement if it determines that (1) the research poses no more than minimal risk to the subjects, (2) the waiver will not adversely affect the rights and welfare of the subjects; and (3) the research is not practicable without a waiver. While all forms of human subject research potentially involve privacy issues, the focus of the Common Rule (and IRB review) traditionally has been to protect the safety of individuals enrolled in clinical and other interventional research. But with the enormous growth in health data analytics, which often entails the secondary analysis of large databases of clinical information, the principal risk to research subjects increasingly is not physical harm but a loss of privacy. The Common Rule's definition of human subject research includes the collection of individually identifiable information about the research participants. Obtaining de-identified information, by itself, does not constitute human subject research, and such activity is not bound by the Common Rule's requirements. Individually identifiable information is defined as information for which the identity of the subject "is or may readily be ascertained." There is no explicit standard for de-identified information, which by implication is information for which the subject's identity is not readily ascertained. The Common Rule includes two brief provisions that address privacy. First, it specifies that IRBs may only approve research that is judged to have "adequate provisions to protect the privacy of subjects and to maintain the confidentiality of data." Second, the informed consent process must include "a statement describing the extent, if any, to which confidentiality of records identifying the subject will be maintained." The Common Rule does not elaborate on these provisions by providing additional guidance or defining any terms. One final point about the Common Rule needs emphasizing, which is that it permits consent for corollary and future research. This consent can occur when the primary research study is paired with other activities, such as the creation of a research database or repository where information and specimens obtained from a research participant are transferred and maintained for future research. In such instances, an IRB may approve an informed consent document that asks research participants to allow future research on their identifiable information or specimens, provided the future research uses are described in sufficient detail to allow an informed consent. HIPAA Privacy and Security Rules The HIPAA Privacy and Security Rules established a set of federal standards to help safeguard personal health information. The HIPAA Rules apply to health plans, health care clearinghouses, and health care providers, which are collectively referred to as "covered entities." The HIPAA Rules also apply to the business associates of covered entities. These are organizations with whom covered entities share health information to help carry out their activities and functions. The Privacy Rule covers "protected health information" (PHI) in any form or format that is created or received by a covered entity. The Privacy Rule includes a de-identification standard. Health information is considered de-identified if 18 specified types of identifiers are removed, or if a qualified expert, using accepted statistical methods, determines that the reidentification risk is "very small." De-identified information that meets this standard is not subject to the Privacy Rule. In the broadest terms, the Privacy Rule prohibits a covered entity from using or disclosing PHI except as expressly permitted or required by the rule. For all uses or disclosures of PHI that are not otherwise permitted or required by the rule, covered entities must obtain the individual's written authorization. The Privacy Rule requires covered entities to adopt reasonable administrative, technical, and physical safeguards to protect PHI from unauthorized access, use, or disclosure. The accompanying Security Rule—applicable only to PHI in electronic form (ePHI)—establishes a series of security standards that are both technology-neutral and scalable, based on the size and complexity of the organization. The administrative standards include security management, workforce, and training, as well as procedures for dealing with security incidents. The physical standards include facility access and security, and workstation use and security. And the technical standards for protecting digital information include access controls, individual and entity authentication, and encryption. Each security standard is accompanied by one or more implementation specifications. Some implementation specifications are required; for example, to meet the security management standard, each organization must conduct an accurate and thorough risk analysis. Other implementation specifications are "addressable." Organizations must assess each addressable specification to determine whether it is a reasonable and appropriate safeguard before deciding whether to adopt it. Under the Privacy Rule, PHI may not be used or disclosed for research without authorization, with three exceptions. First, IRB may waive the authorization requirement based on a determination that (1) the use or disclosure of PHI involves no more than minimal risk to the privacy of the individuals; (2) the research could not practicably be conducted without a waiver; and (3) the research could not practicably be conducted without access to, and use of, the health information. These criteria for waiving authorization for the use or disclosure of PHI for research are similar to the Common Rule criteria for waiving informed consent to participate in research. Second, PHI may be reviewed when necessary to prepare a research protocol or for a similar purpose to prepare for research. Third, PHI of persons who have died may be used or disclosed if necessary for research purposes. In 2009, the Institute of Medicine (IOM) released a report on the Privacy Rule's impact on research. The IOM concluded that the rule does not adequately protect the privacy of health information and impedes the conduct of important new research. The report found considerable variation in how organizations that collect and use health data are interpreting and following the Rule. It discussed the challenges in reconciling the Privacy Rule with other federal regulations—primarily the Common Rule—that govern human subject research. The report also examined inconsistencies between the Privacy Rule and the Common Rule, neither of which applies uniformly to all health research. For example, the Privacy Rule generally prohibited combining an authorization with any other legal permission to create a "compound" authorization, unless it was for the same study. Thus, a Privacy Rule authorization for a specific research study could be combined with Common Rule informed consent to participate in the research. But any separate research activity, such as collecting specimens or data for a central research database or repository, would require its own authorization. Unlike Common Rule informed consent, Privacy Rule authorizations also had to be study-specific; authorizations for future research were prohibited. In 2013, HHS modified its interpretation of the Privacy Rule to address some of the inconsistencies with the Common Rule. Under the new interpretation, the Privacy Rule now permits compound authorizations for any type of research activity (with limited exceptions) and allows authorizations for future research, provided the description of the future research uses is sufficiently clear that it would be "reasonable for an individual to expect that his or her protected health information could be used or disclosed for such future research." Responsibilities of Researchers Submitting Genomic Data NIH has developed a set of points for IRBs to consider when reviewing genomic research proposals that involve the submission of data to NIH. The purpose of this document is to help inform and guide IRBs as they seek to determine, as required under the Common Rule, whether adequate data privacy protections are in place, and whether the informed consent process describes how data confidentiality will be maintained. The NIH points-to-consider document includes background information on the GDS Policy and discusses both the benefits and risks of sharing genomic data through an NIH data repository. The document discusses several potential risks associated with the submission of genomic data to NIH and its subsequent release for secondary research. Those risks include the risk of identifying research participants, the risk of inadvertent or inappropriate use or disclosure of identifiable information, and the risk of disclosure in response to a request under the Freedom of Information Act (FOIA). To reduce the risk of identification, investigators submitting genomic data to NIH-designated repositories are required to de-identify the data according to both the Common Rule and the Privacy Rule standards. As discussed earlier, only the Privacy Rule provides an explicit standard for de-identifying data. The submitting investigator should assign random, unique codes to the de-identified data and retain the identification keys. While the NIH genomic data repository does not include individual identifiers (e.g., name, address, birth date, social security number), the agency recognizes that "technologies available within the public domain today, and technological advances expected over the next few years, make the identification of specific individuals from raw genotype-phenotype data feasible and increasingly straightforward." NIH encourages IRBs to consider whether an investigator has obtained a Certificate of Confidentiality from NIH as an additional layer of protection. A Certificate of Confidentiality protects investigators from being compelled to disclose information that would identify research subjects in any civil, criminal, administrative, legislative, or other proceeding. This requirement can help promote participation in the research by adding an additional layer of privacy protection. It is quite possible that the genomic research participants will be given a compound authorization that includes the informed consent materials (pursuant to the Common Rule) as well as a HIPAA authorization (pursuant to the Privacy Rule)—unless waived by an IRB—to allow an investigator to access medical information about the participants from their physicians and other health care providers. The HIPAA authorization form must include a description of the potential future uses of the data. Notwithstanding the Privacy Rule's requirements governing researchers' access to medical information about their research subjects, it is important to keep in mind that the research investigators themselves (and their institutions) are unlikely to be HIPAA-covered entities (i.e., health plans or health care providers). If researchers do not meet the definition of a covered entity, then they are not subject to the HIPAA privacy and security standards. Responsibilities of Investigators Accessing and Using Genomic Data Investigators and institutions seeking access to data from an NIH genomic data repository must submit a Data Access Request along with a Data Use Certification. The Data Use Certification specifies the terms and conditions for the research use of the data. For example, investigators must (1) follow all applicable federal, state, and local laws and regulations for handling genomic data, including IRB approval if required; (2) use the data only for the approved research; (3) not attempt to identify or contact the individual participants from whom the data were obtained; and (4) not share the data with anyone other than those listed in the Data Access Request. The Data Use Certification also requires investigators (and their institutions) to agree to handle the data according to NIH's current dbGaP (database of genotypes and phenotypes) Security Best Practices. These include, but are not limited to, the following IT security requirements: use of firewalls and updated anti-virus/anti-spyware software; use of security auditing/intrusion detection software; strong password policies; and encrypting data on portable devices. In general, investigators are required to keep the data secure and confidential and adhere to data management practices so that only authorized individuals gain access to the data. Finally, investigators must notify NIH of any unauthorized data sharing, breaches of data security, or inadvertent data releases that may compromise data confidentiality within 24 hours of when the incident was identified. As already noted, investigators and the academic and other institutions to which they belong are unlikely to be covered entities, in which case they are not bound by the HIPAA privacy and security standards. However, the dbGaP Security Best practices broadly overlap with the HIPAA technical security standards for protecting digital information and controlling access to it. The Freedom of Information Act (FOIA)59 In 1966, Congress enacted the Freedom of Information Act (FOIA), which provides the public presumed access to executive branch information. FOIA established, for any person—corporate or individual, citizen or otherwise—presumptive access to existing, unpublished agency records on any topic. In a "points to consider" memorandum regarding data sharing concerns, the NIH stated that "datasets submitted to NIH" will be "U.S. Government records that are subject to" FOIA. FOIA, however, specifies nine categories of information that may be exempted from the rule of disclosure, including trade secrets and information related to national security. Disputes between requesters and agencies over the accessibility of requested records may be settled in federal court or may be mediated in the Office of Government Information Services (OGIS). The sharing of genetic and genomic data among private individuals, researchers, and the federal government has, at times, prompted concerns that the information, if collected or retained by a federal executive branch agency, could be subject to public release pursuant to FOIA. As noted above, although the information submitted to NIH is considered de-identified, researchers have demonstrated an ability to identify individual genomic or genetic material despite attempts to anonymize the data. Public release of the de-identified data, therefore, may generate unease about personal privacy protection as well as lead to calls for legislation further clarifying public access to such information. Among FOIA's nine exemptions that permit agencies to withhold applicable records, two categories are more likely to affect the disclosure of genetic or genomic material: Exemption 3: data specifically exempted from disclosure by a statute other than FOIA if that statute meets criteria laid out in FOIA; and Exemption 6: Personnel, medical, or similar files, the disclosure of which would constitute an unwarranted invasion of personal privacy. An example Exemption 3 statute, in the context of potentially withholding genetic material, might include 42 U.S.C. §242m(d) (a provision of the Public Health Service Act, as amended), which protects from public release certain information that would allow an individual to be identified if that information was collected for epidemiological or statistical activities. These types of Exemption 3 statutes are often referred to as b(3) exemptions because they are authorized in 5 U.S.C. §552(b)(3). A second potentially applicable b(3) exemption is provided in 15 U.S.C. §3710a(c)(7)(a) (a provision of the National Defense Authorization Act for Fiscal Years 1990 and 1991), which protects from public release "trade secrets or commercial or financial information that is privileged or confidential ... obtained in the conduct of research ..." Also, Exemption 3 would prohibit the disclosure of any information that is covered by future statutes passed by Congress. As a result, legislation enacted at any time that would specifically prohibit the release of genetic and genomic data may qualify as a b(3) exemption and could be used to withhold qualifying genetic material. Exemption 6 of FOIA provides for the withholding of information that relates to personally identifiable information in "personnel and medical files, and similar files." The intention of this exemption is to allow agencies to withhold records that contain personally identifiable information, provided that the individual's interest in privacy outweighs the public interest in the record's release. According to the NIH "points to consider" memorandum, NIH "believes that the release of unredacted GWAS datasets ... would constitute an unreasonable invasion of personal privacy under FOIA Exemption 6." Moreover, Exemption 6 has been read historically as applying to information that can be linked to a particular individual. As discussed above, the ability to identify an individual using genetic research material that was previously not thought to be identifiable has been demonstrated. Where this data could be traced to specific individuals, it is possible that the potential release of the information would trigger a privacy interest of a degree that might warrant withholding under Exemption 6. The federal government, however, has maintained that the data collected are currently not identifiable, possibly removing any ability for an agency to apply an exemption that relies on the personal identification of an individual. Moreover, a determination that the data allows for an individual's identification would not necessarily permit the withholding of information; pursuant to FOIA, the privacy interests of the individuals who may be affected by the information's release would still need to be weighed against the public's interest in the information's disclosure. In addition to these two exemptions, the specific facts surrounding each information request could trigger a number of other FOIA exemptions. For instance, genetic and genomic records could potentially relate to ongoing law enforcement activities (Exemption 7), inter-agency and intra-agency memorandums (Exemption 5), or confidential commercial and financial information (Exemption 4). The Genetic Information Nondiscrimination Act (GINA, P.L. 110-233)65 In terms of the reidentification of research subjects, the Genetic Information Nondiscrimination Act of 2008 (GINA, P.L. 110-233 ) would protect against discrimination based on information discovered about a research subject subsequent to his or her reidentification (e.g., genetic test results or family history). As described previously, one way to consider the security of data from a policy perspective is to consider it in terms of both controls on access to, and designation of appropriate uses of, the data. With respect to genetic information, GINA establishes prohibitions that affect primarily the appropriate use of genetic information, but that also address—to a lesser extent—access to genetic information. Specifically, GINA prohibits discrimination based on genetic information by both health insurers and employers. The reach of GINA's prohibitions is in part governed by its definition of the term "genetic information" (see " How Does GINA Define Genetic Information? " text box, above). Genomic sequence data would not necessarily be protected under GINA; instead, it would be the information uncovered secondary to analysis of the sequence data (i.e., a specific genetic test result) that would be protected under this statute. GINA is divided into two main parts: Title I, which prohibits discrimination based on genetic information by health insurers, and Title II, which prohibits discrimination in employment based on genetic information. Title I of GINA amends the Employee Retirement Income Security Act of 1974 (ERISA), the Public Health Service Act (PHSA), and the Internal Revenue Code (IRC), through the Health Insurance Portability and Accountability Act of 1996 (HIPAA), as well as the Social Security Act (SSA), to prohibit group health plans and health insurance issuers from engaging in genetic discrimination. Broadly, GINA prohibits group health plans and health insurance issuers from engaging in three practices: (1) using genetic information about an individual to adjust a group plan's premiums, or, in the case of individual plans, to deny coverage, adjust premiums, or impose a preexisting condition exclusion; (2) requesting, requiring, or purchasing genetic information for underwriting purposes or prior to enrollment; and (3) requiring or requesting genetic testing. While the first prohibition addresses the use of the information, the second addresses both access to and use of the information, and the last addresses access to the information. The health reform law (ACA, P.L. 111-148 , as amended) contains provisions that may overlap to some extent with those in Title I of GINA. In evaluating the interaction of these two statutes, one may argue that it is possible to read these statutes together as establishing non-conflicting limitations on insurance premiums. Although GINA prohibits using genetic information to determine health coverage and insurance premiums for individuals or groups, the ACA specifically defines the factors on which insurers may predicate issuance of coverage or determination of premiums. The relevant provisions in GINA and the ACA are not identical in scope; however, the provisions of the ACA may obviate some of the requirements of GINA. Importantly, in terms of access to genetic information, there does not seem to be a comparable provision in the ACA to GINA's prohibition on group health plans and health insurers from requiring an individual or family member to undergo a genetic test. Title II of GINA includes provisions that address both access to and appropriate use of genetic information by employers. Specifically, Title II of GINA prohibits discrimination in employment because of genetic information and, with certain exceptions, prohibits an employer from requesting, requiring, or purchasing genetic information. The law prohibits the use of genetic information in employment decisions—including hiring, firing, job assignments, and promotions—by employers, unions, employment agencies, and labor-management training programs. Title II outlines exceptions whereby an employer may lawfully acquire genetic information (e.g., through inadvertent requests, wellness programs, or DNA analysis for law enforcement purposes, among others). However, even if genetic information is acquired through these exceptions, the employer may not use it to discriminate. If genetic information, as defined by GINA, becomes more easily accessible because of the ability to link genomic sequence data with specific individuals, then policymakers may consider expanding GINA's applicability to broaden its protections regarding the use of genetic information. In other words, if access to the data is becoming more difficult to control due to advances in technology or the favoring of countervailing policy goals (e.g., promoting advances in research), then an alternative policy approach is to strengthen requirements governing how the data are able to be used lawfully. This may be done by adjusting the requirements themselves to make them stricter, by broadening the applicability of the existing requirements to additional settings or arrangements, or by a combination of both of these approaches. GINA, for example, does not apply to life, disability, or long-term care insurance, nor does it apply to TRICARE, the Indian Health System (IHS), the Veterans Health Administration, or the Federal Employees Health Benefits Program (FEHB).

Advances in genomics technology and information technology infrastructure, together with policies regarding the sharing of research data, support new approaches to genomic research but also raise new issues with respect to privacy. The development of new genomic sequencing technologies has allowed for the generation of big data, and recent changes in information technology infrastructure have facilitated big data storage and analytics. These developments are expected to support significant changes in health research and, eventually, in health care delivery. Genetic and genomic research—and other "omics" research—have generated large amounts of genetic data. If these "large-scale genomic data" are generated as a part of research funded by the National Institutes of Health (NIH), then they are subject to specific data sharing policies and are often held in publicly available databases. Among other things, advances in sequencing technology have enabled this research, making large amounts of data available at a rate that has generally outpaced the ability to both store and analyze that data. NIH has established a comprehensive policy for the sharing of genomic data that "applies to all NIH-funded research that generates large-scale human or non-human genomic data as well as the use of these data for subsequent research." This policy requires investigators to outline their data sharing plans as part of their funding applications; if investigators fail to submit the required data, NIH may withhold funding. Investigators are required to de-identify the data prior to submitting it to NIH-designated data repositories, according to the requirements of both the HHS Common Rule and the Health Insurance Portability and Accountability Act (HIPAA) Privacy Rule. Some recent studies have begun to suggest that different types of molecular data may be more likely to cause privacy issues than had been previously understood, and specifically, that de-identified large-scale genomic sequence data may in fact be able to be reidentified. In a recent study, researchers were able to reidentify research participants using the publicly available de-identified personal genome data and other publicly available metadata. This demonstration of reidentified individuals in a research study using de-identified genome data raises the question of whether—and if so, how—relevant current law should be modified in response to this new capability. Relevant law governs informed consent, access to research data, and the use of this data, and includes (1) the Health Insurance Portability and Accountability Act (HIPAA) Privacy and Security Rules; (2) the HHS Regulations for the Protection of Human Research Subjects, or the Common Rule; and (3) the Genetic Information Nondiscrimination Act of 2008 (GINA). In addition, the Freedom of Information Act (FOIA) is relevant, not in the sense that it protects information from a potential privacy breach, but in that it allows public access to much of the information held by the federal government. This report discusses these considerations in the context of each of the relevant laws and regulations.

Introduction Under federal law, corporations or most other legal entities may be criminally liable for the crimes of their employees and agents. This is true in the case of regulatory offenses, like crimes in violation of the Federal Food, Drug, and Cosmetic Act; it is true in the case of economic offenses, like crimes in violation of the securities laws; and it is true in the case of common law crimes, like keeping a house of prostitution in violation of the Mann Act. Ordinarily, the agents and employees who commit the crimes for which their principals and employers are liable also face prosecution and punishment. Individual criminal statutes, Justice Department policies, and the Sentencing Guidelines largely dictate the circumstances under which, and the extent to which, agents, employees, corporations, and similar unincorporated entities are prosecuted and punished. This is a brief overview of federal law in the area. Background It was said at common law that "a corporation cannot commit treason, or felony, or other crime, in its corporate capacity: though its members may, in their distinct individual capacities." That perception changed over time. First, it was agreed that a corporation might be held criminally liable for its failure to honor certain legal obligations (nonfeasance); then for the inadequate manner in which it performed certain legal obligations (malfeasance). At the dawn of the 20 th century, the Supreme Court expressed a more sweeping view: It is true that there are some crimes which, in their nature, cannot be committed by corporations. But there is a large class of offenses ... wherein the crime consists in purposely doing the things prohibited by statute. In that class of crimes we see no good reason why corporations may not be held responsible for and charged with the knowledge and purposes of their agents, acting within the authority conferred upon them. If it were not so, many offenses might go unpunished and acts be committed in violation of law where, as in the present case, the statute requires all persons, corporate or private, to refrain from certain practices, forbidden in the interest of public policy. The Court spoke of "crimes which in their nature, cannot be committed by corporations," but did not explain what specific crimes it had in mind. When it spoke, it did so in the midst of a debate over whether a corporation could be held criminally liable not only for crimes of action and inaction (malfeasance and nonfeasance) of its agents but also for those crimes which required that their agents acted with a specific intent (mens rea) such as the intent to defraud ("since a corporation has no soul, it cannot have actual wicked intent"). The Court pointed toward resolution of the issue, however, when it observed that the question turns on the nature of the crime and not the nature of the corporation ("some crimes in their nature, cannot be committed by corporations"). Since, in the federal sphere, there is no crime but by act of Congress, the question is one of statutory proscription and congressional intent. Entities Subject to Corporate Criminal Liability Most federal criminal statutes apply to "whoever," or to any "person" who violates their prohibitions. Although, in ordinary parlance, the word "person" usually refers to a human being, the law often gives it a broader meaning. The Dictionary Act provides that "In determining the meaning of any Act of Congress, unless the context indicates otherwise ... the words 'person' or 'whoever' include corporations, companies, associations, firms, partnerships, societies, and joint stock companies, as well as individuals." The courts have used the Dictionary Act definition to give meaning to the words "person" or "whoever" in the context of a criminal statute. Federal statutes frequently provide individual definitions of the entities that fall within their proscriptions. Some are as terse as that of the racketeering statute, "'person' includes any individual or entity capable of holding a legal or beneficial interest in property." Others, like the tax crime definition, are more detailed: When used in this title, where not otherwise distinctly expressed or manifestly incompatible with the intent thereof—(1) Person.-The term "person" shall be construed to mean and include an individual, a trust, estate, partnership, association, company or corporation. (2) Partnership and partner.-The term "partnership" includes a syndicate, group, pool, joint venture, or other unincorporated organization, through or by means of which any business, financial operation, or venture is carried on, and which is not, within the meaning of this title, a trust or estate or a corporation; and the term "partner" includes a member in such a syndicate, group, pool, joint venture, or organization. (3) Corporation.-The term "corporation" includes associations, joint-stock companies, and insurance companies. Still others have taken special care to mention governmental entities when listing those covered by their proscriptions. The caution reflects judicial reluctance, absent explicit language, to conclude that Congress intends to expose governmental entities to punitive measures. Scope of Authority In federal law, corporate criminal liability is ordinarily confined to offenses (a) committed by the corporation's officers, employees, or agents; (b) within the scope of their employment; and (c) at least in part for the benefit of the corporation. The test for whether an activity falls within the individual's scope of authority is whether the individual engages in activities "on the corporation's behalf in performance of [his] general line of work.... those acts must be motivated, at least in part, by an intent to benefit the corporation." If the standard is met, the corporation will be liable notwithstanding the fact that it expressly directed its agent, employee, or officer not to commit the offense at issue. Under the Model Penal Code and many state penal codes, corporate criminal liability may depend upon the misconduct of senior management officials; the misconduct of lower level employees is not always enough even when they act within their scope of authority for the corporation's benefit. Imputed Intent and Knowledge As a general rule, "[c]orporations may be held liable for the specific intent offenses based on the 'knowledge and intent' of their employees." Again, the rule extends only to those instances when the employee or agent acted, or acquired knowledge, within the scope of his or her employment, seeking, at least in part, to benefit the corporation. The law is somewhat more uncertain when a corporation's liability turns not upon the knowledge or the intent of a single employee but upon cumulative actions or knowledge of several. Liability of Officers, Employees, Agents, Accomplices, and Conspirators With rare exception, statutes which expose a corporation to criminal liability do not absolve the officers, employees, or agents whose violations are responsible for the corporation's plight. From time to time, the courts have encountered the argument that an individual cannot be at once both the person who violates the statute and the personification of the corporation that violates the statute: "[W]hen the officer is acting solely for his corporation, the appellee contends that he is no longer a 'person' within the Act. The rationale for this distinction is that the activities of the officer, however illegal and culpable, are chargeable to the corporation as the principal but not to the individual who perpetrates them." To which the courts have responded, "No intent to exculpate a corporate officer who violates the law is to be imputed to Congress without clear compulsion." Conspiracy raises a slightly more difficult issue. Conspiracy is the agreement of two or more persons to commit some other federal crime. Although the courts have sometimes recognized an intracorporate defense in civil conspiracy cases, they have concluded that a corporation and each of the participating individuals may be liable for plots among two or more of the corporation's officers or employees. On the other hand, a "corporate officer, acting alone on behalf of the corporation, [may] not be convicted of conspiring with the corporation." Conspiracy also presents one of the three situations in which corporate officials and employees may face criminal liability under federal law even though they themselves did not commit, and perhaps did not even know of, the misconduct of other officers or employees. Thus, though an officer or employee has no direct hand in the matter, he is liable for foreseeable offenses committed by one of his co-conspirators in furtherance of their common scheme. The second situation occurs when the official or employee either instructs another to commit a federal offense or aids and abets another in the commission of a federal offense, or takes some action after the fact to conceal the commission of a federal offense by another. Like conspiracy, liability for procuring or aiding and abetting the offense of another focuses on conduct committed before the commission of the underlying substantive offense: Whoever commits an offense against the United States or aids, abets, counsels, commands, induces or procures its commission, is punishable as a principal. (b) Whoever willfully causes an act to be done which if directly performed by him or another would be an offense against the United States, is punishable as a principal. "In order to aid and abet another to commit a crime it is necessary that a defendant in some sort associate himself with the venture, that he participate in it as in something that he wishes to bring about, that he seek by his action to make it succeed." The officer or employee must know of the colleague's pending misconduct and by his action intend to facilitate it. Moreover, unlike conspiracy, which requires at least two individuals, even a sole stockholder may be guilty of aiding and abetting the crime of a corporation. Misprision and liability as an accessory after the fact focus on conduct committed after the commission of the underlying substantive offense. Misprision requires proof that the defendant knew of the commission of a federal felony by another, and that he not only failed to report the offense to authorities but affirmatively acted to conceal it. An accessory after the fact charge requires proof that the defendant knew of the commission of a federal offense by another and assisted the other to avoid arrest, trial or punishment. Both statutes essentially create general obstruction of justice offenses. Consequently, the specific actions which offend their prohibitions will often constitute offenses under other more specific federal obstruction statutes. The third instance of official liability triggered by the misconduct of others within the corporation requires no knowing participation, but instead occurs when a corporate official, responsible to do so, fails to prevent the commission of an offense. This is the least common of the three. It arises in the context of a regulatory scheme, crafted to ensure public welfare and capped with a criminal proscription which says nothing of the knowledge necessary for conviction. Two Supreme Court cases under the Federal Food, Drug, and Cosmetic Act first brought to prominence this so-called "responsible corporate official" doctrine. The doctrine is triggered by legislation "of a now familiar type which dispenses with the conventional requirement of criminal conduct-awareness for some wrongdoing. In the interest of the larger good it puts the burden of acting at hazard upon a person otherwise innocent but standing in responsible relation to a public danger." The legislation generally involves the regulation of "potentially harmful or injurious items." "In such situations," the courts "have reasoned that as long as a defendant knows that he is dealing with a dangerous device of a character that places him in responsible relation to a public danger, he should be alerted to the probability of strict regulation," And they have further "assumed that in such cases Congress intended to place the burden on the defendant to 'ascertain at his peril whether his conduct comes within the inhibition of the statute.'" Thus, they "essentially have relied on the nature of the statute and the particular character of the items regulated to determine whether congressional silence concerning the mental element of the offense should be interpreted as dispensing with conventional mens rea requirements." In such a legislative setting, "the Government establishes a prima facie case when it introduces evidence sufficient to warrant a finding by the trier of the facts that the defendant had, by reason of his position in the corporation, responsibility and authority either to prevent in the first instance, or promptly to correct, the violation complained of, and that he failed to do so." Prosecutorial Discretion Generally The decision to prosecute a corporation or its culpable employees or both is vested in the Justice Department. The courts will review the exercise of that discretion only in rare instances and then primarily to protect the constitutional rights of a defendant or potential defendant. The Justice Department has two sets of guidelines governing the decision to prosecute—one general ("Principles of Federal Prosecution") and the other a supplement devoted to corporations ("Principles of Federal Prosecution of Business Organizations"). As they make clear, the decision to prosecute is in fact a series of decisions. The first is whether to initiate, decline, or defer a prosecution. Here perhaps the most easily assessed factor is the strength of the case against the defendant or defendants. Prosecutors ordinarily will not initiate a prosecution unless there is probable cause to believe that a person has committed a federal crime. On the other hand, prosecutors will seriously consider initiating a prosecution if they believe that they have sufficient admissible evidence to secure a conviction. In those instances, the additional factors that influence the determination to prosecute fall into three categories: the weight of the federal interest, the prospect of effective prosecution elsewhere; and the adequacy of other alternatives. Federal Interests Whether to proceed with a prosecutable case ordinarily turns on the nature and seriousness of the offense and the culpability of the defendants. Some crimes, such as those involving immigration, civil rights, or federal tax violations, may warrant federal prosecution because of their very nature. Others, such as those involving major fraud or illicit drug trafficking, may call for federal prosecution because of the wide-spread harm they can inflict. The critical factors when it comes to corporate liability, however, are culpability factors. The factors identified in the business organization guidelines include pervasiveness of the wrongdoing within the corporation; the corporation's history of misconduct; the existence and performance of compliance programs; the corporation's timely and voluntary disclosure of wrongdoing; the corporation's cooperation; absence of obstruction; collateral consequences; restitution. Pervasiveness The question is, was the corporation the victim of a rogue employee or is it a rogue corporation? Is crime committed for the corporation's benefit condemned, tolerated, or encouraged? Is the crime the work of an isolated individual or does corruption permeate the corporation? "Charging a corporation for even minor misconduct may be appropriate where the wrongdoing was pervasive and was undertaken by a large number of employees, or by all the employees in a particular role within the corporation, or was condoned by upper management." Conversely, it may not be appropriate to charge a corporation, "particularly one with a robust compliance program in place, under a strict respondeat superior theory for the single isolated act of a rogue employee." Most cases will fall between the two extremes and require recourse to other factors as well. Corporate History One indication of the pervasiveness of corruption within a corporation may be its involvement and response to any wrongdoing in its past. Past criminal conduct is telling, but the guidelines explain that earlier civil or regulatory enforcement actions may also be taken into account. The same may be said of the past transgressions of subsidiaries or affiliates, although short of a corporate department for the commission of criminal offenses the presence of subsidiaries or other liability-limiting features of corporate structure are not considered dispositive. Compliance Programs As noted earlier, a corporation may be liable for employee misconduct even where it has warned its employees against committing the offense. However, both the guidelines and the U.S. Sentencing Commission's Sentencing Guidelines encourage compliance programs. While a mere "paper program" may be to little avail, a closely supervised, widely dispersed compliance program tailored to detect and prevent the offenses most likely to occur in the corporation's operational environment may have a real impact. An effective plan may reduce the chances of a prosecution and reduce the severity of the charges and any subsequent sentence should a prosecution occur. Cooperation The cooperative aspects of the guidelines are among its most controversial attributes. It may be thought unseemly for a corporation to profit from the misdeeds of an employee and then escape liability by turning its benefactor over to the authorities. Moreover, the lines between rewarding cooperation and punishing the assertion of constitutional and other legal rights are not easily drawn. The guidelines point out that the Justice "Department encourages corporations, as part of their compliance programs, to conduct internal investigations and to disclose the relevant facts to the appropriate authorities." This is only one of the guideline's cooperation directives. A second is the reminder that cooperation alone does not necessarily shield a corporation from prosecution. Earlier Justice Department policies relating to corporate cooperation with federal prosecutors came under fire because of concerns that they might interfere with the Sixth Amendment rights of corporations and corporate officials. The guidelines now seek to still those concerns by emphasizing that "[w]hat the government seeks and needs to advance its legitimate (indeed, essential) law enforcement mission is not waiver of those [attorney-client and attorney work product] protections, but rather the facts known to the corporation about the putative criminal misconduct under review. In addition, while a corporation remains free to convey non-factual or 'core' attorney-client communications or work product—if and only if the corporation voluntarily chooses to do so—prosecutors should not ask for such waivers and are directed not to do so." By the same token, while corporate officials are not free to obstruct an investigation, the mere fact that a corporation pays the attorneys' fees of its officers or employees or enters into joint defense agreements will ordinarily not constitute obstruction. Attorneys who feel a prosecutor has breached these assurances are encouraged to contact senior Justice Department officials. A corporation may also receive credit for agreeing to make victim restitution, disciplining offending employees, or addressing short-comings in its compliance program. Finally, a prosecutor may consider the adverse impact of a prosecution on innocent employees or shareholders. Prosecution Elsewhere The general guidelines remind prosecutors that prosecution in another jurisdiction may be more advantageous, particularly when the interests of the other jurisdiction are comparatively more substantial or the prospects of a more appropriate sentence are greater. Alternatives to Criminal Trial Prosecutors have several alternatives to criminal trial. They may accept a corporation's offer to plead guilty. They may defer prosecution of the corporation under a deferred prosecution agreement. They may accept a corporation's offer to sign a non-prosecution agreement, frequently with the intent to prosecute corporate officials or employees. They may elect to forgo prosecution in favor of civil sanctions. Finally, since corporate misconduct often occurs in a regulatory context, civil or regulatory sanctions may be available. Whether prosecutors consider them appealing alternatives may depend in part on the severity of the misconduct and the severity of the sanctions. The factors the guidelines identify include "the strength of the regulatory authority's interest; the regulatory authority's ability and willingness to take effective enforcement action; and the probable sanction if the regulatory authority's enforcement action is upheld." Deferred and Non-prosecution Agreements The common perception is that the announcement of its indictment sounds a large corporation's death knell. Consequently, a large corporation, threatened with the prospect of indictment, may be inclined to accept a deferred prosecution agreement or a non-prosecution agreement at terms particularly favorable to the government. Although they are very similar, "a deferred prosecution agreement is typically predicated upon the filing of a formal charging document by the government, and the agreement is filed with the appropriate court." On the other hand, a non-prosecution agreement does not involve filing of formal charges and "the agreement is maintained by the parties rather than being filed with a court." In either case, an agreement gives both parties resolution without the expensive ordeal and uncertain outcome of a criminal trial and its attendant appeals. As part of, or in conjunction with an agreement, a corporation may be induced to shed executives, assist in their prosecution, underwrite extensive remedial action, pay substantial fines, acquiesce in the confiscation of property of considerable value, establish a robust compliance process, and accept an oversight monitor for assurance of its continued good behavior. The guidelines address deferred prosecution and non-prosecution agreements primarily in their plea bargain instructions. As in the case of individuals, the guidelines remind prosecutors to include at least a basic statement of facts. In the case of government contractors, the guidelines prohibit prosecutors from "negotiat[ing] away an agency's right to debar or delist the corporate defendant." They also discourage agreements that shield individual corporate officers, employees, or agents from liability. Internal memoranda guide negotiation of agreements that feature the appointment of outside experts to serve as monitors of a corporation's continued good behavior. Constitutional Rights During a criminal investigation and throughout the course of criminal proceedings, corporations and other legal entities enjoy many, but not all, of the constitutional rights implicated in the criminal investigation or prosecution of an individual. Ex Post Facto The Constitution's ex post facto clauses condemn retroactive criminal laws, state or federal. In rough terms, the ex post facto clauses prohibit: "1 st . Every law that makes an action done before the passing of the law, and which was innocent when done, criminal; and punishes such action. 2d. Every law that aggravates a crime, or makes it greater than it was, when committed. 3d. Every law that changes the punishment, and inflicts a greater punishment, than the law annexed to the crime, when committed. 4 th . Every law that alters the legal rules of evidence, and receives less, or different, testimony, than the law required at the time of the commission of the offence, in order to convict the offender." In cases involving corporate defendants, federal courts have generally proceeded directly to an ex post facto analysis, without pausing to question whether the prohibition applies to such defendants. First Amendment The Supreme Court has stated often that corporations are entitled to First Amendment protections. "[I]n the context of political speech, the Government may [not] impose restrictions on certain disfavored speakers" be they individuals or corporations. Nor may corporations suffer content-based blanket proscriptions of their truthful speech when it relates to lawful commercial activity. Fourth Amendment The Fourth Amendment condemns unreasonable searches and seizures. Ordinarily, a government search or a seizure is unreasonable unless it is conducted pursuant to a warrant issued on the basis of probable cause. "Corporations can claim no equality with individuals in the enjoyment of a [Fourth Amendment] right to privacy." Nevertheless, it cannot "be claimed that corporations are without some Fourth Amendment rights." At the turn of the 20 th century, the Supreme Court acknowledged that corporations enjoyed the protection of the Fourth Amendment when faced with boundless government subpoenas. In later cases, it found the Fourth Amendment's commands had been breached when officers seized a company's records and ledgers, once without a warrant and once with an invalid warrant. The extent of the Amendment's protection will often turn not upon the nature of the subject to the search entity but the nature of its activities and the government's purpose for the search or seizure. In a regulatory context, commercial activities, corporate or otherwise, may be subject to reasonable warrantless inspections or inquiries bereft of probable cause, under some circumstances. The courts continue to affirm, however, that corporate entities may claim Fourth Amendment protection in cases involving searches and seizures occurring on commercial premises but conducted in the course of a criminal investigation. Fifth Amendment Of the rights which the Fifth Amendment guarantees, two have been denied corporations. "[A] corporation has no Fifth Amendment privilege" against self-incrimination, nor does it have a right to grand jury indictment. Of the others, two—Due Process, and Double Jeopardy—either have been said to protect corporations or have been construed to protect corporations. Due Process No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury ... ; nor shall any person be subject for the same offence to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation. U.S. Const. Amend. V. . . . [N]or shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws. U.S. Const. Amend. XIV, §1. The Fifth Amendment Due Process Clause limits the governmental prerogatives of the federal government; the Fourteenth Amendment Due Process Clause limits the prerogatives of the states. Nevertheless, the Supreme Court has recognized that many of the restrictions of the Bill of Rights, binding on the federal government, are—by virtue of the inclusion of those restrictions within the Fourteenth Amendment's understanding of due process—binding on the states under the same standards. The Supreme Court has said long and often that a corporation is a "person" for purposes of the Fourteenth Amendment. Moreover, the courts have acknowledged the access of corporations to various due process rights, for example, the right to challenge a court's personal jurisdiction over them or "the right to be heard at a meaningful time and in a meaningful manner before being deprived of a protected interest in liberty or property." On the other hand, the Supreme Court has said that the states of the United States are not "persons" for Fifth Amendment Due Process Clause purposes. The lower federal courts have followed suit with observations that neither the political subdivisions of the states nor foreign governments are "persons" for purposes of the Due Process Clause. Double Jeopardy The circuit courts have concluded that corporations are entitled to protection against double jeopardy. In addition, the Supreme Court has upheld a corporation's double jeopardy challenge without recognizing the right in so many words. Sixth Amendment The Sixth Amendment guarantees anyone accused of a federal crime several rights: the right to notice of the charges, to the assistance of counsel, to a public and speedy trial before a jury where the crime occurred, to call witnesses, and to confront his accusers. The text implies the rights are available to anyone, corporate or otherwise, accused of a crime. Assistance of Counsel A corporation accused of a crime has the right to the assistance of counsel in its defense. A corporation, however, is not entitled to appointment of counsel at public expense to represent it. Notice of Charges The Sixth Amendment assures the accused that he will be "informed of the nature and cause of the accusation." Rule 7(c)(1) of the Federal Rules of Criminal Procedure carries forward the assurance regardless of whether the accused is charged by indictment or information. Public Trial In the presence of prejudicial pre-trial publicity or inflamed public sentiment, the right to a public trial may conflict with an accused's Fifth Amendment due process right to a fair trial and his Sixth Amendment right to trial by an impartial jury. Moreover, "the public trial right extends beyond the accused and can be invoked under the First Amendment." Speedy Trial The courts use a balancing test to determine whether an accused has been denied his right to a speedy trial. The analysis consists of weighing "the length of [the] delay, the reason for the delay, the defendant's assertion of his right, and [the extent] of prejudice to the defendant [caused by the delay]." The courts have used this constitutional analysis when the accused is a corporation. It is in this context, that the corporate right to a public trial is most often asserted. Jury Trial The Sixth Amendment assures an accused of the right to a jury in serious criminal cases. In three cases involving legal entities—two labor unions and a corporation—the Supreme Court made it clear that an accused facing a substantial criminal fine has the right to a jury trial. Venue By virtue of the Sixth Amendment and Article III, all federal criminal trials must be held in the state and judicial district in which the crime occurs. The venue standards which the courts use for individuals and for corporations are the same. Call Witnesses and Confrontation The accused in a criminal proceeding enjoys the rights under the Sixth Amendment "to be confronted with the witnesses against [and] to have compulsory process for obtaining witnesses in his favor." The right to confrontation includes the instruction that "testimonial statements of witnesses absent from trial can be admitted only where the declarant is unavailable, and only where the defendant has had a prior opportunity to cross-examine. Under the right to compulsory process "at a minimum, ... criminal defendants have the right to the government's assistance in compelling the attendance of favorable witnesses at trial and right to put before the jury evidence that might influence the determination of guilt." The rights ensure the integrity of the criminal fact-finding process. The sparse case law suggests they are available to corporations. Eighth Amendment The Eighth Amendment states that excessive fines may not be imposed. A fine is excessive if it is grossly disproportionate to gravity of the crime for which the defendant was convicted. A few courts avoid the question by noting that the Supreme Court has never decided whether the Eighth Amendment applies to corporations. Others have ruled against corporations on the merits. Sentencing Guidelines Corporations cannot be incarcerated. Nor can they be put to death. Otherwise, corporations and individuals face many of the same consequences following conviction. Corporations can be fined. They can be placed on probation. They can be ordered to pay restitution. Their property can be confiscated. They can be barred from engaging in various types of commercial activity. Corporations and individuals alike are sentenced in the shadow of the federal Sentencing Guidelines. Federal courts must begin the sentencing process for felonies or class A misdemeanors with a calculation of the sentencing ranges recommended by the Sentencing Guidelines. When they impose sentence, they must consider the recommendation along with the factors prescribed in 18 U.S.C. 3553(a). Appellate courts review the sentences imposed on an abuse of discretion standard and will overturn lower court sentences that are procedurally or substantively unreasonable. A sentence is procedurally unreasonable when the sentencing court fails to correctly identify and apply the appropriate Sentencing Guidelines' recommended sentencing range. A sentence is substantively unreasonable when it is unduly harsh or unduly lenient or otherwise inexpedient. The Sentencing Guidelines for organizations measure punishment according to the seriousness of the offense as well as the defendant's culpability and history of misconduct. On the other hand, they reward self-disclosure, cooperation, restitution, and preventive measures. The Guidelines supply special corporate sentencing directions for fines, probation, forfeiture, special assessments, and remedial sanctions. Fines The corporate fine Guidelines begin with the premise that a totally corrupt corporation should be fined out of existence, if the statutory maximum permits. A corporation operated for criminal purposes or by criminal means should be fined at a level sufficient to strip it of all of its assets. On the other hand, a fine need not be imposed at all, if it would render full victim restitution impossible. Otherwise, corporations face different fine standards depending upon the offense of conviction. In chapter 8C, the Guidelines set specific standards for crimes with a commercial flavor—antitrust, smuggling, and gambling offenses, for instance. The Sentencing Commission explicitly declined to promulgate special corporate fine standards for other offenses. Instead, corporate fines for such offenses are governed by two general statutory sentencing provisions. One, §3571, sets the permissible maximum amount for any fine. The other, §3553, outlines the sentencing factors and procedures applicable to both individuals and corporations. The limited case law suggests that sentencing courts may disregard the Guidelines completely in the case of a corporation convicted of one of these other offenses. For the offense to which Chapter 8C's fine provisions apply, a sentencing court must begin by deciding whether the defendant entity is able to pay a fine. If so, the amount of an organization's fine is determined by the applicable offense level and the level of its culpability. An organization's offense level is calculated in the same manner as an offense level for an individual but without the adjustments for things like vulnerability of the victim or role in the offense. Unless the amount of gain or loss associated with the offense is greater, the organization's base fine is pegged at one of 33 levels corresponding to its offense level—from $5,000 for an offense level of 6 or less to $72.5 million for an offense level of 38 or more. The applicable fine range is then ascertained by multiplying the amount assigned to the offense level by minimum and maximum factors determined by the corporation's culpability score. A corporation's score sheet begins at 5. Points are added or subtracted to reflect greater or less culpability. The lowest culpability score merits a range ascertained by multiplying the offense level amount by .05 (setting the bottom of the range) and 0.2 (setting the top). Conversely, the highest culpability score merits a range ascertained by multiplying the offense level amount by 2.0 (setting the bottom of the range) and 4.0 (setting the top). The Guidelines then identify 11 factors to be considered when deciding where within the applicable range a corporation ought to be fined. The absence of an effective ethics and compliance program is perhaps the most distinctive factor on the list. The Guidelines also identify a number of circumstances that may require or argue for a fine outside of the recommended range. First, the sentence imposed must conform to statutory requirements. Thus, applicable statutory maximums or minimums trump any conflicting Guideline sentencing range boundaries. Second, the sentencing process may leave the corporation with the windfall from its misconduct. Consequently, the Guidelines recommend that the fine level be set so as to disgorge any illegally gotten gains that would otherwise be left to a corporation after the payment of its fine, compliance with the restitution order, or other remedial costs. On the other side, a fine below the recommended range should be imposed when necessary to permit restitution or may be below that range when the corporation will be unable to pay a higher fine even on an installment basis. A below-range corporate fine may also be fitting in light of individual fines imposed upon the owners of a closely held corporation. The Guidelines supply several examples of when a fine outside the recommended range might be considered. A fine above the range (referred to as upward departures) may be warranted when the offense resulted in a risk of death or serious bodily injury; the offense constituted a threat to national security; the offense presented a threat to the environment; the offense presented a threat to the market; the offense involved official corruption; appropriate to offset reductions attributable to compliance programs; and the corporation's culpability score exceeds the limit for additional multipliers. Departures below the range (referred to as downward departures) may be warranted when the corporation provides substantial assistance to authorities; the corporation is a public entity, for example, a local governmental agency; the corporation's beneficiaries (other than stockholders) are also victims of the offense; and the corporation's remedial costs far exceed its gains from the misconduct. Probation Corporations convicted of a federal crime must be placed on probation, if the court elects not to fine them. If they are fined, the court may also sentence them to probation. The court may impose a probationary term of no more than five years. In the case of felony convictions, the term must be for at least one year. The Guidelines call for probation as a means of ensuring that convicted corporations comply with their obligations to pay a fine or special assessment, make restitution, establish a compliance program, perform community service, or comply with the court's remedial orders. They also find probation appropriate when the organization committed the offense within five years of a prior similar conviction; a senior corporate official involved in the offense within five years was involved in a prior similar offense; necessary to reduce the risk of future criminal misconduct on the part of the corporation; or necessary in order to comply with the sentencing directives of 18 U.S.C. 3553(a)(2), i.e., the need to reflect the seriousness of the offense, promote respect for the law, and provide just punishment, afford adequate deterrence, protect the public, and effectively provide for offender training, care, and correctional treatment. The only mandatory condition of corporate probation is a requirement that the corporation not engage in any further criminal conduct. The array of discretionary probationary conditions under the Guidelines includes requirements that the corporation publicize its conviction at its own expense; establish and maintain a compliance program; notify its employees and shareholders of its offense and compliance program; notify or periodically report to the court or the probation service on its finances, compliance program, or involvement in government investigations or proceedings; undergo periodic audits at its own expense; or make periodic restitution or fine payments. In addition, a sentencing court remains free to impose any probationary condition that is reasonably necessary and related to the considerations prescribed for sentencing generally under 18 U.S.C. 3553(a), (b)(2). In response to a corporation's failure to comply with the conditions of its probation, a court may resentence the corporation, extend the term of its probationary period, or impose additional probationary conditions. Special Assessments Corporations are subject to a special assessment upon conviction at a rate of $400 for each felony count, $125 for class A misdemeanor count, $50 for each class B misdemeanor count, and $25 for each class C or infraction count. Restitution, Compliance Programs, and Other Remedial Sentences Restitution Depending on the nature of the offense, a court may be required to order a convicted corporation to pay victim restitution. In other instances, it may do so as a matter of discretion. In still others, the court may impose restitution as a condition of probation or pursuant to a plea bargain. Restitution is required when a defendant has been convicted of a crime of violence; a crime against property including fraud; maintaining a crack house; tampering with consumer products; theft of medical products; sexual abuse; child pornography; domestic violence; telemarketing fraud; child support; copyright and trademark infringement; production of methamphetamines; or human trafficking. The court may order restitution when a corporation is convicted of any offense under title 18 of the U.S. Code for which mandatory restitution is not required; transportation of hazardous materials; air transportation of hazardous materials; air piracy; interference with a flight crew; or violations of the Controlled Substances Act under 21 U.S.C. 841 (possession with intent to distribute), 848 (drug kingpin), 849 (trafficking a truck stops or rest stops), 856 (maintaining a crack house), 861 (using children in drug operations), 863 (drug paraphernalia). In the absence of other specific authority, the court may order restitution as a condition of probation or pursuant to a plea bargain. In related matter, corporate defendants convicted of fraud may be ordered to pay for victim notification. Compliance Programs The Guidelines' effective compliance and ethics program features are perhaps its most well-known corporate component. A corporation that lacks such a program is likely to have one imposed at sentencing or pursuant to a plea bargain. As noted earlier, a corporation that has one is likely to fare better during the investigation, bargaining, and sentencing phases of a criminal case. The Guidelines envision programs that promote an ethical and law-abiding culture within a corporation and that are calculated to identify and prevent criminal misconduct within the corporation. The elements of such a program consist of the following: 1. An established set of standards and procedures designed to detect and prevent criminal misconduct. 2. Senior management involvement in the program including its day to day operations. 3. Minimizing the operation participation of those previously ethically challenged. 4. Training corporate employees and agents. 5. Monitoring, auditing, and evaluating the program. 6. Encourage and reward performance consistent with the program's goals; discipline inconsistent conduct. 7. Responding appropriately to the discovery of in-house criminal conduct. Community Service The Guidelines provide that a corporation may be sentenced to perform community service related to the harm caused by its offense as a probationary condition as long as the corporation has skills, facilities, or knowledge particularly suited to task. Otherwise, it suggests that fines or other monetary sanctions may be more appropriate and that service unrelated to harm caused by the offense is not consistent with the Guideline. Other Remedial Orders The court may impose other probationary conditions that address the harm caused or to be caused by the corporation's crime, including in cases of substantial anticipated future harm the creation of a trust fund. Forfeiture Forfeiture, the confiscation of property as a consequence of its relation to a criminal offense, is a creature of statute. Some forfeiture statutes are remedial, some punitive, and some serve both purposes. The Guidelines confirm that the property of a corporation is no less subject to confiscation than the property of an individual.

A corporation is criminally liable for the federal crimes its employees or agents commit in its interest. Corporate officers, employees, and agents are individually liable for the crimes they commit, for the crimes they conspire to commit, for the foreseeable crimes their coconspirators commit, for the crimes whose commission they aid and abet, and for the crimes whose perpetrators they assist after the fact. The decision whether to prosecute a corporation rests with the Justice Department. Internal guidelines identify the factors that are to be weighed: the strength of the case against the corporation; the extent and history of misconduct; the existence of a compliance program; the corporation's cooperation with the investigation; the collateral consequences; whether the corporation has made restitution or taken other remedial measures; and the alternatives to federal prosecution. As in the case of individual defendants, corporation prosecutions rarely result in a criminal trial. More often, the corporation pleads guilty or enters into a deferred or delayed prosecution agreement. During a criminal investigation and throughout the course of criminal proceedings, corporations enjoy many, but not all, of the constitutional rights implicated in the criminal investigation or prosecution of an individual. Corporations have no Fifth Amendment privilege against self-incrimination. On the other hand, the courts have recognized or have assumed that corporations have a First Amendment right to free speech; a Fourth Amendment protection against unreasonable searches and seizures; a Fifth Amendment right to due process and protection against double jeopardy; Sixth Amendment rights to counsel, jury trial, speedy trial, and to confront accusers, and to subpoena witnesses; and Eighth Amendment protection against excessive fines. Corporations cannot be jailed. Otherwise, corporations and individuals face many of the same consequences following conviction. The federal Sentencing Guidelines influence the sentencing consequences of conviction in many instances. Corporations can be fined. They can be placed on probation. They can be ordered to pay restitution. Their property can be confiscated. They can be barred from engaging in various types of commercial activity. The Guidelines speak to all of these. For example, the corporate fine Guidelines begin with the premise that a totally corrupt corporation should be fined out of existence, if the statutory maximum permits. A corporation operated for criminal purposes or by criminal means should be fined at a level sufficient to strip it of all of its assets. In other cases, the Guidelines recommend fines and other sentencing features that reflect the nature and seriousness of the crime of conviction and the level of corporate culpability. This report is available in an abbreviated form without the footnotes or citations and attributions to authorities that appear here. The abridged report is entitled CRS Report R43294, Corporate Criminal Liability: An Abbreviated Overview of Federal Law.

Introduction The filibuster is widely viewed as one of the Senate's most distinctive procedural features. Today, the term is most often used to refer to Senators holding the floor in extended debate. More generally, however, filibustering includes any tactics aimed at blocking a measure by preventing it from coming to a vote. As a consequence, the Senate has no specific rules for filibustering. Instead, possibilities for filibustering exist because Senate rules lack provisions that would place specific limits on Senators' rights and opportunities in the legislative process. In particular, those rules establish no generally applicable limits on the length of debate, nor any motions by which a majority could vote to bring a debate to an end, or even limit it. The only Senate rule that permits the body, by vote, to bring consideration of a matter to an end is paragraph 2 of Rule XXII, known as the cloture rule . In general, invoking cloture requires a super-majority vote (usually 60 out of 100 Senators) and, in such cases, doing so does not terminate consideration but only imposes a time limit. Cloture also imposes restrictions on certain other procedures that potentially could be used to dilatory effect. In recent years, as a result, cloture has increasingly been used to overcome filibusters being conducted not only by debate, but through various other delaying tactics. This report discusses major aspects of Senate procedure related to filibusters and cloture. The two, however, are not always as closely linked in practice as they are in popular conception. Even when opponents of a measure resort to extended debate or other tactics of delay, supporters may not decide to seek cloture (although this situation seems to have been more common in earlier decades than today). In recent times, by contrast, Senate leadership has increasingly made use of cloture as a normal tool for managing the flow of business on the floor, even when no evident filibuster has yet occurred. It would be erroneous to assume the presence or absence of cloture attempts is a reliable guide to the presence or absence of filibusters. Inasmuch as filibustering does not depend on the use of any specific rules, whether a filibuster is present is always a matter of judgment. It is also a matter of degree; filibusters may be conducted with greater or lesser determination and persistence. For all these reasons, it is not feasible to construct a definitive list of filibusters. The following discussion focuses chiefly on the conduct of filibusters through extended debate and on cloture as a means of overcoming them. The report does not encompass all possible contingencies or consider every relevant precedent, though it identifies key modifications to the rule and its application in recent years. Authoritative information on cloture procedure can be found under that heading in Riddick ' s Senate Procedure . Senators and staff also may wish to consult the Senate Parliamentarian on any question concerning the Senate's procedural rules, precedents, and practices. The Right to Debate The core rule of the Senate governing floor debate is paragraph 1(a) of Rule XIX, which states that When a Senator desires to speak, he shall rise and address the Presiding Officer, and shall not proceed until he is recognized, and the Presiding Officer shall recognize the Senator who shall first address him. No Senator shall interrupt another Senator in debate without his consent, and to obtain such consent he shall first address the Presiding Officer, and no Senator shall speak more than twice upon any one question in debate on the same legislative day without leave of the Senate, which shall be determined without debate. This is essentially all the Senate's rules have to say about the right to speak on the floor, so the rule is just as important for what it does not say as for what it does say. The lack of discretion by the chair in recognizing Senators and the lack of time limits on debate combine to create the possibility of filibusters by debate. The Right to Recognition Rule XIX affords the presiding officer no choice and no discretion in recognition. As a general rule, if a Senator seeks recognition when no other Senator has the floor, the presiding officer must recognize him or her. The presiding officer may not decline to recognize the Senator, whether for reasons of personal preference or partisan advantage, or to enable the Senate to reach a vote on the pending matter. As a result, when the Senate is considering any debatable question, it cannot vote on the question so long as any Senator wants to be recognized to debate it. If more than one Senator seeks recognition, Rule XIX directs the presiding officer to recognize whichever Senator is the first to do so. The result is that, although no Senator can be sure that he or she will be recognized promptly for debate on a pending question, each can be sure of recognition eventually . As Senate rules provide for no motions that could have the effect of terminating debate, a Senator can do nothing while she or he has the floor that would preclude another Senator from being recognized afterwards. (The motions to table and time agreements by unanimous consent, both of which represent partial exceptions to this statement, are discussed later.) By well-established precedent and practice, the Senate does not comply strictly with the requirement that the first Senator addressing the chair be recognized. In practice, the party leaders receive preference in recognition. All Senators accept that the majority leader and then the minority leader must be able to secure recognition if they are to do some of the things the Senate expects them to do, such as arrange the daily agenda and weekly schedule and make motions and propound unanimous consent agreements necessary for the relatively orderly conduct of business on the floor. Accordingly, if two Senators are seeking recognition at more or less the same time and one of them is a party floor leader, the presiding officer recognizes the leader (and the majority leader in preference to the minority leader). Next after these two leaders, the presiding officer generally affords preference in recognition to the majority and minority floor managers of legislation being debated. These Senators receive this preference because they also bear responsibilities for ensuring an orderly process of considering a measure. The Right to Speak at Length and the Two-Speech Rule Under Rule XIX, unless any special limits on debate are in effect, Senators who have been recognized may speak for as long as they wish. They usually cannot be forced to cede the floor, or even be interrupted, without their consent. (There are some exceptions: for example, Senators can lose the floor if they violate the Senate's standards of decorum in debate or, as discussed later, may be interrupted for the presentation of a cloture motion.) Rule XIX places no limit on the length of individual speeches or the number of Senators who may speak on a pending question. It does, however, tend to limit the possibility of extended debate by its provision that "no Senator shall speak more than twice upon any one question in debate on the same legislative day without leave of the Senate, which shall be determined without debate." This provision, commonly called the two-speech rule , limits each Senator to making two speeches per day, however long each speech may be, on each debatable question the Senate considers. A Senator who has made two speeches on a single question becomes ineligible to be recognized for another speech on the same question on the same day. In relation to legislative business, the "day" during which a Senator can make no more than two speeches on the same question is not a calendar day but a legislative day. A legislative day ends only with an adjournment, so that, whenever the Senate recesses overnight, rather than adjourning, the same legislative day continues into the next calendar day. A legislative day may therefore extend over several calendar days. The leadership may continue to recess the Senate, rather than adjourning, as a means of attempting to overcome a filibuster by compelling filibustering Senators to exhaust their opportunities of gaining recognition. In relation to executive business (nominations and treaties), however, the legislative day does not apply and each Senator may, for example, make two speeches on each pending nomination on each calendar day on which the Senate meets. Senators rarely invoke the two-speech rule. Sometimes, however, they may insist the two-speech rule be enforced as a means of attempting to overcome a filibuster. On such occasions, nevertheless, Senators often can circumvent the two-speech rule by making a motion or offering an amendment that constitutes a new and different debatable question. For example, each Senator can make two speeches in the same legislative day on each bill, each offered first-degree amendment to a bill, and each second-degree amendment offered to each of those amendments as well. In recent practice, the Senate has considered being recognized and engaging in debate to constitute a speech. The Senate, however, does not consider "that recognition for any purpose [constitutes] a speech." Currently effective precedents have held that "certain procedural motions and requests were examples of actions that did not constitute speeches for purposes of the two speech rule." These matters include such things as making a parliamentary inquiry and suggesting the absence of a quorum. Nevertheless, if a Senator is recognized for a substantive comment, however brief, on the pending question, that remark may count as a speech. The Motion to Table There is one way in which the Senate can end debate on a question even though there may be Senators who still might want to speak on it. During the debate, it is normally possible for a Senator to move to table the pending question (more formally, to lay the question on the table). The motion is not debatable, and its adoption requires only a simple majority vote. In the Senate, to table something is to kill it. So when the Senate votes to table a matter, it thereby disposes of the matter permanently and adversely. The Senate sometimes disposes of amendments by voting to table them rather than by taking what often are called up or down votes to agree (or not agree) to the amendment itself. If there is a unanimous consent agreement in effect that limits the time for debate, the motion to table may not be offered until the time is consumed. To offer the motion, a Senator must first be recognized; another Senator who has already been recognized may not be interrupted for a motion to table, no matter how long he or she has been speaking. Within these limitations, if a majority of Senators oppose a matter, the motion to table may enable them to prevail at a time of their choosing. By this means, Senators can prevent a debate from continuing indefinitely if they are prepared to reject the amendment, motion, or bill that is being debated. (If, by contrast, opponents of a matter do not command enough support to table it, they may decide to extend the debate by conducting what supporters of the matter might well characterize as a filibuster.) The motion to table, however, offers no means for supporters of a matter to overcome a filibuster being conducted against it through the threat of extended debate. If the Senate agrees to a motion to table, the debate is brought to an end, but at the cost of defeating the matter. If the Senate votes against the tabling motion, the matter remains before the Senate and Senators can resume debating it at length. Instead, for purposes of overcoming filibusters, the chief use of the motion to table arises when the filibuster is being conducted through the offering of potentially dilatory amendments and motions. For example, supporters of a filibuster may offer an amendment to renew their right to recognition under the two-speech rule. Each time the Senate tables such an amendment, it can continue debate on the underlying bill, or at least can go on to consider other amendments. The Conduct of Filibusters Conducting a filibuster by extended debate is potentially straightforward, although it can be physically demanding. A Senator seeks recognition and, once recognized, speaks at length. When that first Senator concludes and yields the floor, another Senator seeks recognition and continues the debate. Even if the Senate continues in the same legislative day, the debate can proceed in this way until all the participating Senators have made their two speeches on the pending question. Then, it usually is possible to offer an amendment, or make some other motion, to create a new debatable question on which the same Senators can each make two more speeches. There is no need for the participating Senators to monopolize the debate. What is important is that someone speak, not that it be someone on a given side of the question. Although one purpose of a filibuster is to try to change the minds of Senators who support the question being debated, the purpose of delay is served by any Senator speaking (or being available to initiate procedural actions) regardless of which side of the question he or she takes. Germaneness of Debate More often than not, there is no need for the debate to be germane to the question being considered, with one important exception. Paragraph 1(b) of Rule XIX requires that debate be germane each calendar day during the first three hours after the Senate begins to consider its unfinished or pending legislative business. (The time consumed by the majority and minority leaders and any speeches during "routine morning business" at the beginning of a daily session is not included in this three-hour period.) The Senate can waive this germaneness requirement by unanimous consent or by agreeing to a non-debatable motion for that purpose. Like the two-speech rule, this germaneness requirement usually is not enforced. During filibusters, however, Senators may be called upon to comply with this requirement on debate when it is in effect. In practice, this does not put much extra burden on participating Senators because speeches made during filibusters are likely to be germane. Yielding the Floor and Yielding for Questions A Senator who has the floor for purposes of debate must remain standing and must speak more or less continuously. Complying with these requirements obviously becomes more of a strain as time passes. However, Senators must be careful when they try to give some relief to their colleagues who are speaking. Senate precedents prohibit Senators from yielding the floor to each other. If a Senator simply yields to a colleague, the chair may hold that the Senator has relinquished the floor. This is another Senate procedure that often is not observed during the normal conduct of business on the floor. However, during a filibuster involving extended floor debate, Senators are much more likely to insist on it being observed. A Senator may yield to a colleague without losing the floor only if the Senator yields for a question. With this in mind, a colleague of a filibustering Senator may give that Senator some relief by asking him or her to yield for a question. The Senator who retains control of the floor must remain standing while the question is being asked. The peculiar advantage of this tactic is that it sometimes takes Senators quite some time to ask their question, and the presiding officer is reluctant to force them to state their question before they are ready to do so. In this way, participating Senators can extend the debate through an exchange of what sometimes are long questions followed by short answers, rather than by relying exclusively on a series of long, uninterrupted speeches. Quorums and Quorum Calls There are ways other than extended debate by which Senators can delay and sometimes even prevent the Senate from voting on a question it is considering. In particular, quorum calls can be demanded for purposes other than confirming or securing the presence of a quorum, such as to consume time. A Senator who has been recognized can "suggest the absence of a quorum," asking in effect whether the Senate is complying with the constitutional requirement that a quorum—a majority of all Senators—be present for the Senate to conduct business. A quorum is rarely present, and the presiding officer normally does not have the authority to count to determine whether a quorum actually is present; he or she therefore directs the clerk to call the roll. Senators usually use quorum calls to suspend the Senate's floor proceedings temporarily, perhaps to discuss a procedural or policy problem or to await the arrival of a certain Senator. In those cases, the clerk calls the roll very slowly and, before the call of the roll is completed, the Senate agrees by unanimous consent to call off the quorum call (to "dispense with further proceedings under the quorum call"). Because the absence of a quorum has not actually been demonstrated, the Senate can resume its business. Such quorum calls can be time-consuming and so can serve the interests of filibustering Senators. During a filibuster, however, the clerk may be directed by the leadership to call the roll more rapidly, as if a roll call vote were in progress. Doing so reduces the time the quorum call consumes, but it also creates the real possibility that the quorum call may demonstrate that a quorum in fact is not present. In that case, the Senate has only two options: to adjourn or to take steps necessary to secure the presence of enough absent Senators to create a quorum. Typically, the majority leader or the majority floor manager opts for the latter course and makes a motion that the Sergeant at Arms secure the attendance of absent Senators, then asks for a roll call vote on that motion. Senators who did not respond to the quorum call are likely to come to the floor for the roll call vote on this motion. Almost always, therefore, the vote establishes that a quorum is present, so the Senate can resume its business without the Sergeant at Arms actually having to execute the Senate's directive. This process also can be time-consuming because of the time required to conduct the roll call vote just discussed. Nonetheless, the proponents of the bill (or other matter) being filibustered may prefer that the roll be called quickly because it requires unanimous consent to call off a routine quorum call, in which the clerk calls the roll very slowly, before it is completed. A filibustering Senator has only to suggest the absence of a quorum and then object to calling off the quorum call in order to provoke a motion to secure the attendance of absentees and (with the support of at least 10 other Senators) a roll call vote on that motion. If this motion is likely to be necessary, one way or the other, it is usually in the interests of the bill's proponents to have the motion made (and agreed to) as soon as possible. When Senators suggest the absence of a quorum, however, they lose the floor. Also, "[i]t is not in order for a Senator to demand a quorum call if no business has intervened since the last call; business must intervene before a second quorum call or between calls if the question is raised or a point of order made." These restrictions limit the extent to which quorum calls may be used as means of conducting filibusters. Roll Call Voting As the preceding discussion indicates, roll call votes are another source of delay. Any question put to the Senate for its decision requires a vote, and a minimum of 11 Senators can require that it be a roll call vote. Each such vote consumes at least 15 minutes unless the Senate agrees in advance to reduce the time for voting. The Constitution provides that the "yeas and nays" shall be ordered "at the desire of one-fifth of those present" (Article I, Section 5). Because a quorum is presumed to be present, the Senate requires at least 11 Senators (one-fifth of the minimal quorum of 51) to request a roll call vote on the pending question. When a Senator wants a roll call vote, other Senators frequently support the request as a courtesy to a colleague. During a filibuster, however, the supporters of the bill or amendment sometimes try to discourage other Senators from supporting requests for time-consuming roll call votes. Also, the proponents sometimes can make it more difficult for their opponents to secure a roll call vote. When the request for a roll call vote is made immediately after a quorum call or another roll call vote, Senators can insist that the request be supported by one-fifth of however many Senators answered that call or cast their votes. Since this is almost certainly more than 51 and, in practice, is usually much closer to 100, the number of Senators required to secure a roll call vote can increase to a maximum of 20. The time allowed for Senators to cast roll call votes is a minimum of 15 minutes, unless the Senate agrees, before the vote begins, to a reduced time. When the 15 minutes expire, the vote usually is left open for some additional time to accommodate other Senators who are thought to be en route to the floor to vote. Thus, the actual time for a roll call vote can extend to 20 minutes or more. During filibusters, however, a call for the regular order can lead the presiding officer to announce the result of a roll call vote soon after the 15 minutes allotted for it. Scheduling Filibusters The leadership typically attempts to arrange the daily schedule of the Senate so that filibusters are not unduly disruptive or inconvenient to Senators. One way to make conducting a filibuster more costly and difficult is to keep the Senate in session until late at night, or even all night, requiring the participating Senators to speak or otherwise consume the Senate's time. During some contentious filibusters, cots have even been brought into the Senate's anterooms for Senators to use during around-the-clock sessions. Today, all-night sessions are very unusual. The Senate may not even convene earlier or remain in session later when a filibuster is in progress than it does on other days. One reason may be that filibusters are not the extraordinary and unusual occurrences they once were. Another may be that Senators are less willing to endure the inconvenience and discomfort of prolonged sessions. Also, leadership may react to a threat of a filibuster by keeping the measure or matter from the floor, at least for a while. The point about longer, later sessions is important because late-night or all-night sessions put as much or more of a burden on the proponents of the question being debated than on its opponents. The Senators participating in the filibuster need only ensure that at least one of their number always is present on the floor to speak. The proponents of the question, however, need to ensure that a majority of the Senate is present or at least available to respond to a quorum call or roll call vote. If, late in the evening or in the middle of the night, a Senator suggests the absence of a quorum and a quorum does not appear, the Senate must adjourn or at least suspend its proceedings until a quorum is established. This works to the advantage of the filibustering Senators, so the burden rests on their opponents to ensure that the constitutional quorum requirement always can be met. Invoking Cloture The procedures for invoking cloture are governed by paragraphs 2 and 3 of Rule XXII (which also govern procedure under cloture, as discussed later in this report). The following discussion mostly addresses procedure stemming from paragraph 2, including reinterpretation of its application to nominations. Other recent changes in Rule XXII's operation on selected questions are referenced in footnotes. The process begins when a Senator presents a cloture motion that is signed by 16 Senators, proposing "to bring to a close the debate upon" the pending question. The motion is presented to the Senate while it is in session and must be presented while the question on which cloture is sought is pending. For example, it is not in order for a Senator to present a motion to invoke cloture on a bill the Senate has not yet agreed to consider or on an amendment that has not yet been offered. A Senator does not need to be recognized by the chair to present a cloture petition. The Senator who has the floor may be interrupted for the purpose but retains the floor thereafter and may continue speaking. The motion is read to the Senate, but the Senate then returns to whatever business it had been transacting. In almost all cases, the Senate does not act on the cloture motion in any way on the day on which it is submitted or on the following day. Instead, the next action on the motion occurs "on the following calendar day but one"—that is, on the second day of session after it is presented. So if the motion is presented on a Monday, the Senate acts on it on Wednesday. During the intervening time, the Senate does not have to continue debating the question on which cloture has been proposed but can turn to other business. One hour after the Senate convenes on the day the cloture motion has ripened or matured , the presiding officer interrupts the proceedings of the Senate, regardless of what is under consideration at the time, and presents the cloture motion to the Senate for a vote. At this point the presiding officer is required to direct that an actual (or live ) quorum call take place. (The Senate often waives this quorum call by unanimous consent.) When the presence of a quorum is established, the Senate proceeds, without debate, to vote on the cloture motion: "the Presiding Officer shall, without debate, submit to the Senate by a yea-and-nay vote the question: 'Is it the sense of the Senate that the debate shall be brought to a close?'" The terms of the rule require an automatic roll call vote. Invoking cloture usually requires a three-fifths vote of the entire Senate—"three-fifths of the Senators duly chosen and sworn." Thus, if there is no more than one vacancy, 60 Senators must vote to invoke cloture. In contrast, most other votes require only a simple majority (that is, 51%) of the Senators present and voting, assuming those Senators constitute a quorum. In the case of a cloture vote, the key is the number of Senators voting for cloture, not the number voting against. Failing to vote on a cloture motion has the same effect as voting against the motion: it deprives the motion of one of the 60 votes needed to agree to it. There are two important exceptions to the three-fifths requirement to invoke cloture. First, under Rule XXII, an affirmative vote of two-thirds of the Senators present and voting is required to invoke cloture on a measure or motion to amend the Senate rules. This provision has its origin in the history of the cloture rule. Before 1975, two-thirds of the Senators present and voting (a quorum being present) was required for cloture on all matters. In early 1975, at the beginning of the 94 th Congress, Senators sought to amend the rule to make it somewhat easier to invoke cloture. However, some Senators feared that if this effort succeeded, that would only make it easier to amend the rule again, making cloture still easier to invoke. As a compromise, the Senate agreed to move from two-thirds of the Senators present and voting (a maximum of 67 votes) to three-fifths of the Senators duly chosen and sworn (normally, and at a maximum, 60 votes) on all matters except future rules changes, including changes in the cloture rule itself. Second, pursuant to precedents established by the Senate on November 21, 2013, and April 6, 2017, the Senate can invoke cloture on a nomination by a majority of Senators voting (a quorum being present). If the Senate does vote to invoke cloture, that vote may not be reconsidered. On the other hand, it is in order to reconsider the vote by which the Senate voted against invoking cloture. In current practice, supporters of cloture sometimes enter a motion to reconsider a vote against cloture, so that a second vote on cloture can later occur without a second petition being filed. They can arrange for the second vote to take place at any point, as long as the Senate then agrees, first, to the motion to proceed to the motion to reconsider, and then to the motion to reconsider itself. Both motions are non-debatable under these circumstances and require only a simple majority vote. If the Senate agrees to the motion to reconsider, the new vote on the cloture motion then occurs immediately, and cloture is invoked if three-fifths of the full Senate (or other majority, as appropriate) now votes for it. The Senate sometimes agrees by unanimous consent to alter the way in which various requirements of the cloture rule apply to consideration of a specified matter. In particular, Senators by unanimous consent sometimes permit a cloture motion to be filed on a matter that is not then pending. Also, as mentioned, the required quorum call preceding a cloture vote is often waived by consent. In addition, the Senate may give unanimous consent to adjust the time when the cloture vote will take place. On some occasions, the Senate has even agreed, by unanimous consent, to vote on cloture at a specified time even though no cloture motion is formally filed. Matters on Which Cloture May Be Invoked Any debatable question the Senate considers can be filibustered and, therefore, may be the subject of a cloture motion, unless the time for debate is limited by the Senate's rules, by law, or by a unanimous consent agreement. Consequently, Senators may present cloture motions to end debate on bills, resolutions, amendments, conference reports, motions to concur in or amend amendments of the House, executive business (nominations and treaties), and various other debatable motions. In relation to the Senate's initial consideration of a bill or resolution, there usually can be at least two filibusters under the Senate's standing rules: first, a filibuster on the motion to proceed to the measure's consideration; and second, after the Senate agrees to this motion, a filibuster on the measure itself. If the Senate cannot agree to take up a measure by unanimous consent, the majority leader's recourse is to make a motion that the Senate proceed to its consideration. This motion to proceed , as it is called, usually is debatable and, consequently, subject to a filibuster. Therefore, the Senate may have to invoke cloture on this motion before being able to vote on it. Once the Senate adopts the motion to proceed and begins consideration of the measure itself, a filibuster on the measure then may begin, so that cloture must be sought anew on the measure itself. Except by unanimous consent, cloture cannot be sought on the measure during consideration of the motion to proceed, because cloture may be moved only on a question that is pending before the Senate. Threatened filibusters on motions to proceed once were rare but have become more common in recent years. In such situations, it has become common for the majority leader to move to proceed to consider the measure, immediately submit a motion for cloture on his motion to proceed, and then immediately withdraw the motion to proceed. This proceeding permits the Senate to consider other business while the petition ripens rather than having to entertain extended debate on the motion to proceed. On the second following day, if the Senate defeats the motion for cloture, it continues with other business; if cloture is invoked, the action automatically brings back the motion to proceed as the pending business but under the restrictions of cloture. Sometimes an amendment provokes a filibuster even though the underlying bill does not. If cloture is invoked on the amendment, the operation of cloture is exhausted once the amendment is disposed of. Thereafter, debate on the bill continues, but under the general rules of the Senate. On occasion, cloture has been invoked, in this way, separately on several amendments to a bill in succession. Alternatively, cloture may be invoked on the bill itself, so that debate on the amendment continues under the restrictions of cloture on the overall measure. If the amendment is not germane to the bill, however, its supporters will oppose this approach, for (as discussed later) the cloture rule requires that amendments considered under cloture be germane. If cloture is invoked on a bill while a non-germane amendment is pending, the amendment becomes out of order and may not be further considered. In such a case it may be necessary instead to invoke cloture on the amendment to secure a final vote on it and then, after the amendment is disposed of, move for cloture on the bill as well. After the Senate has passed a measure, additional action may be necessary so the Senate may go to conference with the House on the legislation. The motions necessary for this purpose are debatable, and as a result, supporters of the measure have occasionally found it necessary to move for cloture thereon. Conference reports themselves, unlike measures on initial consideration, are not subject to a double filibuster because they are privileged matters, so that motions to proceed to their consideration are not debatable. Inasmuch as conference reports themselves are debatable, however, it may be necessary to move for cloture on a conference report. Occasionally, cloture has also been sought on other debatable questions, such as: motions to waive the Budget Act, overriding a presidential veto, or motions to recommit a measure with instructions that it be reported back forthwith with an amendment. Timing of Cloture Motions The relation of cloture motions to filibusters may depend on when the cloture motions are filed. Prior to the 1970s, consideration of a matter was usually allowed to proceed for some days or even weeks before cloture was sought or cloture might not be sought at all. In more recent decades, it has become common to seek cloture on a matter much earlier in the course of consideration, even immediately after consideration has begun. In some cases, a cloture motion has been filed, or has been deemed to have been filed, even before the matter in question has been called up. (Because the rules permit filing a motion for cloture only on a pending question, either of these actions, of course, requires unanimous consent.) When cloture is sought before any dilatory action actually occurs, the action may be an indication that the threat of a filibuster is present, or at least is thought to be present. There often has been more than one cloture vote on the same question. If and when the Senate rejects a cloture motion, a Senator then can file a second motion to invoke cloture on that question. In some cases, Senators anticipate that a cloture motion may fail and file a second motion before the Senate has voted on the first one. For example, one cloture motion may be presented on Monday and another on Tuesday. If the Senate rejects the first motion when it matures on Wednesday, the second motion will ripen for a vote on Thursday. (If the Senate agrees to the first motion, of course, there is no need for it to act on the second.) There have been instances in which there have been even more cloture votes on the same question. During the 100 th Congress (1987-1988), for example, there were eight cloture votes, all unsuccessful, on a campaign finance bill. It also may be necessary for the Senate to attempt cloture on several different questions to complete consideration of a single measure. The possibility of having to obtain cloture first on a motion to proceed to consider a measure and subsequently also on the measure itself has already been discussed. Cloture on multiple questions may also be required when the Senate considers a bill with a pending amendment in the nature of a substitute. As already mentioned, once cloture has been invoked on a question, Rule XXII requires amendments to that question to be germane. As with other amendments, accordingly, if a pending amendment in the nature of a substitute contains provisions non-germane to the underlying bill, and the Senate proceeds to invoke cloture on the bill, further consideration of the substitute is rendered out of order. In such a case, bringing action to a conclusion may require obtaining cloture first on the substitute and then, once the substitute has been adopted, also on the underlying bill. In current practice, it is not unusual for the majority leader to move for cloture on the underlying bill immediately after filing cloture on the amendment in the nature of a substitute. Under these circumstances, the two-day layover required for each cloture motion is being fulfilled simultaneously for both. The first cloture motion filed (on the amendment in the nature of a substitute) ripens first, at which point the Senate votes on that cloture motion. If cloture is invoked and after the Senate votes on adopting the substitute—after the possible 30 hours of post-cloture consideration—the second cloture motion (on the bill) is automatically pending, having already met the two-day layover. Effects of Invoking Cloture In most cases, invoking cloture on a bill does not produce an immediate vote on it. In general, the effect of invoking cloture on a bill is only to guarantee that a vote will take place eventually. Time for Consideration and Debate In general, Rule XXII imposes a cap of no more than 30 additional hours for the Senate to consider a question after invoking cloture on it. This 30-hour cap is a ceiling on the time available for post-cloture consideration , not just for debate. The time used in debate is counted against the 30 hours, but so too is the time consumed by quorum calls, roll call votes, parliamentary inquiries, and all other proceedings that occur while the matter under cloture is pending before the Senate. The 30-hour period can be increased if the Senate agrees to a non-debatable motion for that purpose. Adopting this motion also requires a three-fifths vote of the Senators duly chosen and sworn. During the period for post-cloture consideration, each Senator is entitled to speak for a total of not more than one hour. Senators may yield part or all of their time to any of four others: the majority or minority leaders or the majority or minority floor managers. None of these Senators can accumulate more than two hours of additional time for debate; but, in turn, they can yield some or all of their time to others. There is insufficient time for all Senators to use their entire hour for debate within the 30-hour cap for post-cloture consideration. This disparity results from a 1985 amendment to the cloture rule. Before 1979, there was no cap at all on post-cloture consideration; the only restriction in Rule XXII was the limit of one hour per Senator for debate. The time consumed by reading amendments and conducting roll call votes and quorum calls was not deducted from anyone's hour. As a result, Senators could (and did) engage in what became known as post-cloture filibusters. By offering one amendment after another, for example, and demanding roll call votes to dispose of them, Senators could consume hours of the Senate's time while consuming little if any of their allotted hour for debate. In reaction, the Senate amended Rule XXII in 1979 to impose a 100-hour cap on post-cloture consideration. In theory, at least, this time period could accommodate the one hour of debate per Senator (but only if Senators used all of the 100 hours only for debate). Then, in 1985, the Senate agreed, without significant dissent, to reduce the 100 hours to 30 hours, while leaving unchanged the allocation of 1 hour for each Senator to debate. The result is that there is not enough time available under cloture for each Senator to speak for an hour. In principle, 30 Senators speaking for 1 hour each could consume all the time for post-cloture consideration. However, Rule XXII does provide a limited protection for all Senators by providing that, when the 30 hours expire, "any Senator who has not used or yielded at least ten minutes, is, if he seeks recognition, guaranteed up to ten minutes, inclusive, to speak only." Under these conditions, Senators may still be able to extend post-cloture consideration, but it typically would last little, if any, longer, than the 30 hours available under cloture. Once cloture has imposed its definitive limit on further consideration, opponents sometimes see little benefit in the limited delay they might still obtain, and rather than insist on the use of the full 30 hours, they may instead permit a final vote well before the full time expires. In this case, the Senate may agree by unanimous consent that the 30 hours be considered to run continuously, even when the Senate is not actively considering the measure or even does not remain in session. There is one other notable difference in the Senate's debate rules before and after cloture is invoked. As discussed above, Senate floor debate normally does not have to be germane, except when the Pastore rule applies. Under cloture, debate must be germane. This requirement derives from the language of Rule XXII that allows each Senator to speak for no more than one hour "on the measure, motion, or other matter pending before the Senate." Senate precedents make clear, however, that Senators should not expect the presiding officer to insist on germane debate on his or her initiative. Senators wishing to enforce the requirement that debate be germane can do so by making points of order from the floor. Offering Amendments and Motions There are several key restrictions governing the amendments that Senators can propose under cloture that do not apply to Senate floor amendments under most other circumstances. Some of these restrictions also apply to other motions Senators may offer, or actions they may take, under cloture. Germane Amendments Only Under Rule XXII, only germane amendments are eligible for floor consideration under cloture. This germaneness requirement applies to the amendments that Senators offer after cloture is invoked, and the requirement applies as well to any amendments that were pending (that is, amendments that had been called up for consideration but were not yet disposed of) at the time that the Senate votes for cloture. Thus, immediately after a successful cloture vote, the majority leader or another Senator typically makes a point of order that one or more amendments that were pending when the vote began now must "fall" because they are not germane to the matter on which the Senate just invoked cloture. This germaneness requirement helps explain why the Senate may have to invoke cloture on an amendment to a bill and then invoke cloture again on the bill itself. It is quite common for a Senate committee to report a bill back to the Senate with an amendment in the nature of a substitute—a complete alternative for the text of the bill as introduced. The Senate almost always adopts this substitute (as it has been amended on the floor) immediately before voting to pass the bill as amended by the substitute. However, it also is not unusual for some provisions in the committee substitute to render it non-germane to the bill. Thus, if the Senate invokes cloture on the bill before it votes on the committee substitute, the substitute becomes out of order as non-germane, so that the Senate cannot agree to it. To protect the committee substitute (or any other non-germane amendment the Senate is considering), the Senate can first invoke cloture on the amendment. Doing so limits further consideration of the amendment to no more than 30 more hours. If the Senate then adopts the amendment, cloture no longer is in effect and Senators can filibuster the bill as amended. However, inasmuch as the previous non-germane amendment is now part of the text of the bill, it therefore cannot now be non-germane to the bill. At this point, therefore, the Senate may again vote to invoke cloture, this time on the bill as amended. Any Senator can appeal the chair's ruling that a certain amendment is non-germane, allowing the Senate to overturn that ruling by simple majority vote. However, the Senate is unlikely to take this action because doing so could fundamentally undermine the integrity and utility of the cloture procedure. Unless a Senator could be confident that, under cloture, his colleagues could not offer amendments on unrelated subjects that the Senator would insist on filibustering, that Senator would have serious qualms about ever voting for cloture. On some occasions when a Senator appealed a ruling of the chair under cloture that an amendment was not germane, Senators who may have supported the amendment on its merits nonetheless voted to sustain the ruling of the chair with the long-run viability of the cloture rule in mind. Cloture is sometimes sought not for the purpose of overcoming a filibuster by debate, but primarily to trigger the requirement for germaneness of amendments. One way in which this situation can occur may arise when Senators wish to secure floor consideration for a bill that the majority party leadership is reluctant to schedule for floor consideration. Supporters of the bill may offer the text of that bill as a non-germane amendment to another bill that the majority party leadership is eager to pass. Opponents of the amendment may respond by moving for cloture on the bill, then prolonging the debate so as to prevent a vote on the amendment until the time comes for voting on the cloture motion. If the Senate votes to invoke cloture, the non-germane amendment is subject to a point of order. In this way, its opponents can dispose of the amendment adversely without ever having to vote on it, or even on a motion to table it—but only, of course, if they can mobilize three-fifths of the Senate to vote for cloture. This possibility, which is more than hypothetical, illustrates that not every cloture vote takes place to overcome a filibuster that is already in progress. Amendments Submitted in Advance Under the general cloture procedures of paragraph 2 of Rule XXII, to be in order after cloture has been invoked, amendments must be submitted at the desk in writing (and for printing in the Congressional Record ) before the cloture vote takes place. There are different requirements for first-degree amendments (amendments to change the text of a bill or resolution) and second-degree amendments (amendments to change the text of a pending first-degree amendment). The relevant portion of Rule XXII reads, Except by unanimous consent, no amendment shall be proposed after the vote to bring the debate to a close, unless it had been submitted in writing to the Journal Clerk by 1 o'clock p.m. on the day following the filing of the cloture motion if an amendment in the first degree, and unless it had been so submitted at least one hour prior to the beginning of the cloture vote if an amendment in the second degree. Senators sometimes submit a large number of amendments to a bill for printing in the Congressional Record even before a cloture motion is presented. In some cases, this may be understood or intended as a signal that the Senators who submitted the amendments are contemplating a filibuster. In practice, the deadline in Rule XXII usually gives Senators most or all of a day after cloture is proposed to draft germane amendments to the bill. (Submitting an amendment in writing does not exempt that amendment from the restriction that only germane amendments are in order under cloture.) Senators then usually have most or all of the next day to review those first-degree amendments and to decide what second-degree amendments, if any, they might offer to them. In this way, Senators can be fully aware of all the amendments they may encounter under cloture before they vote on whether or not to invoke cloture. Rule XXII establishes no separate deadline for submitting amendments in the nature of a substitute (i.e., substitutes for the full text of a measure), which are amendable in two degrees—that is, an amendment to an amendment in the nature of a substitute is a first-degree amendment. An amendment in the nature of a substitute might be submitted at any time up to the deadline for first-degree amendments. If it were submitted just before that deadline, Senators might have essentially no time to prepare amendments to it, because they, as first-degree amendments, would be subject to the same deadline as the substitute. One result of these requirements is that, whenever cloture is proposed, Senators and their staffs must decide whether they need to prepare and submit amendments to the measure. When the Senate has voted to invoke cloture on a bill, it is too late for a Senator then to think about what amendments to the bill he or she might want to propose. When a cloture motion is filed, Senators often conclude that they need to proceed with drafting whatever amendments they might want to offer, on the assumption that the Senate will approve the motion two days later. One result is that there often are significantly more amendments submitted for printing in the Record than Senators actually offer after cloture is invoked. Under cloture, a Senator may not modify an amendment that he or she has offered. Permitting modifications would be inconsistent with the principle implicit in the cloture rule that Senators should be able to know what amendments may be offered under cloture before the Senate decides if it will invoke cloture. In addition, if an amendment is submitted and called up after a cloture motion is filed, is then modified while the cloture motion is pending, and is still pending when cloture is invoked, then the amendment is no longer in order and falls, because the amendment, in its modified form, did not meet the filing deadline for an amendment to be considered under cloture. Rule XXII permits only one limited circumstance in which Senators are allowed to change the amendments they offer under cloture. If a measure or other matter is reprinted for some reason after the Senate has invoked cloture on it and if the reprinting changes page and line numbers, amendments that otherwise are in order will remain in order and can be reprinted to make conforming changes in page and line numbering. Multiple Amendments Rule XXII states that "[n]o Senator shall call up more than two amendments until every other Senator shall have had the opportunity to do likewise." The evident purpose of this provision is to prevent some Senators from dominating the Senate's proceedings under cloture. This restriction, which Senators have rarely, if ever, chosen to enforce, does not create a significant problem for those wishing to consume the time available for post-cloture consideration. From their perspective, what is most important is that amendments be offered, not who offers them. Dilatory Amendments and Motions Rule XXII provides that no dilatory motion or amendment is in order under cloture. Under these circumstances, the Senate has established precedents that empower the presiding officer to rule motions and amendments out of order as dilatory without Senators first making points of order to that effect from the floor. Presiding officers rarely have exercised this authority. On occasion, however, and whether at their own initiative or in response to points of order, presiding officers have ruled amendments and various kinds of motions to be dilatory and, therefore, not in order under cloture. For example, motions to adjourn, postpone, recess, suspend the rules, and reconsider have been held to be dilatory. There also is precedent supporting the authority of the presiding officer to rule that a quorum call is dilatory under these circumstances. Under normal Senate procedures, appeals from rulings of the chair usually are debatable (though they also are subject to tabling motions). Under cloture, however, appeals are not debatable. In extraordinary circumstances, appeals from rulings of the chair have even been ruled out of order as dilatory. Reading and Division of Amendments Under Senate rules, each amendment that is offered must be read before debate on it may begin. The reading may be waived either by unanimous consent (as it typically is) or by a non-debatable motion in cases of certain amendments that are pre-filed and available in the Record . Under Rule XXII, however, the reading of any amendment automatically is waived if it "has been available in printed form at the desk of the Members for not less than twenty-four hours." This requirement usually is satisfied because amendments considered under cloture must have been submitted for printing before the cloture vote. Also, under normal Senate procedure any Senator can demand that an amendment be divided into two or more component parts if each part could stand as an independent proposition (but amendments in the form of motions to strike out and insert are not divisible). Under cloture, however, a Senator cannot demand as a matter of right that an amendment be divided. The Authority of the Presiding Officer When the Senate is operating under cloture, the Senate's presiding officer has powers that he or she does not have under the Senate's regular procedures. Under normal Senate procedure, in particular, the chair is not empowered to count whether a quorum is present on the floor. When a Senator suggests the absence of a quorum, the chair's only response is to direct the clerk to call the roll. Under cloture, however, the presiding officer can count to ascertain the presence of a quorum (although if no quorum is present, the quorum call would ensue). Under cloture, as well, the presiding officer may rule amendments and motions out of order at his or her own initiative, without waiting for Senators to make a point of order from the floor. In current practice, however, as noted earlier, non-germane and dilatory amendments typically fall on a point of order made by the majority leader immediately after cloture has been invoked. Business on the Senate Floor Cloture also affects the consequences of a filibuster for other legislative and executive business that the Senate could conduct. Rule XXII provides that once the Senate invokes cloture, "then said measure, motion or other matter pending before the Senate, or the unfinished business, shall be the unfinished business to the exclusion of all other business until disposed of." If the Senate invokes cloture on a bill, in other words, the rule requires the body to continue to consider that bill until it completes action on it. The rule provides no mechanism for the Senate to set aside the matter being considered under cloture, even temporarily, in order to consider other matters, even those that are of an emergency nature or far less contentious. As a result, a filibuster can affect the fate not only of the matter that provokes it, but also other matters that the Senate may not be able to consider (or at least not as soon as it would like) because of the filibuster. In practice, however, the Senate often provides by unanimous consent for the consideration of other matters. Arrangements of this kind permit the Senate to accomplish necessary routine business, or make progress on other matters, at the same time as it continues to move toward a final resolution of the matter on which it has invoked cloture. The Impact of Filibusters Obviously, a filibuster has the greatest impact on the Senate when the requisite support cannot be assembled to invoke cloture. In that case, the measure or other matter that is being filibustered will not receive chamber approval unless its opponents relent and allow the Senate to vote on it. Even if cloture is invoked, however, a filibuster can significantly affect how, when, and even whether the Senate conducts its legislative and executive business. For this reason, filibusters and the prospect of filibusters shape much of the way in which the Senate does its work on the floor. Impact on the Time for Consideration In principle, a truly determined minority of Senators, even one too small to prevent cloture, usually can delay for as much as two weeks the time at which the Senate finally votes to pass a bill that most Senators support. Table 1 summarizes a hypothetical example for a typical bill. In this example, a motion to proceed to the bill's consideration is made on a Monday (Day 1). If a filibuster on that motion is begun or is anticipated, proponents of the motion and the bill can present a cloture motion on the same day. However, under Rule XXII, the cloture vote on the motion to proceed does not take place until Wednesday (Day 3). Assuming the Senate invokes cloture on Wednesday, there then begins the 30-hour period for post-cloture consideration of the motion. If the Senate is in session for 8 hours per day, Monday through Friday, the 30-hour period, if fully consumed, will extend over almost 4 full days of session, or at least until the end of the Senate's session on the following Monday (Day 6). If, at that time, the Senate votes for the motion to proceed, the bill's opponents then may begin to filibuster the bill itself, requiring another cloture motion, another successful cloture vote (on Day 8), and the expiration of another 30-hour period for post-cloture consideration. Under these conditions, Rule XXII would require that the vote on final passage occur on the 11 th day of consideration, or the 15 th calendar day after the motion to proceed was made. How long an actual filibuster can delay final Senate action may be affected by the answers that can be given, in the individual case, to many questions. These include Is cloture proposed as soon as the motion to proceed is made, and then again as soon as possible after the Senate takes up the bill (after having agreed to the motion to proceed)? Can the bill's supporters secure the 60 votes needed to agree to the first cloture motion on the motion to proceed, or is more than one attempt necessary before the Senate votes for cloture on the motion? Similarly, does the Senate adopt the first cloture motion on the bill itself, or is cloture invoked on the bill only on a second or subsequent attempt? Can the Senate agree by unanimous consent to expedite the process by providing for votes on cloture before the expiration of time specified in Rule XXII? Are the bill's opponents willing and able to consume the entire 30-hour period for post-cloture consideration of the motion to proceed, and also the same amount of time for post-cloture consideration of the bill? After the Senate invokes cloture, for how many days, and for how many hours per day, is the Senate in session to consider the bill? Does the Senate meet late into the evening, or all night, or on the weekend, in order to consume both 30-hour periods more quickly than it otherwise would? Can unanimous consent be obtained to run the clock when the Senate is not considering the bill or is not in session? Although the actual time consumed varies from case to case, clearly filibusters can create significant delays, even when there are 60-vote majorities to invoke cloture. How much delay the Senate experiences depends in part on how much time the Senate, and especially its majority party leadership, is prepared to devote to the bill in question. If the bill is particularly important to the nation and to the majority party's legislative agenda, for example, the majority leader may be willing to invest the days or even weeks that can be necessary to withstand and ultimately end a filibuster. Another consideration is the point in the annual session and in the biennial life of a Congress at which a filibuster takes place. In the first months of the first session, for example, there may be relatively little business that is ready for Senate floor consideration. In that case, the Senate may be able to endure an extended filibuster without sacrificing its ability to act in a timely way on other legislation. Toward the end of each session, however, and especially as the Senate approaches sine die adjournment at the end of the second session, time becomes increasingly scarce and precious. Every hour and every day of floor time that one bill consumes is time that is not available for the Senate to act on other measures that will die if not enacted into law before the end of the Congress. Therefore, the costs of filibusters increase because their effects on the legislative prospects of other bills become greater and greater. The Prospect of a Filibuster However much effect filibusters have on the operations of the Senate, perhaps a more pervasive effect is attributable to filibusters that have not taken place—at least not yet. In many instances, cloture motions may be filed not to overcome filibusters in progress, but to preempt ones that are only anticipated. Also, the prospect of a filibuster often affects when or whether the Senate will consider a measure on the floor, and how the Senate will consider it. Holds A Senator who does not want the Senate to consider a certain measure, whether temporarily or permanently, could monitor the Senate floor and then object if and when the majority leader proposes to call up the question for consideration. The practice of placing holds on measures, however, has developed informally as a way for Senators to interpose such an objection in advance and without having to do so in person on the floor. A Senator placing a hold is implicitly requesting that the majority leader not even try to call up the measure for consideration, at least not without giving advance notice to the Senator who has placed the hold. The Senate's standing rules do not address this practice, and the party leaders are not bound by such requests. Fundamentally, however, when a Senator places the hold, he or she is implicitly registering his or her intention to object to any unanimous consent request for consideration of the measure. In turn, the majority leader and the measure's prospective floor manager understand that a Senator who objects to allowing a bill or resolution to be called up by unanimous consent may back up his or her objection by filibustering a motion to proceed to its consideration. Recent majority leaders have accordingly tended to honor holds, both as a courtesy to their colleagues, and in recognition that if they choose not to do so, they may well confront filibusters that they prefer to avoid. In this way, the threat of a filibuster often is sufficient to prevent a measure from coming to the Senate floor. At a minimum, a bill's supporters may discuss with the Senators making the threat whether the bill can be amended in a way that satisfies their concerns and removes any danger of a filibuster. Even if the bill's proponents are satisfied that they could invoke cloture on the bill, they still may be willing to accept unwelcome amendments to the bill to avoid a protracted process of floor consideration. In fact, depending on the importance of the bill and the other measures that await floor action, the majority leader may be reluctant to schedule the bill unless he is assured that the Senate can complete action on it without undue delay. Linkage and Leverage As noted above, sometimes a filibuster or the threat of a filibuster can affect the prospects of other measures or matters simply by compelling the Senate to devote so much time to the filibustered matter that there is insufficient time available to take up all the other measures that it otherwise would consider and pass. Senators also have been known to use their rights under Rule XXII to delay action on a bill or item of executive business as leverage to secure the action (or inaction) they want on another, unrelated question. Suppose, for example, that a Senator opposes S. 1, but knows that he or she lacks the support to filibuster against it effectively. A Senator in this situation may not have enough leverage to prevent Senate floor consideration of S. 1 or to secure satisfactory changes in the bill. So the Senator may seek to increase his or her leverage by delaying, or threatening to delay, the Senate's consideration of other bills that are scheduled for floor action before S. 1. By threatening to filibuster S. 2, S. 3, and S. 4, for example, or by actually delaying their consideration, the Senator may strengthen his or her bargaining position by making it clear that more is at stake than the prospects and provisions of S. 1. In this way, Senators' opposition to one bill can affect the Senate's floor agenda in unexpected and unpredictable ways. Consensus More generally, the possibility of filibusters creates a powerful incentive for Senators to strive for legislative consensus. The votes of only a majority of Senators present and voting are needed to pass a bill on the floor. It can, however, require the votes of 60 Senators to invoke cloture on the bill in order to overcome a filibuster and enable the Senate to reach that vote on final passage. Knowing this, a bill's supporters have good reason to write it in a way that will attract the support of at least three-fifths of all Senators. What is more, there often are more bills that are ready to be considered on the Senate floor than there is time available for acting on them. Under these circumstances, the majority leader may be reluctant, especially toward the end of a Congress, even to call up a bill unless he can be assured that it will not be filibustered. The threat of a filibuster may be enough to convince the majority leader to devote the Senate's time to other matters instead, even if all concerned agree that the filibuster ultimately would not succeed in preventing the Senate from passing the bill. In such a case, a bill's supporters may not be content with securing the support of even 60 Senators. In the hope of eliminating the threat of a filibuster, the proponents may try to accommodate the interests of all Senators, or at least to convince them that a good faith effort has been made to assuage their concerns. At best, opponents can become supporters. At worst, opponents may remain opposed, but may decide against expressing their opposition through a filibuster. Although true consensus on major legislative issues may be impossible, the dynamics of the Senate's legislative process do promote efforts to come as close to consensus as the strongly held beliefs of Senators permit.

The filibuster is widely viewed as one of the Senate's most characteristic procedural features. Filibustering includes any use of dilatory or obstructive tactics to block a measure by preventing it from coming to a vote. The possibility of filibusters exists because Senate rules place few limits on Senators' rights and opportunities in the legislative process. In particular, a Senator who seeks recognition usually has a right to the floor if no other Senator is speaking, and then that Senator may speak for as long as he or she wishes. Also, there is no motion by which a simple majority of the Senate can stop a debate and allow itself to vote in favor of an amendment, a bill or resolution, or most other debatable questions. Most bills, indeed, are potentially subject to at least two filibusters before the Senate votes on final passage: first, a filibuster on a motion to proceed to the bill's consideration and, second, after the Senate agrees to this motion, a filibuster on the bill itself. Senate Rule XXII, however, known as the cloture rule, enables Senators to end a filibuster on any debatable matter the Senate is considering. Sixteen Senators initiate this process by presenting a motion to end the debate. In most circumstances, the Senate does not vote on this cloture motion until the second day of session after the motion is made. Then, it requires the votes of at least three-fifths of all Senators (normally 60 votes) to invoke cloture. (Invoking cloture on a proposal to amend the Senate's standing rules requires the support of two-thirds of the Senators present and voting, whereas cloture on nominations requires a numerical majority.) The primary effect of invoking cloture on most questions is to impose a maximum of 30 additional hours for considering that question. This 30-hour period for consideration encompasses all time consumed by roll call votes, quorum calls, and other actions, as well as the time used for debate. Under cloture, as well, the only amendments Senators can offer are ones that are germane and were submitted in writing before the cloture vote took place. Finally, the presiding officer also enjoys certain additional powers under cloture such as, for example, the power to count to determine whether a quorum is present and to rule amendments, motions, and other actions out of order on the grounds that they are dilatory. The ability of Senators to engage in filibusters has a profound and pervasive effect on how the Senate conducts its business on the floor. In the face of a threatened filibuster, for example, the majority leader may decide not to call a bill up for floor consideration or may defer calling it up if there are other, equally important bills the Senate can consider and pass with less delay. Similarly, the prospect of a filibuster can persuade a bill's proponents to accept changes in the bill that they do not support but that are necessary to prevent an actual filibuster. This report concentrates on the operation of cloture under the general provisions of Senate Rule XXII, paragraph 2, though it also identifies key modifications to its application in recent years. This report will be updated as events warrant.

Introduction and Legislative Context The idea of human spaceflight beyond Earth orbit has captivated many Americans for more than half a century. As U.S. space policy has evolved, new opportunities have emerged, and new challenges have arisen. From 2004 to 2010, the priorities of the National Aeronautics and Space Administration (NASA) were governed by the Vision for Space Exploration. The Vision was announced by President Bush in January 2004 and endorsed by Congress in the 2005 and 2008 NASA authorization acts ( P.L. 109-155 and P.L. 110-422 ). It directed NASA to focus its efforts on returning humans to the Moon by 2020 and some day sending them to Mars and "worlds beyond." The resulting efforts are now approaching major milestones, such as the end of the space shuttle program and design review decisions for the new spacecraft intended to replace the shuttle. In May 2009, the Obama Administration announced plans for a high-level independent review of the future of human space flight, chaired by Norman R. Augustine. Major components of the FY2010 NASA budget request were placeholders, to be revised following the results of this review. The Augustine committee released its final report in October 2009. The report identified serious barriers to the implementation of the Vision and proposed several alternatives. Committees in the House and Senate held hearings to consider the proposals. The Administration did not submit a revised FY2010 budget for NASA. In December 2009, Congress appropriated FY2010 funds for NASA at approximately the level in the President's original request. The appropriations conference report ( H.Rept. 111-366 ) stated that the Augustine committee's report raises issues requiring thoughtful consideration by the Administration and the Congress.... It is premature for the conferees to advocate or initiate significant changes to the current program absent a bona fide proposal from the Administration and subsequent assessment, consideration and enactment by Congress.... It is the expressed hope of the conferees that the Administration will formulate its formal decision soon, submit its recommendations for congressional review and consideration, and budget the necessary resources. In February 2010, as part of its FY2011 budget, the Administration proposed major changes to the Vision, including the elimination of a human return to the Moon as NASA's primary goal, the cancellation of NASA's Constellation spacecraft development program, a new effort to encourage the private sector to develop commercial crew launch services, and increased emphasis at NASA on technology development and science. The 111 th Congress considered these proposals but ultimately did not pass a regular FY2011 appropriations bill for NASA. Under the Continuing Appropriations Act, 2010 ( P.L. 111-242 as amended by P.L. 111-322 ), NASA is operating at FY2010 funding levels through March 4, 2011. Because the continuing resolution does not explicitly remove it, a restriction in the FY2010 appropriations act that requires NASA to continue the Constellation program remains in effect. The 111 th Congress did pass a comprehensive NASA reauthorization bill, the NASA Authorization Act of 2010 ( P.L. 111-267 ). This act mandates several major changes in direction for NASA. For example, it calls for the development of a new, crew-capable, heavy-lift rocket, and it provides for the development of commercial services to transport NASA crews into low Earth orbit. In the near term, NASA's ability to implement these changes may be constrained by operating under the continuing resolution. The NASA Inspector General has estimated that if the continuing resolution is extended through the end of FY2011, without changes to the requirement to continue Constellation, NASA will likely have to spend $575 million during FY2011 on activities that it would otherwise no longer pursue. In the longer term, fiscal constraints may also create barriers, if they result in future appropriations that do not match the growing NASA budgets envisioned by the 2010 authorization act. As Congress considers these broad space policy challenges, the major issues it faces can be summarized as three broad questions: What is NASA for? Different analysts and policy makers give different answers to this question: making scientific discoveries, developing technologies with economic benefits, enhancing national security, enhancing international prestige, even fulfilling human destiny in space. How should these competing goals be prioritized? What should NASA do? In order to accomplish its broad goals, how should NASA balance its major programs in human spaceflight, robotic spaceflight, aeronautics research, and education? In the human spaceflight program, which is larger than all the others put together, should the agency's goal be exploration of the Moon, Mars, or some other destination? What should the top priorities be for NASA's science and aeronautics programs? How? Once these questions are decided, how should their answers be implemented? What new space vehicles are needed? Should they be government-owned or commercial? What should be done with existing programs, such as the space shuttle and the International Space Station? This report analyzes these questions and some possible answers. It also addresses a number of cross-cutting issues, such as NASA's interactions with other federal agencies and the growing role of the commercial space industry. What Is NASA For? During the Eisenhower Administration, after the Soviet Union's launch of the first artificial satellite, Sputnik, but before the establishment of NASA, the President's Science and Advisory Committee identified four "principal reasons for undertaking a national space program": "the compelling urge of man to explore and to discover"; "defense ... to be sure that space is not used to endanger our security ... [and to] be prepared to use space to defend ourselves"; to "enhance the prestige of the United States ... and create added confidence in our scientific, technological, industrial, and military strength"; and "scientific observation and experiment which will add to our knowledge and understanding of the Earth, the solar system, and the universe." To these objectives, analysts today add the potential for technologies developed for the space program to have direct and indirect ("spinoff") economic benefits; the opportunity to use space activities as a tool of international relations, through collaboration on projects such as the International Space Station; and the ability of the space program to inspire students and promote education in science, technology, engineering, and mathematics (STEM). These goals form a foundation for U.S. space policies, but policy makers differ in how they should be balanced against each other. Is the urge to discover a sufficient reason to explore space, or must exploration also meet needs here on Earth? Should economic benefits be an explicit focus for NASA or just a positive side effect? To what extent should improving STEM education be a NASA function, as opposed to a consequence of its other functions? Should the emphasis of international space programs be competition or cooperation? The priorities that Congress assigns to these objectives may determine how it balances the competing demands of NASA's programs. For example, if Congress believes that national prestige is a high priority, it could choose to emphasize NASA's high-profile human exploration activities, such as exploring Mars or establishing a Moon base. If scientific knowledge is a high priority, Congress could emphasize unmanned missions such as the Hubble telescope and the Mars rovers. If international relations are a high priority, Congress could encourage joint space activities with other nations. If economic benefits are of interest, Congress could focus on technological development, linking NASA programs to the needs of business and industry. A report by the National Academies proposed goals similar to those listed above and recommended three criteria to use in balancing their competing demands for resources: Steady progress. Each major area should be maintained at a level that allows sustained long-term progress with intermediate goals achieved at a reasonable pace. Stability. Rapid downsizing and abrupt redirection should be avoided because they are disruptive, can take time to recover from, and can create risk as operations experience is lost. Robustness. Sufficient human resources and research infrastructure should be maintained so that the nation can ramp up selected activities quickly in response to changing national needs or scientific breakthroughs. The Academies report did not, however, actually employ these criteria to prioritize the goals it proposed. What Should NASA Do? Based on this wide variety of objectives, NASA has established programs in human spaceflight, science, aeronautics, and education. The largest and most visible effort, in human spaceflight, has faced considerable uncertainty about its proper scope and aims. The content of the science, aeronautics, and education programs is less controversial but still faces questions about scope, balance, and other issues. Human Spaceflight: The Vision for Space Exploration The Vision for Space Exploration, announced by President Bush in a speech on January 14, 2004, directed NASA to focus its efforts on returning humans to the Moon by 2020 and eventually sending them to Mars and "worlds beyond." (Twelve U.S. astronauts walked on the Moon between 1969 and 1972. No humans have visited Mars.) The Vision also directed NASA to return the space shuttle to flight status following the February 2003 Columbia disaster; to complete construction of the International Space Station (ISS) in accord with existing international commitments; and to conclude U.S. participation in the ISS by the end of 2015. The first post- Columbia shuttle flight was launched in July 2005. The other goals remain to be accomplished. To advise NASA on implementation of the Vision, President Bush established a Commission on the Implementation of U.S. Space Exploration Policy, chaired by Edward C. "Pete" Aldridge, Jr. The Aldridge Commission issued its report in June 2004. In April 2005, NASA established an Exploration Systems Architecture Study (ESAS) to identify a strategy and technical architecture for implementing the Vision. The ESAS issued its final report in November 2005. From then until 2010, the reports of the Aldridge Commission and the ESAS were the baseline for NASA's space exploration plans. In the NASA Authorization Act of 2005 ( P.L. 109-155 ), Congress endorsed the Vision in broad terms and established several milestones for its implementation, including a statutory mandate to return to the Moon no later than 2020. Nevertheless, it directed NASA to construct an architecture and implementation plan for its human exploration program "that is not critically dependent on the achievement of milestones by specific dates." The NASA Authorization Act of 2008 ( P.L. 110-422 ) reaffirmed the Vision's broad goals, including the "eventual" return to the Moon and missions to other destinations in the solar system. It expressed the sense of Congress that "America's friends and allies" should be invited to participate. It directed NASA to take a "stepping stone approach" in which lunar exploration activities are designed and implemented with strong consideration to their future contribution to exploration beyond the Moon. It directed that plans for a lunar outpost should not require its continuous occupation and that NASA should use commercial services for its lunar outpost activities "to the maximum extent practicable." Program to Implement the Vision The program for implementing the Vision, as it stood before passage of the 2010 authorization act, addressed the conclusion of the space shuttle and International Space Station programs as well as the development and implementation of new vehicles for taking humans into Earth orbit and then back to the Moon. The major elements were as follows: Retire the space shuttle during 2011 (extended from the original deadline of the end of 2010). Rely on non-U.S. vehicles for human access to space until a replacement vehicle is developed. Terminate U.S. use of the International Space Station at the end of 2015. Under the Constellation program, develop new systems for space exploration: the Ares I rocket to launch astronauts into low Earth orbit, where the International Space Station is located; the Orion crew capsule, to be launched atop Ares I to carry astronauts into orbit and beyond; the Ares V heavy-lift rocket to send astronauts and equipment to the Moon; and the Altair lunar lander and various lunar surface systems. Before the Administration's FY2011 budget proposals, no funds were projected for any shuttle flights after the end of 2010. No FY2016 funds were projected for deorbiting the space station. The first crewed flight (or "initial operating capability") of Ares I and Orion was scheduled for early 2015. The first return to the Moon, using all the Constellation systems together, was planned for 2020, although NASA acknowledged that meeting that date would be difficult. The 2010 authorization act extended U.S. use of the International Space Station through at least 2020 and replaced Constellation with programs to develop commercial services for launching astronauts into low Earth orbit (instead of Ares I); a multipurpose crew vehicle (similar to Orion); and a new heavy-lift rocket (possibly similar to Ares V). The transition from Constellation to these new programs, however, is constrained while NASA operates under the continuing resolution. Issue for Congress: Cost and Schedule Cost played a central role as congressional policy makers oversaw the Vision's progress and considered proposals to modify it. During the Bush Administration, NASA stressed that its strategy was to "go as we can afford to pay," with the pace of the program set, in part, by the available funding. The original plan in 2004 proposed adding a total of just $1 billion to NASA's budget for FY2005 through FY2009 to help pay for the Vision, with increases thereafter limited to the rate of inflation. Subsequent Administration budgets more than eliminated this increase, and actual appropriations by Congress were even less. As a result, most funding for the Vision has been redirected from other NASA activities, such as the planned termination of the space shuttle program. NASA has not provided a cost estimate for the Vision as a whole. In 2004, it projected that developing capabilities for human exploration, not including robotic support missions, would cost a total of $64 billion up through the first human return to the Moon. The Congressional Budget Office (CBO) concluded that, based on historical trends, the actual cost could be much higher. In its 2005 implementation plan, NASA estimated that returning astronauts to the Moon would cost $104 billion, not including the cost of robotic precursor missions or the cost of servicing the ISS after the end of the shuttle program. In 2007, the Government Accountability Office (GAO) estimated the total cost for the Vision as $230 billion over two decades. In April 2009, as directed in the 2008 authorization act, the CBO updated its 2004 budgetary analysis of the Vision. It found that NASA would need an additional $2 billion per year through FY2025 to keep the Vision activities on schedule, not counting probable cost growth in other activities. In October 2009, the Augustine report stated that executing NASA's plans would require an additional $3 billion per year, even with some schedule delays. Schedule is closely related to cost. For example, the 2009 CBO analysis found that NASA could maintain its currently planned budget by delaying its return to the Moon by approximately three years. The tradeoffs can be difficult to quantify, however. The Augustine report, unlike the CBO analysis, found that under NASA's budget plans at the time of the report, "human exploration beyond low-Earth orbit is not viable" and planned budgets would delay a return to the Moon "well into the 2030s, if ever." Schedule delays were already evident. For example, the initial operating capability for Orion and Ares I, originally planned for 2012, had slipped to 2015; the Augustine committee concluded that 2017 was more likely. Issue for Congress: Why the Moon? Ever since the Vision was announced, some analysts questioned its choice of the Moon as the headline destination for NASA's human exploration efforts. Some felt that revisiting the destination of the Apollo missions of 1969-1972 was a less inspiring goal than a new target would be. Some doubted the scientific rationale, suggesting that robotic missions to the Moon could accomplish as much or more at lower cost and without risking human lives, or that more could be learned by visiting another destination that has been studied less by previous missions. Some were simply concerned about the cost. Supporters countered that the Moon is the closest destination beyond Earth orbit and could serve as a stepping stone for subsequent destinations. As Earth's nearest neighbor, the Moon is of great scientific interest. Missions to the Moon would provide an opportunity to develop and test technologies and gain experience working in space. According to some advocates, the Moon might literally be a staging point for future missions. For some in Congress, concerned about national security or national prestige, the prospect of a manned Chinese mission to the Moon was a strong motivation to reestablish a U.S. presence. For many who supported the Vision, completing it became important in itself; part of the Vision's original purpose was to set a goal for NASA that would give the agency direction and enhance its public support, and some supporters feared that changing the plan would weaken NASA, whether or not a better plan could be devised. Issue for Congress: "The Gap" and Utilization of the Space Station In order to fund the cost of the Vision and because of safety concerns following the Columbia disaster in 2003, NASA intended to end the space shuttle program in 2010 once construction of the ISS was complete. (Because of schedule delays and a congressional mandate for an additional flight, the program will end during 2011 rather than 2010.) The shuttle's successors, Orion and Ares I, were not expected to be ready for crewed flight until at least 2015. The difference between these dates is generally referred to as "the gap." Congressional policy makers and others expressed concerns about U.S. access to space during the gap. The NASA Authorization Act of 2005 declared it to be U.S. policy "to possess the capability for human access to space on a continuous basis." Former NASA Administrator Michael Griffin, a strong advocate of the Vision, referred to the gap as "unseemly in the extreme." Under current plans, Russian spacecraft will be the only means of access to the ISS for humans during the gap. A variety of alternatives are being considered for cargo. These points are discussed further below in the section " Post-Shuttle Access to the ISS ." The prospect of the gap has intensified congressional concerns about whether the capabilities of the ISS will be fully utilized. Human Spaceflight: The Augustine Committee The Review of U.S. Human Spaceflight Plans Committee was formally chartered on June 1, 2009. It was chaired by Norman R. Augustine, a former chairman and chief executive officer of Lockheed Martin Corporation and a member of the President's Council of Advisors on Science and Technology under Presidents of both parties. Other committee members included scientists, engineers, astronauts, educators, executives of established and new aerospace firms, former presidential appointees, and a retired Air Force general. The committee reported jointly to the Administrator of NASA and the Director of the Office of Science and Technology Policy in the Executive Office of the President. The committee's charter defined its scope and objectives as follows: The Committee shall conduct an independent review of ongoing U.S. human space flight plans and programs, as well as alternatives, to ensure the Nation is pursuing the best trajectory for the future of human space flight – one that is safe, innovative, affordable, and sustainable. The Committee should aim to identify and characterize a range of options that spans the reasonable possibilities for continuation of U.S. human space flight activities beyond retirement of the Space Shuttle. The identification and characterization of these options should address the following objectives: a) expediting a new U.S. capability to support utilization of the International Space Station (ISS); b) supporting missions to the Moon and other destinations beyond low-Earth orbit (LEO); c) stimulating commercial space flight capability; and d) fitting within the current budget profile for NASA exploration activities. In addition to the objectives described above, the review should examine the appropriate amount of research and development and complementary robotic activities needed to make human space flight activities most productive and affordable over the long term, as well as appropriate opportunities for international collaboration. It should also evaluate what capabilities would be enabled by each of the potential architectures considered. It should evaluate options for extending ISS operations beyond 2016. Options Identified by the Augustine Committee The committee released its final report in October 2009. It identified five options: two within the existing budget profile and three that would require about an additional $3 billion per year. In the committee's judgment, developing Ares I, Orion, and the other Constellation systems is likely to take longer than NASA currently plans, and the options presented by the committee reflect these expected delays. The options are as follows: Option 1: Current Budget, Current Program . This option is the current program, modified only to provide funds for space shuttle flights in FY2011 and for deorbiting the International Space Station in FY2016. The first crewed flight of Ares I and Orion is no earlier than 2017, after the International Space Station has been deorbited. Ares V is not available until the late 2020s, and there are insufficient funds to develop Altair and the lunar surface systems needed for returning to the Moon until well into the 2030s, if ever. Option 2: Current Budget , Extend Space Station, Explore Moon Using Ares V Lite . This option extends use of the International Space Station to 2020 and begins a program of lunar exploration using a variant of Ares V known as Ares V Lite. It develops commercial services to transport humans into low Earth orbit. It delivers a heavy-lift capability in the late 2020s, but it does not develop the other systems needed for returning to the Moon for at least the next two decades. Option 3: Additional Budget , Current Program. Like Option 1, this option is the current program, modified to provide funds for space shuttle flights in FY2011 and to deorbit the International Space Station in FY2016. The first crewed flight of Ares I and Orion would still be after the International Space Station is deorbited. The additional funding, however, would permit a human lunar return in the mid-2020s. Option 4: Additional Budget , Extend Space Station, Explore Moon First . Like Option 2, this option extends use of the International Space Station to 2020 and uses commercial services to transport humans into low Earth orbit. The first destination beyond Earth orbit is still the Moon. There are two variants to this option. Variant 4A develops the Ares V Lite for lunar exploration as in Option 2. Variant 4B extends the space shuttle program to 2015 and develops a heavy-lift vehicle for lunar missions that is more directly shuttle-derived. Both variants permit a human lunar return by the mid-2020s. Option 5: Additional Budget, Extend Space Station, Flexible Path for Exploration. Like Option 4, this option extends use of the International Space Station to 2020 and uses commercial services to transport humans into low Earth orbit. Missions beyond Earth orbit, however, follow a "flexible path" of increasingly distant destinations—such as lunar fly-bys, rendezvous with asteroids and comets, and Mars fly-bys—without initially attempting a lunar landing. A lunar landing would be possible by the mid to late 2020s. Variant 5A employs the Ares V Lite. Variant 5B uses a commercial heavy-lift rocket derived from the Evolved Expendable Launch Vehicle (EELV). Variant 5C develops a shuttle-derived vehicle for heavy lift as in Variant 4B. (These alternative launch vehicles are discussed further later in this report.) Although the committee's report did not recommend any particular one of these options, it made a number of findings and comments that put the options into context: Option 1 and Option 2 fit within the current budget profile, but "neither allows for a viable exploration program. In fact, the Committee finds that no plan compatible with the FY2010 budget profile permits human exploration to continue in any meaningful way." The additional funding contemplated in Options 3, 4, and 5 is necessary for "an exploration program that will be a source of pride for the nation." "The return on investment to both the United States and our international partners would be significantly enhanced by an extension of the life of the [International Space Station]. A decision not to extend its operation would significantly impair U.S. ability to develop and lead future international spaceflight partnerships." Commercial services to launch crews into Earth orbit "are within reach. While this presents some risk, it could provide an earlier capability at lower initial and life-cycle costs than the government could achieve." Of the heavy-lift alternatives, Ares V Lite is "the most capable." The commercial EELV derivative "has an advantage of potentially lower operating costs, but requires significant restructuring of NASA" including "a different (and significantly reduced) role." A shuttle-derived vehicle would "take maximum advantage of existing infrastructure, facilities, and production capabilities." Variant 4B, which extends operation of the space shuttle to 2015, is "the only foreseeable way to eliminate the gap in U.S. human-launch capability." "Mars is the ultimate destination for human exploration of the inner solar system; but it is not the best first destination. Visiting the 'Moon First' and following the 'Flexible Path' are both viable exploration strategies. The two are not necessarily mutually exclusive; before traveling to Mars, we could extend our presence in free space and gain experience working on the lunar surface." Questions for Congressional Policy Makers to Consider The Augustine committee identified five questions "that could form the basis of a plan for U.S. human spaceflight": What should be the future of the space shuttle? What should be the future of the International Space Station? On what should the next heavy-lift launch vehicle be based? How should crew be carried to low Earth orbit? What is the most practicable strategy for exploration beyond low Earth orbit? These five questions focus on designing a future program of human spaceflight. In keeping with the committee's charter, the questions do not address NASA's other programs, and they take it as given that a human spaceflight program should be implemented. Congress may therefore wish to consider additional questions such as these: Is human spaceflight beyond low Earth orbit worth the cost and risk? If not, are there alternatives that would accomplish some of the same goals? What is the future of NASA's other activities, such as robotic exploration, science, and aeronautics research? Each of these issues is discussed in more detail later in this report. Human Spaceflight: Administration Proposals In its FY2011 budget request, the Obama Administration proposed cancelling the Constellation program and eliminating the return of humans to the Moon as NASA's primary goal. Instead, NASA would encourage the private sector to develop commercial space transportation services to carry astronauts to and from the International Space Station. For spaceflight beyond Earth orbit, NASA would emphasize long-term technology development rather than near-term development of specific flight systems. Operation of the International Space Station would continue until at least 2020. When asked about destinations for future human exploration of space, NASA officials stated that Mars would be the ultimate goal, but that other intermediate destinations would come first. They described these proposals as consistent with the "Flexible Path" option identified by the Augustine committee. Congressional and Public Reaction For the most part, Congress and the public at large reacted negatively to the Administration's proposals. Their concerns included the potential negative impact of Constellation's cancellation on employment in the aerospace industry, the lack of a specific destination and schedule to replace the goal of returning humans to the Moon, and the risk that the private sector might not in fact develop commercial space transportation services that meet NASA's needs. In the media, attention focused on the proposed cancellation of Constellation, with less notice of the programs that would replace it, such as increased technology development and stimulation of commercial space transportation services. Press accounts often reported the Administration's proposals as cutting NASA's budget, or eliminating its human spaceflight program, even though the proposed FY2011 budget for NASA was actually an increase over previous plans and included other human spaceflight activities to replace Constellation. Supporters of Constellation were particularly concerned about its status during FY2010. The FY2010 appropriations act prohibited NASA from using FY2010 or prior-year funds to terminate or eliminate "any program, project, or activity of the architecture for the Constellation program" or to create or initiate any new program, project, or activity. Some analysts and policy makers expressed concern that NASA's contracting decisions and other actions during FY2010 violated this provision. NASA officials replied that they were continuing to implement the Constellation program during FY2010 in full compliance with the law, even though they intended to terminate the program in FY2011. Two GAO opinions in May and July 2010 concluded that NASA had not violated the appropriations provision. In June 2010, NASA announced that it would "prioritize" and "pace" (but not "terminate") contracts in the Constellation program because contract termination liabilities could result in a $1 billion "shortfall" in the program's FY2010 funding. Modifications to the Administration Proposals On April 15, 2010, President Obama gave a speech at the Kennedy Space Center in Florida that attempted to answer some of these public and congressional concerns. In this speech, he announced several modifications to the original FY2011 budget request proposals: Development of a modified Orion crew capsule would continue. The modified design would provide an emergency escape capability for the International Space Station, however, rather than transporting crews to and from the station on a regular basis. The next human mission beyond Earth orbit would be to an asteroid and would take place in 2025. This would be the first human mission to a destination more distant than the Moon. Subsequent missions to orbit Mars would take place in the mid-2030s. A human landing on Mars would remain the ultimate goal. NASA's increased technology efforts would focus on the development of a new heavy-lift rocket, with a decision in 2015 on a specific heavy-lift architecture for exploration of deep space. Independent of the FY2011 budget, an Administration task force will address economic development and the aerospace industry in the region of Florida known as the Space Coast. An Administration budget amendment in June 2010 proposed transferring $100 million from the Exploration account in NASA's FY2011 budget request to the Departments of Commerce and Labor "to spur regional economic growth and job creation along the Florida Space Coast and other affected regions." Human Spaceflight: The 2010 Authorization Act In October 2010, Congress passed the NASA Authorization Act of 2010 ( P.L. 111-267 ). The act authorizes funding for NASA for FY2011 through FY2013 at a level that matches the Administration's proposals. Its allocation of those funds within the agency, however, is quite different. New efforts in long-term space technology development are reduced by about half. This allows the addition of one extra space shuttle flight in FY2011 and additional funding for other human spaceflight programs in subsequent years. The human spaceflight program is to retain the full Orion crew capsule and develop a new, crew-capable, heavy-lift rocket. To pay for Orion and the new rocket, other elements of the human spaceflight program are to be scaled back significantly, including the Administration's proposals for technology demonstrations, robotic precursor missions, and development of commercial crew launch services. As with any authorization act, these budgetary plans are subject to subsequent appropriations by Congress. Because the 111 th Congress did not pass a regular FY2011 appropriations act for NASA, the 112 th Congress will determine appropriations for all three years covered by the 2010 authorization act. Other provisions of the NASA Authorization Act of 2010 are discussed throughout this report together with related discussion of the topics addressed. Science About two-thirds of NASA's budget is associated with human spaceflight. Most of the rest is devoted to unmanned science missions. These science missions fall into four categories: Earth science, planetary science, heliophysics, and astrophysics. The latter three are sometimes known collectively as space science. In part because of concerns about climate change, both Congress and the Administration have recently placed increased emphasis on Earth science. In the FY2006 and FY2007 budget cycles NASA had no separate budget for Earth science, and supporters became concerned that this was adversely affecting the field. In late 2006, NASA reorganized the Science Mission Directorate, creating a separate Earth Science Division. The National Research Council recommended in early 2007 that the United States "should renew its investment in Earth observing systems and restore its leadership in Earth science and applications." In response, Congress and the Administration increased the share of NASA's science funding devoted to Earth science from 26% in FY2008 to 32% in FY2010. In addition, NASA allocated 81% of the science funding it received under the American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ) to Earth science. The Administration's requested budget for FY2011 would provide substantial increases for Earth science funding, including a five-year, $2.1 billion global climate initiative. For FY2011 through FY2013, the NASA Authorization Act of 2010 authorized these increases. In recent years, Congress has sought to ensure that NASA's science program includes a balanced variety of approaches to R&D rather than focusing only on certain types of missions. For example, the NASA Authorization Act of 2008 stated that the science program should include space science missions of all sizes as well as mission-enabling activities such as technology development, suborbital research, and research and analysis (R&A) grants to individual investigators. According to the National Research Council, "practically all relevant external advisory reports have emphasized the importance of mission-enabling activities," but determining their proper scale has been challenging "throughout NASA's history." In the past few years, funding for planetary science technology has increased significantly, but funding for Earth science technology has increased only slightly; the astrophysics and heliophysics programs do not have dedicated technology subprograms. Funding for suborbital rocket operations increased from $51 million in FY2008 to $66 million in FY2010, but the trend is unclear as the latter amount was down from $77 million in FY2009. Funding for R&A grants, which NASA controversially proposed to reduce significantly as recently as FY2007, has recovered as the result partly of the Administration's own initiatives and partly of congressional action on appropriations legislation. The NASA Authorization Act of 2010 reaffirmed the sense of Congress that "a balanced and adequately funded set of activities, consisting of research and analysis grants programs, technology development, small, medium, and large space missions, and suborbital research activities, contributes to a robust and productive science program and serves as a catalyst for innovation." In December 2009, the National Research Council recommended ways to make the mission-enabling activities of NASA's science programs more effective through more active management. These recommendations included establishing explicit objectives and metrics, making budgets more transparent, and clearly articulating the relationships between mission-enabling activities and the ensemble of missions they are intended to support. The NASA Authorization Act of 2008 stated that the technology development program should include long-term activities that are "independent of the flight projects under development." NASA may sometimes find it challenging to balance this independence against the goal of linking mission-enabling activities to the missions they support. NASA's science programs have a history of periodic review by the National Academies. Such reviews typically take place every 10 years, so they are commonly known as decadal surveys. The NASA Authorization Act of 2005 mandated an Academy review of each division of NASA's science directorate every five years. The NASA Authorization Act of 2008 also mandated periodic reviews and directed that they include independent estimates of the cost and technical readiness of each mission assessed. The NASA Authorization Act of 2010 directed NASA to "implement, as appropriate ... within the scope of the funds authorized," the missions identified by the Earth science decadal survey, and to "take into account" space science decadal surveys when submitting the President's annual budget request. Decadal surveys by the National Academies are generally well received by NASA and are widely respected in the science and science policy communities. On the other hand, the expertise of the National Academies is primarily scientific. It is unclear whether their analysis of mission cost and readiness will be considered equally authoritative. Aeronautics After human spaceflight and science, NASA's largest activity is research on aeronautics, the science and technology of flight within Earth's atmosphere. There is a history of disagreement in Congress about the appropriate role of this program. Supporters argue that the aviation industry is vital to the economy, especially because aircraft are a major component of U.S. exports. They claim that government funding for aeronautics research can contribute to U.S. competitiveness and is necessary in light of similar programs in Europe and elsewhere. Opponents counter that the aviation industry itself should pay for the R&D it needs. Against the background of this debate, NASA aeronautics programs have focused increasingly on long-term fundamental R&D and on research topics with clear public purposes, such as reducing noise and emissions, improving safety, and improving air traffic control. In 2005, Congress directed the President to develop a national policy for aeronautics R&D. The National Science and Technology Council (NSTC), part of the Executive Office of the President, issued this policy in December 2006. The policy established general principles and goals for federal aeronautics activities, laid out the roles and responsibilities of NASA and other agencies, and directed the NSTC to issue a national aeronautics R&D plan at least every two years. The NSTC released the first national aeronautics R&D plan in December 2007 and the second in February 2010. The NASA Authorization Act of 2008 stated that NASA's aeronautics research program should be "guided by and consistent with" the national aeronautics R&D policy. In June 2006, in response to a congressional mandate, the National Research Council of the National Academies released a decadal strategy for federal civil aeronautics activities, with a particular emphasis on NASA's aeronautics research program. Along with other recommendations, the report identified 51 technology challenges to serve as the foundation for aeronautics research at NASA for the next decade. In the 2008 authorization act, Congress directed NASA to align its fundamental aeronautics research program with these technology challenges "to the maximum extent practicable within available funding" and to increase the involvement of universities and other external organizations in that program. It also mandated periodic Academy reviews of the NASA aeronautics program and directed that they include independent estimates of the cost and technical readiness of each mission assessed. As noted above with respect to its decadal surveys of NASA science, while the National Academies are widely respected for their scientific expertise, it is unclear whether their analysis of cost and technical readiness will be considered equally authoritative. The aeronautics program's heavy use of shared facilities and capabilities, such as wind tunnels and supercomputers, has sometimes created challenges. For example, when NASA introduced full-cost accounting in the FY2004 budget request, the stated cost of the aeronautics program increased significantly because facility costs had previously been budgeted in another account. At least partly in response to these concerns, NASA subsequently established a separate Aeronautics Test Program in the aeronautics directorate and a Strategic Capabilities Assets Program outside the directorate. It has also sometimes been difficult for NASA to balance its stewardship of unique aeronautics facilities, often used by other agencies and by industry as well as by NASA itself, against the cost of maintaining those facilities. In 2005, Congress directed NASA to establish a separate account to fund aeronautics test facilities, to charge users of NASA test facilities at a rate competitive with alternative facilities, and not to implement a policy seeking full cost recovery for a facility without giving 30 days' notice to Congress. To accompany the national aeronautics R&D plan, the Aeronautics Science and Technology Subcommittee of the NSTC developed a national aeronautics research, development, test, and evaluation infrastructure plan. The infrastructure plan will be updated periodically in response to the biennial updates of the R&D plan. There is ongoing congressional interest in the relationship between NASA's aeronautics program and related efforts by the Federal Aviation Administration (FAA) and the Department of Defense (DOD). One aspect of this relationship is the interagency Joint Planning and Development Office (JPDO), which oversees the development of a Next Generation Air Transportation System (NGATS) for improved airspace management. Congress has directed NASA to align the Airspace Systems program of its Aeronautics Research Directorate with the objectives of the JPDO and NGATS. The NASA Authorization Act of 2010 directed NASA to continue to coordinate its aeronautics research with DOD and the FAA. Education In 2008, a congressionally mandated National Academies review of NASA education programs found that even though NASA is uniquely positioned to interest students in science, technology, and engineering, its education programs are not as effective as they could be. The report found that NASA has no coherent plan to evaluate its education programs, and few of them have ever been formally evaluated. It recommended that NASA develop an evaluation plan and use the results of the evaluations to inform project design and improvement. It found that the operating directorates, rather than the Office of Education, fund about half of the agency's primary and secondary education activities. It recommended that the Office of Education focus on coordination and oversight, including advocacy for the inclusion of education activities in the programs of the operating directorates. Congress directed NASA to prepare a plan in response to the recommendations of the National Academies, including a schedule and budget for any actions that have not yet been implemented. NASA issued this plan in January 2010. In the NASA Authorization Act of 2010, Congress directed NASA to submit a report on outcomes of its education programs. Unlike the Department of Education or the National Science Foundation, NASA does not have a lead role in federal education programs. As a result, some analysts may view NASA's education activities as secondary to its primary efforts in spaceflight, science, and aeronautics. Congress, however, is typically supportive of NASA education programs and often provides more funding for them than NASA requests. This imbalance between Administration and congressional priorities, the dispersed nature of NASA's education activities outside the Office of Education, and the tendency for congressional funding increases to be dedicated to specific one-time projects rather than to ongoing programs, may make it difficult for NASA to plan and manage a coherent, unified education program. Balancing Competing Priorities Ever since the announcement of the Vision, NASA's emphasis on exploration has created concerns about the balance between human spaceflight and NASA's other activities, especially science and aeronautics. Because most funding for the Vision has been redirected from other NASA activities, advocates of science and aeronautics have feared that their programs will be cut in order to pay for human exploration activities. Congress, while fully supporting the Vision, has been clear about the need for balance. The NASA Authorization Act of 2005 directed NASA to carry out "a balanced set of programs," including human space flight in accordance with the Vision, but also aeronautics R&D and scientific research, the latter to include robotic missions and research not directly related to human exploration. The NASA Authorization Act of 2008 found that NASA "is and should remain a multimission agency with a balanced and robust set of core missions in science, aeronautics, and human space flight and exploration" and "encouraged" NASA to coordinate its exploration activities with its science activities. In January 2010, NASA Administrator Charles Bolden assured a group of scientists that "the future of human spaceflight will not be paid for out of the hide of our science budget." Balancing these competing priorities depends on answering questions, raised earlier in this report, about NASA's purpose. More than 50 years ago, President Eisenhower's advisors were aware that a space program was justified both by "the compelling urge of man to explore and to discover" and by "scientific observation and experiment which will to add to our knowledge and understanding." Today, there is still no consensus about how to balance these purposes. Some policy makers believe that a space program can best be justified by tangible benefits to economic growth and competitiveness. Others believe that its most important role is to be a source of national pride, prestige, and inspiration. Space Shuttle Program Since its first launch in April 1981, the space shuttle has been the only U.S. vehicle capable of carrying humans into space. After a few remaining flights during 2011, the space shuttle program is scheduled to end. Although some advocates and policy makers would like to extend the program, technical and management issues are making that ever more difficult as the scheduled termination approaches. Congress's attention is increasingly on managing the transition of the shuttle workforce and facilities and on addressing the projected multi-year gap in U.S. access to space between the last shuttle flight and the first flight of its successor. Why the Shuttle Program Is Ending The oldest shuttle is approaching 30 years old; the youngest is approaching 20. Although many shuttle components have been refurbished and upgraded, the shuttles as a whole are aging systems. Most analysts consider the shuttle design to be based, in many respects, on obsolete or obsolescent technology. The original concept of the shuttle program was that a reusable launch vehicle would be more cost-effective than an expendable one, but many of the projected cost savings depended on a flight rate that has never been achieved. Over the years, NASA has attempted repeatedly, but unsuccessfully, to develop a second-generation reusable launch vehicle to replace the shuttle. In 2002, NASA indicated that the shuttle would continue flying until at least 2015 and perhaps until 2020 or beyond. The Columbia disaster in 2003 forced NASA to revise that plan. Within hours of the loss of the space shuttle Columbia and its seven astronauts, NASA established the Columbia Accident Investigation Board to determine the causes of the accident and make recommendations for how to proceed. The board concluded that the shuttle "is not inherently unsafe" but that several actions were necessary "to make the vehicle safe enough to operate in the coming years." It recommended 15 specific actions to be taken before returning the shuttle to flight. In addition, it found that because of the risks inherent in the original design of the space shuttle, because the design was based in many aspects on now-obsolete technologies, and because the shuttle is now an aging system but still developmental in character, it is in the nation's interest to replace the shuttle as soon as possible as the primary means for transporting humans to and from Earth orbit. The board recommended that if the shuttle is to be flown past 2010, NASA should "develop and conduct a vehicle recertification at the material, component, subsystem, and system levels" as part of a broader and "essential" Service Life Extension Program. The announcement of the Vision for Space Exploration in 2004 created another reason to end the shuttle program: money. Before the shuttle program began to ramp down, it accounted for about 25% of NASA's budget. Making those funds available for the Vision became a primary motivation for ending the program. Possible Extension of the Shuttle Program Despite the safety risks identified by the Columbia Accident Investigation Board and the need to reallocate the shuttle's funding stream to other purposes, some policy makers and advocates remain eager to extend the program. For example, the NASA Authorization Act of 2008 directed NASA not to take any action that would preclude a decision to extend the shuttle program past 2010. One of the options put forward by the Augustine committee (Variant 4B) included extending the shuttle program to 2015. The NASA Authorization Act of 2010 provided for an additional shuttle flight no earlier than June 1, 2011, and directed NASA to preserve its capability to launch space shuttles through FY2011. A decision to extend the program would create challenges relating to cost, schedule, and safety. With the planned termination date approaching, some contracts for shuttle components have already run out, and some contractor personnel have already been let go. Reestablishing the capability to operate the program would likely incur costs and delays, and this potential will grow as the planned termination date approaches. The recertification process recommended by the Columbia Accident Investigation Board could be costly and time-consuming, although the board itself gave no estimate of either cost or schedule. At this point, completing a recertification in time to maintain a continuous flight schedule might already be difficult. Congressional policy makers or the Administration could simply decide to continue flying anyway, in parallel with the recertification process—in effect, NASA has already done this to some extent with the decision to allow a few flights originally planned for 2010 to slip into 2011—but policy makers might suffer political repercussions from such a choice if another serious accident occurred. During the 2009 presidential transition, the GAO identified the pending retirement of the space shuttle in 2010 as one of 13 "urgent issues" facing the incoming Obama Administration. The GAO also stated that "according to NASA, reversing current plans and keeping the shuttle flying past 2010 would cost $2.5 billion to $4 billion per year." Transition of Shuttle Workforce and Facilities The transition of assets and personnel at the end of the shuttle program is of great interest to many in Congress and represents a major challenge for NASA. The shuttle workforce is a reservoir of unique expertise and experience that would be difficult for NASA and its contractors to reassemble once dispersed. NASA managers are particularly concerned to maintain key human spaceflight expertise and capabilities. In certain communities, the loss of the shuttle workforce will have a significant economic impact. For individuals, the loss of specialized, well-paid employment that has been relatively stable for many years can be especially disruptive at a time when the job market is already unusually difficult. Finding the best alternative use of facilities and equipment is important for getting the best value for the taxpayer. NASA's transition management plan, issued in August 2008, establishes a timeline for the post-shuttle transition, defines organizational responsibilities for various aspects of the transition, establishes goals and objectives, and outlines planning and management challenges such as management of human capital and disposition of infrastructure. As it notes, the scope of the transition is huge: The SSP [space shuttle program] has an extensive array of assets; the program occupies over 654 facilities, uses over 1.2 million line items of hardware and equipment, and employs over 2,000 civil servants, with more than 15,000 work year equivalent personnel employed by the contractors. In addition, the SSP employs over 3,000 additional indirect workers through Center Management and Operations and service accounts. The total equipment acquisition value is over $12 billion, spread across hundreds of locations. The total facilities replacement cost is approximately $5.7 billion, which accounts for approximately one-fourth of the value of the Agency's total facility inventory. There are over 1,200 active suppliers and 3,000 to 4,000 qualified suppliers geographically located throughout the country. Congress has addressed a number of these issues through legislation: In the NASA Authorization Act of 2005, Congress directed NASA to use the personnel, capabilities, assets, and infrastructure of the shuttle program "to the fullest extent possible consistent with a successful development program" in developing the vehicles now known as Orion, Ares I, and Ares V. It also required the development of a transition plan for personnel affected by the termination of the shuttle program. In the Commerce, Justice, Science, and Related Agencies Appropriations Act, 2008, Congress directed NASA to prepare a strategy, to be updated at least every six months, for minimizing job losses as a result of the transition from the shuttle to its successor. The strategy report was first issued in March 2008 and was updated in October 2008 and July 2009. As well as strategic information, it provides annual workforce projections for each NASA center and a summary of recent relevant actions by NASA and its contractors. In the NASA Authorization Act of 2008, Congress directed NASA to submit a plan for the disposition of the shuttles and associated hardware and to establish a Space Shuttle Transition Liaison Office to assist affected communities. It provided for temporary continuation of health benefits for personnel whose jobs are eliminated as a result of the termination of the program. It directed NASA to analyze the facilities and personnel that will be made available by the termination of the shuttle program and to report on other current and future federal programs that could use them. The resulting report summarized the "mapping" process that NASA is using to align the civil servant and contractor shuttle workforce and the shuttle facilities at each NASA center with the needs of other programs. In the Commerce, Justice, Science, and Related Agencies Appropriations Act, 2010, and in previous NASA appropriations acts for several years, Congress prohibited NASA from using appropriated funds to implement reductions in force (RIFs) or other involuntary separations, except for cause. Before the release of the Administration's FY2011 budget, many of the personnel employed in the shuttle program were expected to transition to the Constellation program. The new direction for NASA's human spaceflight program established by the NASA Authorization Act of 2010 introduces new uncertainty into these plans. International Space Station The ISS is composed of crew living space, laboratories, remote manipulator systems, solar arrays to generate electricity, and other elements. Launched separately, these elements were assembled in space. Rotating crews have occupied the ISS, each for a period of four to six months, since November 2000. When the space station was first announced, its assembly was to be complete by 1994. In 1998, when construction actually began, it was expected to be complete by 2002, with operations through at least 2012. Completion is now scheduled during 2011. In 2003, NASA briefing charts showed operations possibly continuing through 2022. Under the Vision, announced in 2004, U.S. utilization was scheduled to end after 2015. The NASA Authorization Act of 2010 extended U.S. utilization through at least FY2020. The framework for international cooperation on the ISS is the Intergovernmental Agreement on Space Station Cooperation, which was signed in 1998 by representatives of the United States, Russia, Japan, Canada, Belgium, Denmark, France, Germany, Italy, the Netherlands, Norway, Spain, Sweden, Switzerland, and the United Kingdom. The intergovernmental agreement has the status of an executive agreement in the United States, but is considered a treaty in all the other partner countries. It is implemented through memoranda of understanding between NASA and its counterpart agencies: the Russian Federal Space Agency (Roskosmos), the Japanese Aerospace Exploration Agency (JAXA), the Canadian Space Agency (CSA), and the European Space Agency (ESA). The United States also has an ISS participation agreement with Brazil, independent of the 1998 framework. Because of cost growth and schedule delays, the scope and capabilities of the ISS have repeatedly been downsized. The original concept was not just a laboratory, but also an observatory; a transportation node; a facility for servicing, assembly, and manufacturing; and a storage depot and staging base for other missions. By 1989, only the laboratory function remained, and even that was smaller and less capable than in the original plans. In 1993, Russia joined the space station partnership, a move that added foreign policy objectives to the program's goals. By 2001, following further downsizing, NASA saw three goals for the station: conducting world-class research, establishing a permanent human presence in space, and "accommodation of all international partner elements." Following the announcement of the Vision in 2004, learning to live and work in space became a key justification for the ISS program, and ISS research was to be focused on the long-term effects of space travel on human biology. Concerned that the station's function as a research laboratory was being eroded, Congress took several legislative actions. The NASA Authorization Act of 2005 required NASA to allocate at least 15% of the funds budgeted to ISS research to "life and microgravity science research that is not directly related to supporting the human exploration program." It also required NASA to submit a research plan for utilization of the ISS. Issued in June 2006, the plan described proposed R&D and utilization activities in each of six disciplinary areas. It characterized the ISS as a long-duration test-bed for future lunar missions; a flight analog for future missions to Mars; a laboratory for research directly related to human space exploration, such as human health countermeasures, fire suppression, and life support; and an opportunity to gain experience in managing international partnerships for long-duration space missions. The plan stated that research not related to exploration would continue "at a reduced level." At about the same time, the National Academies issued a review of NASA's plans for the ISS. This review noted "with concern" that the objectives of the ISS "no longer include the fundamental biological and physical research that had been a major focus of ISS planning since its inception." It concluded that "once lost, neither the necessary research infrastructure nor the necessary communities of scientific investigators can survive or be easily replaced." ISS National Laboratory The 2005 authorization act designated the U.S. portion of the ISS as a national laboratory, to be available for use by other federal agencies and the private sector. As required by the act, NASA submitted a plan for this designation in May 2007. It concluded that NASA use of the ISS must continue to have first priority, that use by non-NASA entities should be funded by those entities, and that "the availability of cost-effective transportation services will directly affect the ability of the ISS to operate as a national laboratory in the years to come." The impact that the national laboratory designation would have was initially unclear. In the NASA Authorization Act of 2008, Congress directed NASA to establish an advisory committee on the effective utilization of the ISS as a national laboratory. As of mid-2009, NASA had established agreements for use of the ISS with at least five other federal agencies, three private firms, and one university, and had identified "firm interest" in using the ISS for education; human, plant, and animal biotechnologies; aerospace technologies; and defense sciences research. NASA officials believe that about half of planned U.S. utilization resources on the ISS could be available for non-NASA use. The NASA Authorization Act of 2010 directed NASA to contract with a nonprofit organization to manage the activities of the ISS national laboratory. Under this provision, 50% of the U.S. research capacity allocation on the ISS will be reserved for experiments managed through the national laboratory process, and NASA utilization in excess of 50% will have to be requested through a proposal to the managing organization. NASA expects to select the managing organization no sooner than May 2011. ISS Service Life Extension The U.S. ISS components were designed for a 15-year lifetime from the date of deployment. They were launched at various times during the assembly process, but the nominal reference point is considered to be the launch of the U.S. laboratory module Destiny in February 2001. Despite the 15-year specification, past experience "clearly indicates that systems are capable of performing safely and effectively for well beyond their original design lifetime" if properly maintained, refurbished, and validated. The first milestones for a decision on service life extension past February 2016 will occur in 2014. In order to receive a greater return on the cost and effort that have been invested in ISS construction, the NASA Authorization Act of 2010 extended operation and utilization of the ISS through at least FY2020. It also directed NASA to carry out a comprehensive review to identify spare and replacement parts that this extension will necessitate. A report on the review is to be provided to Congress in January 2011, and the Government Accountability Office is to provide its assessment of the report within 90 days after that. In addition to cost, extending the life of the ISS will require overcoming several technical challenges. At present, failed parts are returned to Earth in the space shuttle for refurbishment. After the conclusion of the shuttle program, this repair strategy will likely no longer be possible, as most of the cargo vehicles being considered for the post-shuttle period are not capable of returning cargo back to Earth. Instead, new parts will need to be manufactured and sent up, but even this may be impossible in a few cases, as some ISS parts are too large for any of the planned post-shuttle cargo alternatives. Last but not least, as ISS components reach the end of their 15-year design life, they will need to be recertified, which is a potentially complex and costly process. Post-Shuttle Access to the ISS The U.S. space shuttle has been the major vehicle taking crews and cargo to and from the ISS. Russian Soyuz spacecraft also carry both crews and cargo. Russian Progress spacecraft carry cargo only, as they are not designed to survive reentry into the Earth's atmosphere. A Soyuz is always attached to the station as a "lifeboat" in case of an emergency. The "lifeboat" Soyuz must be replaced every six months. Paying Russia for flights on the Soyuz is the only short-term option for U.S. human access to the ISS after the end of the space shuttle program. In 2009, in order to permit such payments, Congress extended a waiver of the Iran, North Korea, and Syria Nonproliferation Act ( P.L. 106-178 as amended) until July 1, 2016. One element of NASA's plans for ensuring cargo access to the ISS during the gap is the Commercial Orbital Transportation Services (COTS) program to develop commercial capabilities for cargo spaceflight. Under the COTS program, SpaceX Corporation is developing a vehicle known as Dragon, and Orbital Sciences Corporation is developing a vehicle known as Cygnus. Both are cargo-only vehicles (at least in their initial versions) and will have about one-eighth the capacity of the space shuttle. Only Dragon will be capable of returning cargo to Earth as well as launching it into space. The first test flight of Dragon took place successfully in December 2010. Cygnus has not yet flown into space. In the NASA Authorization Act of 2008, Congress directed NASA to develop a contingency plan for post-shuttle cargo resupply of the ISS in case commercial cargo services are unavailable. This plan was transmitted to Congress in March 2010. Noncommercial alternatives for cargo, in addition to the Russian Progress, include the European Automated Transfer Vehicle (ATV) and the Japanese H-II Transfer Vehicle (HTV). The first ATV was launched in March 2008 and carried out docking demonstrations with the ISS the following month. The first HTV was launched in September 2009 and also docked successfully with the ISS. Contracting with Russia for use of the Progress would probably require passing an additional waiver of the Iran, North Korea, and Syria Nonproliferation Act. Like Dragon and Cygnus, the ATV, HTV, and Progress all have significantly smaller cargo capacity than the space shuttle. None of the noncommercial alternatives is capable of returning cargo to Earth. In addition to commercial cargo services, the NASA Authorization Act of 2010 authorized the establishment and funding of a program to advance the development of commercial services that could carry crews. Commercial crew transportation services are discussed further in the next section. Future Access to Space Whatever spacecraft are ultimately used for access to the ISS following the end of the space shuttle program, in the long term new vehicles will be needed to carry humans and cargo into space, both to low Earth orbit and beyond. Under the Constellation program, these vehicles would be the crew capsule Orion, the Ares I rocket to launch Orion into low Earth orbit, and the heavy-lift Ares V rocket to launch cargo. Under the new direction established by the NASA Authorization Act of 2010, they would be a multipurpose crew vehicle based on Orion; a new, crew-capable, heavy-lift rocket referred to in the act as the space launch system; and commercial services to carry astronauts to and from low Earth orbit. (The multipurpose crew vehicle and space launch system would together provide a backup option in the event that those commercial services are not available when needed.) A variety of alternatives to these plans have been proposed, particularly with respect to heavy-lift rockets. Orion and Ares Development of Orion and Ares I is well under way by NASA and its contractors. Development of Ares V has not begun, but Ares I and Ares V would share some components. If the Constellation program were continued, the first crewed flight of Orion and Ares would be scheduled for 2015. The Augustine committee concluded that a 2017 date is more realistic and that a delay until 2019 is possible. Orion is similar to an enlarged Apollo capsule. It is designed to carry six astronauts and to operate in space for up to six months. An upgraded version would be required for travel to the Moon or beyond. The Augustine committee concluded that Orion "will be acceptable for a wide variety of tasks in the human exploration of space" but expressed concern about its operational cost once developed. The committee suggested that a smaller, lighter, four-person version could reduce operations costs for support of the ISS by allowing landing on land rather than in the ocean and by enabling simplifications in the launch-abort system. The Ares I rocket is designed to be a high-reliability launcher that, when combined with Orion, will yield a crew transport system with an estimated 10-fold improvement in safety relative to the space shuttle. The development of Ares I has encountered some technical difficulties, but the Augustine committee characterized these as "not remarkable" and "resolvable." Ares V is designed to be capable of launching 160 metric tons of cargo into low Earth orbit. By comparison, the space shuttle has a cargo capacity for ISS resupply missions of about 16 metric tons, and the ISS, which was launched in pieces over a decade, weighs a total of 350 metric tons. For human missions beyond low Earth orbit, Ares V would launch equipment into orbit for rendezvous with an Orion launched by an Ares I. At present, Ares V is only a conceptual design. The Augustine committee described it as "an extremely capable rocket" but estimated that it was unlikely to be available until the late 2020s. Multipurpose Crew Vehicle and Space Launch System For human space flight beyond low Earth orbit, the NASA Authorization Act of 2010 directed NASA to develop a multipurpose crew vehicle, based on Orion, and a new crew-capable, heavy-lift rocket known as the space launch system. The multipurpose crew vehicle would "continue to advance the development" of the features, designs, and systems of Orion. Its capabilities would include serving as the primary crew vehicle for missions beyond low Earth orbit; conducting in-space operations, such as rendezvous, docking, and extra-vehicular activities; and delivering crews and cargo to the ISS, if commercial and other alternative services are unavailable. The act established December 31, 2016, as the target date for achieving full operational capability. The capabilities of the space launch system would include lifting the multipurpose crew vehicle; initially, without an upper stage, lifting payloads weighing between 70 and 100 metric tons into low Earth orbit; with an integrated upper stage, lifting payloads weighing at least 130 metric tons; and delivering crews and cargo to the ISS, if commercial and other alternative services are unavailable. December 31, 2016, is the target date for achieving full operational capability of the initial version, without an upper stage. In January 2011, NASA submitted a preliminary report to Congress on its plan for implementing the authorization act's requirements for the multipurpose crew vehicle human and space launch systems. The report stated that NASA has not yet been able to identify spacecraft designs that meet the act's capability and schedule requirements within the authorized funding levels. Heavy-Lift Alternatives The Augustine committee identified three categories of heavy-lift launchers that could be alternatives to Ares V: a scaled-down version of Ares V called Ares V Lite; a rocket derived from the design of the space shuttle; and a rocket derived from the Evolved Expendable Launch Vehicle. Unlike Ares V, each of these could be rated to carry humans (in an Orion capsule) as well as cargo. The Ares V Lite would be a slightly lower-performance version of the Ares V, capable of launching about 140 metric tons rather than 160. For human missions beyond Earth orbit, two launches of Ares V Lite, rather than one of Ares I and one of Ares V, would considerably increase the payload that could be carried to the destination. Some human missions beyond Earth orbit could be accomplished with a single Ares V Lite launch. Shuttle-derived vehicles would use the same main engines, solid rocket boosters, and external tanks as the space shuttle. They could be either in-line or side-mount. In other words, the payload could be mounted either on top or on the side. One example of the in-line option is the Jupiter design advocated by DIRECT, a group ostensibly led by NASA engineers working anonymously on their own time. The Augustine committee did not compare the in-line and side-mount variants in detail, but it considered the side-mount option to be inherently less safe when carrying a crew. A shuttle-derived launcher would likely be able to lift 90 to 110 metric tons into orbit. The Evolved Expendable Launch Vehicle program was a U.S. Air Force program that resulted in the development of the Delta IV and Atlas V rockets. Current EELV systems are not rated to carry humans. In testimony to the Augustine committee, the Aerospace Corporation stated that a human-rated variant of the Delta IV Heavy would be capable of carrying Orion to the ISS. A super-heavy EELV variant could carry a cargo payload of about 75 metric tons. The Augustine committee concluded that using an EELV variant to launch Orion would only make sense if a super-heavy EELV variant were to be selected for heavy-lift cargo launch. In addition to differences in capability, the Augustine committee found that these alternatives differ in their life-cycle costs, operational complexity, and "way of doing business." The committee concluded that Ares V Lite would be the most capable; that a shuttle derivative would take maximum advantage of existing infrastructure, facilities, and production capabilities; and that an EELV derivative could potentially have the lowest operating costs, but would require a significant restructuring of NASA. The committee noted that each alternative has strong advocates and that "the claimed cost, schedule, and performance parameters include varying degrees of aggressiveness." It did not explicitly recommend any of the alternatives over the others. The NASA Authorization Act of 2010 directed NASA to "extend or modify existing ... contracts" when developing the new space launch system. Moreover, Senate report language anticipated that in order to meet the specified vehicle capabilities and requirements, the most cost-effective and "evolvable" design concept is likely to follow what is known as an "in-line" vehicle design, with a large center tank structure with attached multiple liquid propulsion engines and, at a minimum, two solid rocket motors composed of at least four segments being attached to the tank structure to form the core, initial stage of the propulsion vehicle. This language is seen by most analysts as calling for a design similar to the Augustine committee's Ares V Lite option, or possibly another in-line shuttle-derived design. Some observers have questioned whether it is appropriate for Congress to give such specific guidance about engineering design choices. NASA officials have indicated their intent to "work with stakeholders in Congress to determine an appropriate transportation architecture" and have stated that "we have done some very objective heavy-lift studies [and] will try to influence the conversation to make sure we don't preclude possible answers that might be the optimum overall." Commercial Crew Transportation Services The NASA Authorization Act of 2010 authorized the establishment and funding of a program to advance the development of commercial services that can carry astronauts. The Commercial Crew Development (CCDev) program extends and authorizes an initiative begun with funds from the American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5 ). A number of companies, including SpaceX, Orbital, Boeing, Virgin Galactic, and the Sierra Nevada Corporation, have expressed interest in providing commercial crew launch services. Before CCDev, the COTS program considered the use of commercial services for ISS crew transfer and crew rescue (a capability known as COTS D). Regarding the option of relying on commercial services in lieu of Ares I for all crew access to low Earth orbit, the Augustine committee concluded the following: Considering that all U.S. crew launch systems to date have been built by industry, "there is little doubt" that the U.S. aerospace industry is capable of building and operating a four-passenger "crew taxi" to low Earth orbit. Because of the importance of crew safety, commercial crew transport services would need to include "a strong, independent mission assurance role for NASA." If the service were developed so as to meet commercial needs as well as NASA's, there would be private-sector customers to share operating costs with NASA. In that case, the cost of the program to NASA would be about $5 billion, and a service could be in place by 2016. If the private sector effort were to fail in mid-program, the task of crew transport would revert to NASA. NASA should continue development of Orion and move quickly toward the development of a human-ratable heavy-lift rocket as a fallback option to mitigate this risk. The Augustine committee found that the commercial space industry is "burgeoning," and concluded that creating an assured initial market would eventually have the potential—"not without risk"—to significantly reduce costs to the government. Issue for Congress: Safety Space travel is inherently dangerous. Nevertheless, NASA's policy is that "safety is and will always be our number one priority in everything we do." The Augustine committee described safety as a sine qua non . Analysts and policy makers generally agree with this emphasis, but some have concerns about whether it is matched by NASA's implementation of its safety policies and procedures. The Columbia Accident Investigation Board found in 2003 that "throughout its history, NASA has consistently struggled to achieve viable safety programs and adjust them to the constraints and vagaries of changing budgets.... NASA's safety system has fallen short of the mark." It concluded that "a broken safety culture," including a "reliance on past success as a substitute for sound engineering practices," was an organizational cause of the Columbia disaster. It found that one contributing factor was "intense schedule pressure," which had also been identified as an organizational cause of the space shuttle Challenger disaster in 1986. It recommended that NASA establish a technical engineering authority, reporting directly to the NASA Administrator rather than to the space shuttle program, that independently verifies launch readiness and has sole authority to grant waivers for technical standards. In response to these findings, NASA has made many changes, including the establishment of an independent NASA Engineering and Safety Center under the auspices of the headquarters Office of Safety and Mission Assurance. Nevertheless, some analysts see signs that potential problems remain. The deadline of 2010 to complete construction of the space station and stop flying the space shuttle created schedule pressure for both programs until NASA converted it from a hard deadline to a flexible goal (now extended to early 2011). In 2006, NASA decided to a proceed with a shuttle mission, even though the Chief Engineer and the head of the Office of Safety and Mission Assurance recommended against the launch because of an issue with the shuttle ice-frost ramps that they characterized as "probable/catastrophic." Some observers saw signs of "reliance on past success" in NASA's justification for this decision: the NASA Administrator disagreed with the "probable" characterization because "we have 113 flights with this vehicle ... and while we've had two loss of vehicle incidents, they've not been due to ice-frost ramps." (The two officials who recommended against launch stated that they were comfortable with the decision to overrule them because "the risk was to the vehicle and not the crew.") A member of NASA's Aerospace Safety Advisory Panel testified in late 2009 that describing safety as a sine qua non "oversimplifies a complex and challenging problem" and that NASA "has given serious consideration only recently" to the establishment of safety requirements for commercial crew transport services. NASA argues that it continues to implement initiatives to improve safety. These include greater emphasis on training and qualification of safety professionals; an emphasis on "safety culture," including more open communication and clear appeal paths to the Administrator for safety-related dissenting opinions; more modeling and validation of software requirements; and improved tools for knowledge and requirements management. The advent of commercial spacecraft that carry crews into space will require new processes for ensuring crew safety. The NASA Authorization Act of 2010 directed NASA to develop and make public "detailed human rating processes and requirements" for crewed commercial spacecraft that are "at least equivalent to" the existing requirements for human rating of NASA spacecraft. NASA issued this document in December 2010. It asserts that "a crew transport capability that meets the safety requirements in this document will be approximately an order of magnitude safer than the space shuttle." Destinations for Human Exploration Until 2010, the Vision for Space Exploration established the Moon as NASA's next goal for human exploration beyond low Earth orbit, followed eventually by Mars. In considering possible modifications to the Vision, space policy experts and other interested observers suggested various alternative goals. For example, some proposed that Mars should be the immediate objective, rather than returning to the Moon first. Others suggested human missions to asteroids or other solar system destinations. The Augustine committee concluded that current technology is insufficiently developed to make a Mars mission safe. It found that Mars is "unquestionably the most interesting destination in the inner solar system" and the "ultimate destination for human exploration" but "not the best first destination." A spacecraft that lands on either the Moon or Mars must overcome the lunar or Martian "gravity well" before returning to Earth. The fuel required to accomplish this makes either destination challenging. As potential alternatives, the Augustine committee considered fly-by missions to either the Moon or Mars, missions that would orbit either the Moon or Mars, missions that would land on the moons of Mars, and missions to near-Earth objects such as asteroids or comets. They also considered missions to various Lagrange points. Lagrange points are special locations in space, defined relative to the orbit of the Moon around the Earth or the Earth around the Sun. They are planned locations for future unmanned science spacecraft, and some scientists believe they will be important in determining routes for future interplanetary travel. Possible activities at each of these destinations are shown in Figure 1 . The Administration's plan, first articulated in the President's speech in April 2010, is for NASA's first destination beyond low Earth orbit to be an asteroid, followed by an orbit of Mars and subsequently a Mars landing. This plan appears to be consistent with the NASA Authorization Act of 2010, which states that "a long-term objective for human exploration of space should be the eventual international exploration of Mars." The act also, however, mandates a review by National Academies of the goals, capabilities, and direction of human space flight. Alternatives to Human Exploration Given the costs and risks of human space exploration, Congress could decide to curtail or postpone future human exploration missions and shift the emphasis of the nation's space program to other endeavors. The cost of human exploration is substantial, and according to the Augustine committee, it is not a continuum: there is an "entry cost" below which a successful program cannot be conducted at all. Congress could decide that this minimum cost is not affordable. Similarly, no matter how energetically NASA addresses safety concerns, human spaceflight is an inherently risky endeavor. Congress could decide that the potential benefits are insufficient to justify the safety risks. Several options are available as alternatives to human space exploration. Congress could seek to accomplish some of the same goals through other means, such as through robotic exploration. It could focus on technology development, in the hope of developing new technology that makes human spaceflight safer and more affordable in the future. It could focus on NASA's other activities, such as Earth science and aeronautics. Given sufficient funding, of course, all these options are also available in conjunction with human exploration rather than as alternatives to it. For example, the Augustine committee acknowledged that robotic exploration is important as a precursor to human exploration. Robotic Exploration Advocates of robotic missions assert that robotic exploration can accomplish outstanding science and inspire the public just as effectively as human exploration. The Mars rovers are a familiar example of a successful robotic science mission that has captured considerable public attention. Advocates also claim that robotic missions can accomplish their goals at less cost and with greater safety than human missions. They do not need to incorporate systems for human life support or human radiation protection, they do not usually need to return to Earth, and they pose no risk of death or injury to astronauts. Some analysts assert further that exploring with humans "rules out destinations beyond Mars." Given that current plans include no destinations beyond Mars and treat Mars itself only as a long-term goal, this last limitation may not be important in the near term, even if it is correct. Advocates of human missions note that science is not NASA's only purpose and claim that human exploration is more effective than robotic exploration at such intangible goals as inspiring the public, enhancing national prestige, and satisfying the human urge to explore and discover. They assert that even considering science alone, human missions can be more flexible in the event of an unforeseen scientific opportunity or an unexpected change in plans. As support for this assertion, they often cite the human missions to repair and upgrade the Hubble telescope. On the other hand, the Hubble repairs and upgrades required extensive planning and the development of new equipment. They were not a real-time response to an unexpected event. Moreover, robotic missions can also sometimes be modified to respond to opportunities and mishaps, through software updates and other changes worked out by scientists and engineers back on Earth. A few analysts portray robotic exploration as an alternative to human exploration. For the most part, however, the two alternatives are considered complementary, rather than exclusive. The Augustine committee, for example, found that without both human and robotic missions, "any space program would be hollow." In addition, many analysts consider that in the absence of human missions, support for NASA as a whole would dwindle, and fewer resources would be available for robotic missions as well. Emphasize Technology Development If congressional policy makers were to conclude that cost and safety concerns make a human exploration program unaffordable or undesirable in the near term, they might seek to scale back NASA's human spaceflight program and focus on technology development, in the hope that improved technology will make the costs and risks of space travel more attractive in the future. The strategy of developing improved technology and acquiring greater expertise could take many forms. It could complement a continuing, aggressive program of human exploration. For example, it is similar, in some ways, to the Augustine committee's suggestion (in its "flexible path" option) of visiting a series of less challenging destinations before attempting a Moon landing. It could also accompany a program of human missions in low Earth orbit without immediate plans for more distant destinations. It could even be part of a program that abandoned human spaceflight in the near term. Developing new technology effectively would likely be difficult, however, without a means of testing it in realistic missions. A program without any human spaceflight at all would risk losing existing expertise through inactivity. The Augustine committee, the National Academies, and the Administration's FY2011 budget proposals all recommended a greater emphasis on technology development as a complement to an ongoing program of human spaceflight. The Augustine committee described NASA's space technology program as "an important effort that has significantly atrophied over the years." It recommended that technology development be closely coordinated with ongoing programs, but conducted independently of them. The National Academies also recommended that NASA revitalize its technology development program. Like the Augustine committee, the Academies concluded that this program should be conducted independently. They recommended that NASA establish a DARPA-like technology development organization that reports directly to the Administrator. The NASA Authorization Act of 2010 accepted the Administration's request to establish a new space technology program, although the funding it authorized for this effort was less than the Administration had proposed. It directed NASA to provide an implementation plan for the program by February 2011, and it directed the Administration to develop a national policy to guide space technology development programs across the federal government through 2020. Other Space Policy Issues In addition to the programmatic and prioritization issues that are the main focus of this report, NASA faces some cross-cutting challenges, such as acquisition and financial management, and issues involving its relationships with other agencies and the commercial space launch industry. NASA Acquisition and Financial Management Since 1990, the GAO has identified acquisition management at NASA as a high-risk area for the federal government. Although a 2009 update noted that "NASA has made a concerted effort to improve its acquisition management," it also stated that "since fiscal year 2006, 10 out of 12 ... major development projects in implementation exceeded their baseline thresholds." NASA issued an improvement plan in response to GAO's finding. The NASA Authorization Act of 2010 directed NASA to submit annual reports on its implementation of the improvement plan. In the NASA Authorization Act of 2005, Congress established requirements for baselines and cost controls. The requirements include additional reviews of any program that appears likely to exceed its baseline cost estimate by 15% or its baseline schedule by six months and a prohibition on continuing any program that exceeds its cost baseline by 30% unless Congress specifically authorizes the program to continue. These requirements are similar to the Nunn-McCurdy cost-containment requirements for the Department of Defense. In November 2008, the NASA Inspector General identified financial management as one of NASA's most serious challenges. The Inspector General's report found continuing weaknesses in NASA's financial management processes and systems, including its internal controls over property accounting. It noted that these deficiencies had resulted in disclaimed audits of NASA's financial statements since FY2003, largely because of data integrity issues and a lack of effective internal control procedures. According to the report, NASA had made progress in addressing these deficiencies, but the FY2009 audit was again disclaimed. The FY2010 audit, however, was qualified, rather than disclaimed; the NASA inspector general called this "a notable improvement." U.S. Space Policy Governance A variety of governmental and nongovernmental organizations help to coordinate and guide U.S. space policy. These include the Office of Science and Technology Policy (OSTP) and the National Science and Technology Council (NSTC), both in the Executive Office of the President, as well as outside advisory groups, such as the NASA Advisory Council, committees of the National Academies, and independent committees such as the Augustine committee. The National Academies have recommended that the President task senior executive-branch officials to align agency and department strategies; identify gaps or shortfalls in policy coverage, policy implementation, and resource allocation; and identify new opportunities for space-based endeavors that will help to address the goals of both the U.S. civil and national security space programs. The Obama Administration has stated that it intends to reestablish the National Aeronautics and Space Council (NASC), "which will report to the President and oversee and coordinate civilian, military, commercial and national security space activities." The NASC was established along with NASA itself by the National Aeronautics and Space Act of 1958 (P.L. 85-568). It was most active during the Kennedy Administration, when it recommended, among other policies, the Apollo program to send humans to the Moon. Some analysts attribute its influence during this period to the fact that it was chaired by Vice President Johnson. The NASC was abolished in 1973, reestablished in 1989 as the National Space Council, then abolished again in 1993, with its functions absorbed into the NSTC. Some aspects of space policy are documented in a formal presidential statement of national space policy. In 2006, the Bush Administration issued such a statement, replacing a previous one that had been in place for 10 years. The 2006 policy established principles and goals for U.S. civilian and national security space programs and set guidelines for a few specific issues such as the use of nuclear power in space and the hazard of debris in orbit. It defined the space-related roles, responsibilities, and relationships of NASA and other federal agencies, such as the Department of Defense and the Department of Commerce. The Obama Administration issued an updated national space policy in June 2010. The new policy reiterated the policy changes proposed in the Administration's FY2011 budget and placed new emphasis on international cooperation and development of the commercial space industry. U.S. National Security Space Programs National security space programs, conducted by the Department of Defense (DOD) and the intelligence community, are less visible than NASA, but their budgets are comparable to NASA's. A key issue for them is how to avoid the cost growth and schedule delays that have characterized several recent projects. A shared industrial base and other areas of common concern sometimes result in NASA issues affecting national security programs and vice versa. For example, some policy makers expressed concern about the impact of cancelling of Ares I on the industrial base for solid rocket motors used by DOD. The NASA Authorization Act of 2010 directed NASA to assess, in consultation with DOD and the Department of Commerce, the effects of the end of the space shuttle program, and the transition to the space launch system authorized by the act, on the U.S. industrial base for solid and liquid rocket motors. Further discussion of national security space programs is beyond the scope of this report. NASA's Relationship with NOAA Congressional policy makers have taken a long-standing interest in NASA's relationship with the National Oceanic and Atmospheric Administration (NOAA), which operates Earth observing satellites for weather forecasting and other purposes. The NASA Authorization Act of 2005 mandated the establishment of a joint NASA-NOAA working group; required NASA and NOAA to submit a joint annual report on coordination each February; directed NASA and NOAA to evaluate NASA science missions for their operational capabilities and prepare transition plans for those with operational potential; and directed NASA not to transfer any Earth science mission or Earth observing system to NOAA until a transition plan has been approved and funds have been included in the NOAA budget request. In the NASA Authorization Act of 2008, Congress directed OSTP to develop a process for transitions of experimental Earth science and space weather NASA missions to operational status under NOAA, including the coordination of agency budget requests; mandated a National Academies study of the governance structure for U.S. Earth observation programs at NASA, NOAA, and other agencies, to be transmitted to Congress by April 2010; and mandated a National Academies assessment of impediments to interagency cooperation on space and Earth science missions. The report was on impediments to cooperation was issued in November 2010. The NASA Authorization Act of 2010 directed OSTP to develop a strategic plan, updated at least every three years, to ensure greater cooperation among U.S. civilian Earth observation programs; and directed NASA to coordinate with NOAA and the U.S. Geological Survey (USGS) to establish a formal mechanism to transition NASA research and assets to NOAA and USGS operations. The extent to which the provisions in the 2005, 2008, and 2010 acts overlap suggests that the requirements of the earlier acts have not yet been successful in achieving Congress's goals for the NASA-NOAA relationship. The U.S. Commercial Space Industry Industry has long had an important role in both space launch and the development and operation of commercial satellites. Although the commercial satellite launch business has dropped off in recent years, many analysts expect the industry to expand as space tourism develops and NASA begins to rely more on the commercial sector for space transportation. The prospect of space tourism on commercial vehicles is becoming increasingly likely. With the exception of five suborbital demonstration flights in 2004, private space travel has until now been limited to the purchase of trips to the International Space Station on Russian Soyuz spacecraft. A number of commercial companies are now developing reusable spacecraft to carry private individuals on short-duration flights into the lower reaches of space. Concurrently, several companies and states are developing spaceports to accommodate anticipated increases in commercial space launches. The safety of commercial space launches, spaceports, and space tourism are regulated by the Federal Aviation Administration (FAA). According to the GAO, the FAA faces a number of challenges in commercial space regulation, including maintaining sufficient space expertise to conduct proper oversight, avoiding conflicts between its regulatory and promotional roles, and integrating spacecraft into the air traffic control system. Export control regulations administered by the Department of State under the International Traffic in Arms Regulations (ITAR) have often been a concern for this industry. The regulations limit the export of satellites and related components because of the potential for their use in military systems. In order to expand opportunities for U.S. industry, some analysts and policy makers have advocated transferring the regulation of these technologies from ITAR to the Export Administration Regulations administered by the Department of Commerce. In April 2010, following an interagency review, the Administration proposed a number of changes in the U.S. export control system, including the establishment of a single licensing agency. The development of commercial vehicles for cargo flights to the space station, and possibly to provide NASA with crew launch services into low Earth orbit, is discussed elsewhere in this report. Legislation in the 111th Congress The NASA Authorization Act of 2010 ( P.L. 111-267 ) is discussed above in the section " Human Spaceflight: The 2010 Authorization Act " and elsewhere throughout this report. Appropriations for NASA are provided in the Commerce, Justice, Science (CJS) appropriations bill. For more information on FY2011 appropriations legislation, see CRS Report R41161, Commerce, Justice, Science, and Related Agencies: FY2011 Appropriations . Like other agencies, NASA is currently operating at FY2010 funding levels under a continuing resolution, the Continuing Appropriations Act, 2010 ( P.L. 111-242 as amended by P.L. 111-322 ). For FY2010, the CJS bill was passed by the House and Senate as H.R. 2847 . For final passage, it was included in the Consolidated Appropriations Act, 2010 ( P.L. 111-117 ). For more information about FY2010 NASA appropriations, see CRS Report R40644, Commerce, Justice, Science, and Related Agencies: FY2010 Appropriations . For FY2009 NASA appropriations legislation during the 111 th Congress, including passage of the American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ) and the Omnibus Appropriations Act, 2009 ( P.L. 111-8 ), see CRS Report RL34540, Commerce, Justice, Science and Related Agencies: FY2009 Appropriations . A number of other bills addressing specific topics related to NASA were introduced during the 111 th Congress. Among these, P.L. 111-125 extended the current third-party liability indemnification for commercial launch services companies through 2012. P.L. 111-314 restated existing law relating to NASA and other space topics as a new, separate title of the U.S. Code. Bills that did not become law included the following: H.R. 4804 and S. 3068 , which would have extended the space shuttle and ISS programs, provided for the development of a National Space Transportation system, and authorized appropriations for certain NASA programs; H.R. 1962 , which would have extended the space shuttle program to 2015; H.R. 3853 , which would have authorized grants to university consortia to establish centers in conjunction with NASA and industry; H.R. 5614 , which would have required expenditure of appropriated FY2010 Constellation funds on the Constellation program, without terminating or descoping contracts; and S. 3180 , which would have prohibited the use of the Anti-Deficiency Act (31 U.S.C. 1341) as the basis for terminating or eliminating a Constellation contract, program, project, or activity. Summary of Major Issues for Congress In conclusion, major space policy issues facing Congress include the following: Is there a national consensus for human exploration beyond Earth orbit, despite the inherent risks and the substantial cost? If so, what destination or destinations should NASA's human exploration program explore? If human exploration beyond Earth orbit is too costly or too dangerous, should NASA focus its efforts on human missions in Earth orbit, robotic exploration, technology development, other activities such as science and aeronautics, or some combination of these? When the space shuttle program ends during 2011, how should the transition of shuttle workforce and facilities be managed? Now that U.S. use of the International Space Station has been extended to at least 2020, how can the ISS be managed and utilized most effectively? What can be done to ensure that new spacecraft for human exploration, both government-owned and commercial, are developed effectively, despite budget constraints? How should NASA's multiple objectives be prioritized? What is the proper balance between human spaceflight, science, aeronautics, and education programs, and how can the balance be maintained if the cost of the larger, more prominent programs grows?

The National Aeronautics and Space Administration Authorization Act of 2010 (P.L. 111-267) authorized major changes of direction for NASA. Among these, it called for the development of a new, crew-capable, heavy-lift rocket, and it provided for the development of commercial services to transport NASA crews into low Earth orbit. However, under the Continuing Appropriations Act, 2011 (P.L. 111-242 as amended by P.L. 111-322), NASA continues to operate under a requirement to proceed with its previous human spaceflight program. Moreover, in a period of fiscal constraint, it is unclear whether future appropriations will match the growing NASA budgets envisioned by the 2010 act. Thus the 112th Congress is likely to continue to closely examine the future of NASA. Before the 2010 act, NASA's priorities were governed by the Vision for Space Exploration. The Vision was announced by President Bush in January 2004 and endorsed by Congress in the 2005 and 2008 NASA authorization acts (P.L. 109-155 and P.L. 110-422). It directed NASA to focus its efforts on returning humans to the Moon by 2020 and some day sending them to Mars and "worlds beyond." The resulting efforts are approaching major decision points, such as the end of the space shuttle program and key milestones for the Constellation spacecraft development program intended to replace the shuttle. A high-level independent review of the future of human space flight, chaired by Norman R. Augustine, issued its final report in October 2009. It presented several options as alternatives to the Vision and concluded that for human exploration to continue "in any meaningful way," NASA would require an additional $3 billion per year above previous plans. In February 2010, the Obama Administration proposed cancelling the Constellation program and eliminating the goal of returning humans to the Moon. NASA would instead rely on commercial providers to transport astronauts to Earth orbit, and its ultimate goal beyond Earth orbit would be human exploration of Mars, with missions to other destinations, such as visiting an asteroid in 2025, as intermediate goals. Operation of the International Space Station would be extended to at least 2020, and long-term technology development would receive increased emphasis. The 2010 authorization act incorporated many of these proposals, though it retained elements of Constellation and scaled back the proposed emphasis on commercial providers and technology development. As the 112th Congress oversees NASA's implementation of the 2010 act and considers how to address the broad space policy challenges that remain, it faces questions about whether NASA's human exploration program is affordable and sufficiently safe, and if so, what destination or destinations it should explore; how to ensure that new spacecraft for human exploration, both government-owned and commercial, are developed effectively, despite budget constraints; how to manage the transition of workforce and facilities as the space shuttle program comes to an end during 2011; how best to manage and utilize the International Space Station; and how NASA's multiple objectives in human spaceflight, science, aeronautics, and education should be prioritized.

Constitution's Nexus Requirement There is a common misperception that the U.S. Constitution prohibits states from taxing Internet sales. This is not true. States have the power to tax their residents on online purchases, even when the seller is located outside the state and has no real connection with it—in this situation, the state can impose the use tax on the purchaser. The Constitution does, however, limit the state's power to require an out-of-state seller to collect use tax from the purchaser on behalf of the state. Specifically, the Due Process Clause of the Fourteenth Amendment and the Commerce Clause both require that a sufficient connection or "nexus" exist between a state and an out-of-state business before the state may impose tax obligations on it. Due process requires there be a sufficient nexus between the state and the seller so that (1) the state has provided some benefit for which it may ask something in return and (2) the seller has fair warning that its activities may be subject to the state's jurisdiction. The dormant Commerce Clause requires a nexus in order to ensure that the state's imposition of the liability does not impermissibly burden interstate commerce. Importantly, Congress has the authority under its commerce power to permit state taxation that would otherwise violate the dormant Commerce Clause, but cannot change the standard required for due process. The nexus standard for use tax collection liability is not the same under both clauses. The Supreme Court has ruled that, absent congressional action, the standard required under the dormant Commerce Clause is the seller's physical presence in the state, while due process requires only that the seller have directed purposeful contact at the state's residents. This was not always the case. The Court first articulated the physical presence requirement in the 1967 case National Bellas Hess v. Dept. of Revenue of Illinois , where it grounded the requirement in both clauses. The Court noted that each required a similar connection between the state and the seller: due process required that "the state has given anything for which it can ask return," while state taxes on interstate commerce were permissible when they represented "a fair share of the cost of the local government whose protection [the seller] enjoys." The Court concluded that these principles, along with the fact that the use tax collection obligations would burden interstate commerce due to the significant number of U.S. taxing jurisdictions and complexity of their requirements, meant that a state's authority to impose the obligations was limited to when the seller had a physical presence in the state. By the late 1980s, it seemed possible that physical presence was no longer required for use tax obligations because the Court had modified its analysis of both the Due Process and the Commerce Clauses. The Due Process Clause in other contexts was no longer interpreted to require an individual or entity's physical presence in a state before that state could exercise authority over the individual or entity; instead, liability could be imposed when the individual or entity intentionally made a sufficient level of contact with the state. Additionally, moving away from bright-line prohibitions against certain types of taxation on interstate commerce, the Court developed a flexible test to determine whether a tax placed an unacceptable burden on interstate commerce. It seemed possible that technological advances might have sufficiently reduced the complexity of collecting use taxes so that the burden on interstate commerce would not be unacceptable under the new test. However, in the 1992 case Quill v. North Dakota , the Supreme Court rejected the idea that physical presence was no longer required. It held that, absent congressional action, the dormant Commerce Clause still prevented a state from imposing use tax collection liability on a mail-order seller with no physical presence in the state. As in Bellas Hess , the Court found that collecting the tax would be an impermissible burden on interstate commerce, noting again the magnitude of the potential burden in light of the numerous taxing jurisdictions across the country. The Court, however, altered its reasoning from Bellas Hess by expressly rejecting the idea that due process also requires physical presence. The Court, noting that the two clauses served different purposes, found that its due process analysis had evolved so that physical presence was not necessary so long as the seller had directed sufficient action toward the state's residents. The Court found such purposeful contact existed in Quill since the seller had "continuous and widespread solicitation of business" within the state. When Is There Sufficient Nexus? The Supreme Court has not revisited the issue of when a state may impose use tax obligations on a seller since Quill . Nonetheless, several pre- Quill cases provide guidance on determining when a state may impose use tax collection obligations on out-of-state retailers. Clearly, a state can impose such responsibilities on a company with a "brick and mortar" retail store or offices in the state. This can be the case even if the in-state offices and the sales giving rise to the tax liability are unrelated to one another. For example, the Court held that a state could require a company to collect use taxes on mail-order sales to in-state customers when the company maintained two offices in the state that generated significant revenue, even though the offices were used to sell advertising space in the company's magazine and had nothing to do with the company's mail-order business. The Court firmly rejected the argument that there needed to be a nexus not only between the company and the state, but also between the state and the sales activity. It reasoned that there was a sufficient connection between the state and company as the two in-state offices had enjoyed the "advantage of the same municipal services" whether or not they were connected to the mail-order business. Absent some type of physical office or retail space in the state, it also seems that having in-state salespeople or agents is sufficient contact. In several cases predating Bellas Hess and Quill , the Court upheld the power of the state to impose use tax collection liabilities on remote sellers when the sales were arranged by local agents or salespeople. In Scripto, Inc. v. Carson , the Court held that a state could impose use tax collection liability on an out-of-state company that had no presence in the state other than 10 "independent contractors" who solicited business for the company. These individuals had limited power and had no authority to make collections or incur debts on behalf of the company. They merely forwarded the orders they solicited to the company's out-of-state headquarters, where the decision to fill the order was made. Finding their status as independent contractors rather than employees to be constitutionally insignificant, the Court held that there was a constitutionally sufficient nexus between the company and the state because the individuals had conducted "continuous local solicitation" in the state on behalf of the company. The Court later described the case as "represent[ing] the furthest constitutional reach to date" of a state's ability to impose use tax collection duties on a remote seller. State "Amazon Laws" and Their Constitutionality The most significant legal development in recent years regarding state taxation of Internet sales has been states enacting laws to try to capture more of the uncollected use taxes. These are generally called "Amazon laws" in reference to the Internet retailer. Two primary approaches have developed. One is "click-through nexus." It refers to the click-throughs or online referrals that some Internet retailers solicit through programs where an individual or business (called an associate or affiliate) places a link on its website directing Internet users to the online retailer's website. The associate or affiliate receives compensation for the referral when a consumer clicks through a link and purchases goods and services. State click-through nexus statutes require an online retailer to collect use taxes based on the physical presence of its associates or affiliates. The second approach requires remote retailers to provide information on taxable sales to the state and customer, rather than requiring retailers to collect the use taxes themselves. Since their enactment, questions have been raised about whether these laws are consistent with due process and the dormant Commerce Clause. Courts have considered the constitutionality of two statutes: New York's click-through nexus law and Colorado's notification law. In a 2012 case brought by Overstock and Amazon, New York's highest court rejected facial constitutional challenges to the state's law. New York's law provides a rebuttable presumption that a retailer must collect use taxes if it enters into an agreement with a New York resident providing compensation in exchange for referring potential customers to the retailer via a website link or other means. In rejecting the argument that the law was facially unconstitutional under the Commerce Clause because it applied to sellers without a physical presence in the state, the court noted it had previously held that the physical presence required by Quill did not have to be "substantial," but rather "demonstrably more than a slightest presence'' and could be met if economic activities are performed in the state on the seller's behalf. The court found this standard to be met since the law was based on "[a]ctive, in-state solicitation that produces a significant amount of revenue." With respect to due process, the court found that "a brigade of affiliated websites compensated by commission" was clearly sufficient to meet Quill 's standard of "continuous and widespread solicitation of business within a State." The court also rejected the argument that the law violated due process because the presumption was unreasonable and irrebuttable, finding the presumption was (1) reasonable because it presumed that affiliates would solicit in-state acquaintances in order to increase their compensation and (2) rebuttable, as evidenced by the state tax agency's guidance discussing the methods to rebut it. The Colorado law met a different result. In 2012, a federal district court struck down the state's notification law on Commerce Clause grounds. The law requires that retailers who do not collect Colorado sales tax must (1) inform Colorado customers that tax may be owed on purchases and it is the customer's responsibility to file a tax return; (2) send Colorado customers a year-end notice about any purchases; and (3) provide an annual statement to the Colorado tax agency showing the amount paid for purchases by in-state customers. The problem with this law is that it applies only to companies that do not collect Colorado sales taxes, which would appear to be primarily those retailers without a physical presence in the state. The federal district court determined this was fatal to the law for two reasons under the dormant Commerce Clause: there was insufficient nexus, and the law was impermissibly discriminatory. First, the court found that the notification requirements were "inextricably related in kind and purpose" to the tax collection responsibilities at issue in Quill and therefore subject to the physical presence nexus standard, which the law plainly did not meet. Second, the court found the law only applied to, and thus discriminated against, out-of-state vendors and failed to survive strict scrutiny. While there were legitimate governmental interests involved (e.g., improving tax collection and compliance), the court found the state had not provided evidence to show that these interests could not be served by reasonable nondiscriminatory alternatives, such as collecting use taxes on the resident income tax return and improving consumer education. However, in August 2013, the Tenth Circuit Court of Appeals dismissed the case after finding that the federal Tax Injunction Act (TIA) prohibits federal courts from hearing it. The act provides that federal district courts "shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State." In March 2015, the Supreme Court held that the TIA does not apply to this suit, but left open the possibility that the suit might be barred by the comity doctrine, under which federal courts refrain from interfering with state fiscal operations "in all cases where the Federal rights of the persons could otherwise be preserved unimpaired." The Court instructed the Tenth Circuit to determine if the doctrine applies here. The Court's opinion was unanimous. Notably, Justice Kennedy wrote a concurrence in which he raised the possibility that Quill was wrongly decided and should be reconsidered in light of technological advances and the development of the Internet. Characterizing the Quill holding as "tenuous" and "inflicting extreme harm and unfairness on the States," he stated that "[i]t should be left in place only if a powerful showing can be made that its rationale is still correct." Congressional Authority to Act Under its authority to regulate commerce, Congress has the power to authorize state action that would otherwise be an unconstitutional burden on interstate commerce, so long as it is consistent with other provisions in the Constitution. As such, Congress may permit state taxation without physical presence, but cannot change the standard required to satisfy due process. Selected Legislation Thus far, Congress has not defined a standard for nexus under the Commerce Clause, although legislation has been introduced in the 114 th Congress ( S. 698 , Marketplace Fairness Act). S. 698 would authorize states to require that remote vendors collect sales or use taxes for sales sourced to that state, regardless of whether the remote vendors have a physical presence in the state. In order to do so, the state would either (1) have to be a member of the multistate Streamlined Sales and Use Tax Agreement (SSUTA) or (2) adopt the act's minimum simplification requirements for their sales and use tax laws. In either case, states could only impose the collection obligation on remote sellers with more than $1,000,000 in gross annual receipts in total U.S. remote sales during the preceding calendar year. The minimum simplification requirements include such things as providing a single entity within the state responsible for all state and local sales and use tax administration, return processing, and audits. Additionally, any changes to SSUTA after the act's enactment would have to be consistent with these requirements. Sales would be sourced to SSUTA member states according to the agreement. For non-SSUTA states, sales would generally be sourced to the location where the item sold is received by the purchaser based on the delivery instructions (the act includes other rules for cases in which no delivery location is specified). If S. 698 were enacted into law, SSUTA members could require the collection of sales and use taxes on remote sales beginning 180 days after the state publishes notice of its intent to do so, but no earlier than the first day of the calendar quarter that is at least 180 days after the act's enactment. Non-SSUTA members could require the collection no earlier than the first day of the calendar quarter that is at least six months after the state complies with the act's simplification requirements and other provisions. H.R. 2775 (Remote Transactions Parity Act of 2015), meanwhile, is similar to S. 698 in that it would also authorize SSUTA member states and non-member states that meet certain qualifications to require that remote sellers collect taxes for sales sourced to the state. The bills differ in several key ways, including that H.R. 2775 would limit the ability of states to audit remote sellers and provide a different small seller exception. Under H.R. 2775 , the threshold for the small seller exception would be, during the first year after the bill's effective date, $10 million in gross annual receipts for the prior year, which would be reduced to $5 million in year two and $1 million in year three. Notably, any entity that utilized an electronic marketplace for the purpose of making products or services available for sale to the public could be subject to state collection requirements, regardless of the entity's size. Another bill, the Wireless Telecommunications Tax and Fee Collection Fairness Act of 2015 ( H.R. 1087 ), has been introduced that would use Congress's commerce authority to restrict state sales and use taxation related to wireless telecommunication services. The legislation would prohibit states from requiring a person to collect from or remit on behalf of another person any state or local fee, tax, or surcharge imposed on a purchaser or user for wireless telecommunication services within the state unless there is a "financial transaction" between the person and the purchaser or user. A "financial transaction" would be "a transaction involving cash, credit or any other exchange of monetary value or consideration given by the purchaser or user upon whom the fee, tax or surcharge is imposed to the person required to collect or remit the fee, tax or surcharge." Internet Tax Freedom Act The Internet Tax Freedom Act (ITFA), enacted in 1998, imposes a moratorium on (1) state and local governments imposing multiple or discriminatory taxes on electronic commerce and (2) taxes on Internet access. Originally set to expire in 2001, the moratorium has been extended several times, with the current continuing resolution extending it until December 11, 2015. The moratorium only applies to "taxes" (i.e., charges imposed for the purpose of generating revenue for governmental purposes) and not to any charge properly characterized as a user fee. Importantly, the definition of "taxes" includes not only the tax itself, but the imposition on a seller of an obligation to collect and remit any sales or use tax imposed on the buyer. Certain government-imposed charges are excluded from the definition of "tax," including (1) franchise and similar fees imposed by state and local franchising authorities under Sections 622 and 653 of the Communications Act of 1934 and (2) any other fee related to obligations of telecommunications carriers under the Communications Act of 1934. Moratorium on Multiple and Discriminatory Taxes on E-Commerce For purposes of the moratorium on multiple or discriminatory taxes on electronic commerce, a "multiple tax" is generally any tax on the same electronic commerce that is subject to tax by another state without a credit for taxes paid in other jurisdictions. It does not include a sales or use tax on tangible personal property or services imposed by a state and a political subdivision, with the definition of tangible personal property, and thus the exemption's scope, determined by state law. There is sparse case law interpreting "multiple," none of which seems noteworthy. A "discriminatory tax" includes any tax where electronic commerce is treated differently than other types of commerce (e.g., mail-order or brick-and-mortar stores) because the tax is only imposed on e-commerce, is applied at a different rate, or imposes different obligations to collect or pay it. It also includes a tax that establishes a classification of Internet access service providers or online service providers in order to tax them at a higher rate than the one generally applied to providers of similar information services delivered through other means. Further, discriminatory taxes include those defined with reference to certain nexus requirements for remote sellers: if the sole ability to access a site on a remote seller's out-of-state computer server is a factor in determining the seller's tax collection obligation, or if a provider of Internet access or online services is deemed to be the agent of a remote seller for determining tax collection obligations solely as a result of the display of a remote seller's information or content on the provider's out-of-state computer server or the processing of orders through that server. An example of a tax that was found to be discriminatory is a state retail telecommunication excise tax that was imposed on the sale of items by telecommunication service providers (e.g., games sold by a mobile phone company), but did not apply when similar products were sold by someone other than a telecommunication service provider (e.g., Walmart). On the other hand, a court found that a local privilege tax on any business "where persons utilize electronic machines ... to conduct games of chance" was not discriminatory. Rejecting the argument that the ordinance was discriminatory because it only taxed Internet-based games of chance, the court reasoned that the law "never mentions 'internet-based' sweepstakes or makes a distinction regarding electronic commerce; it only imposes the tax for cyber-gambling establishments that use a computer or gaming terminal in provision of games of chance." Courts have rejected arguments that taxes are discriminatory when they are generally applicable and any disparate tax treatment is business related. For example, a court held that the ITFA was not violated when an Internet service provider who did not own lines for transmitting data traffic had to purchase them and pay tax on the purchase, while cable-based and facilities-based Internet service providers did not have to pay any tax because they already owned the infrastructure. The court explained that the different treatment was due solely to the company's business decisions and that nothing in the tax laws prevented the company from installing its own lines, in which case it would not owe tax. Similarly, several courts rejected the argument that local hotel occupancy taxes are discriminatory because the tax is effectively higher for purchases made through online travel companies (OTCs) than traditional travel agents. In general, these taxes are based on the amount the renter pays for the room: when a renter purchases through an OTC, the company's fee is included in the price and thus taxed, but when someone purchases through a traditional travel agent, the hotel charges the customer for the room and separately pays the agent's fee, so the agent's fee is not included in the amount taxed. In finding this treatment was not discriminatory, courts have noted that the laws are universally applied to the amount the renter pays and imposed at the same rate, regardless of whether the transaction is online or through other means. Moratorium on Taxes on Internet Access The moratorium also prohibits states from taxing Internet access, regardless of whether imposed on a provider or buyer of Internet access and the terminology used to describe the tax. This does not apply to taxes levied upon or measured by net income, income, capital stock, net worth, or property value, nor to grandfathered taxes (discussed below) and some other exceptions. Also, Internet access can be taxed if the service provider does not separate charges for Internet access from taxable telecommunications charges and other charges, unless the provider can reasonably identify the Internet access charges from its books and records. For purposes of the moratorium, "Internet access" is any service that enables users to connect to the Internet to access content, information, or other services offered over the Internet, as well as the purchase, use, or sale of telecommunications by a service provider if done to provide these services or to otherwise enable users to access the Internet. It also includes services such as email and instant messaging, regardless of whether these are provided incidentally to the Internet access or independently. However, "Internet access" does not include voice, audio, and video programming or other products and services (other than those already mentioned) that utilize Internet protocol (or any successor protocol) and for which there is a charge. Importantly, the moratorium does not apply to taxes on Internet access that were "generally imposed and actually enforced" prior to October 1, 1998. Additionally, in order for this grandfathering provision to apply, two things must have occurred prior to October 1, 1998: the tax was authorized by statute, and either of the following is true: (1) a provider of Internet access services had a "reasonable opportunity to know" that the relevant tax authority had interpreted and applied the tax to Internet access services because the authority had issued a rule or other public proclamation saying so; or (2) a state or local government "generally collected" the tax on charges for Internet access. One court examining the "reasonable opportunity to know" criteria found it was not sufficient for a city to merely point to the plain language of the ordinance and a regulation that repeated that language. As the court explained, "It is not enough that the language of its ordinance, or even its rules, might be broad enough to encompass Internet access services," but rather the city must specifically and publicly provide that it interprets the language to apply to Internet access. The grandfathering provision does not apply if the state or local government repealed or stopped applying the tax to Internet access. Thus, while the grandfathering provision originally captured 13 states, it now appears to apply only to Hawaii, New Mexico, North Dakota, Ohio, South Dakota, Texas, and Wisconsin. Like the moratorium, the grandfathering provision is scheduled to expire on October 1, 2015. For a policy discussion of the grandfathering provision and related issues, see CRS Report R43772, The Internet Tax Freedom Act: In Brief , by [author name scrubbed]. ITFA and Federal Taxes While the ITFA defines "tax" as a tax imposed by "any governmental entity," the moratorium only restricts the taxing power of state and local governments, not that of the federal government. However, the law enacting the ITFA also provides the following: It is the sense of Congress that no new Federal taxes similar to the taxes described in section 1101(a) should be enacted with respect to the Internet and Internet access during the moratorium provided in such section. Questions are sometimes asked about the legal effect of this language. In general, "sense of Congress" language is appropriate if Congress wishes to make a statement without making enforceable law. Ordinarily, a statement that it is the "sense of Congress" that something "should" or "should not" be done is "merely precatory," creating no legal rights. However, in the appropriate context, a "sense of Congress" provision can have the same effect as statements of congressional purpose, resolving ambiguities in more specific language of operative sections of a law . In other words, "courts rely on the sense of Congress provisions to buttress interpretations of other mandatory provisions and do not interpret them as creating any rights or duties by themselves." Here, there is no apparent ambiguity in the act's moratorium, which supports the conclusion that the "sense of Congress" provision is simply precatory. Internet Tax Freedom Act and State "Amazon Laws" As discussed above (" State "Amazon Laws" and Their Constitutionality "), some states have recently enacted "click-through nexus statutes" that require a retailer to collect use taxes if its associates or affiliates have a physical presence in the state, even if the retailer does not. Since the ITFA defines "tax" to include not only charges for raising revenue, but also laws that impose an obligation on a seller to collect and remit sales or use taxes, these laws are "taxes" for purposes of the ITFA and subject to the moratorium on multiple and discriminatory taxes. In the only case challenging such a law under the ITFA, the Illinois Supreme Court struck down its state's click-through nexus law in 2013 as being discriminatory. The 2011 Illinois law applied to any retailer who entered into a contract with a person in the state under which that person receives a commission based on the retailer's sales in exchange for referring potential customers to the retailer "by a link of the person's Internet website." According to the court, the problem was that this provision is limited to online performance-based marketing arrangements even though similar arrangements occurred in print and broadcast media. The state argued these other arrangements were covered by a separate provision that applied to retailers who are "pursuant to a contract with a broadcaster or publisher located in this State, soliciting orders for tangible personal property by means of advertising which is disseminated primarily to consumers located in this State and only secondarily to bordering jurisdictions." However, this did not solve the problem in the court's eyes since this provision only applied to advertising "disseminated primarily to consumers located in this State" and not that disseminated nationally or internationally, while online advertising was inherently national and international. Thus, the court found that the law was preempted by the ITFA moratorium on discriminatory taxes because it applied to retailers engaged in performance-based marketing over the Internet, but not retailers engaged in national or international performance-based marketing in print or broadcasting. Two points should be made about state Amazon laws and the ITFA. First, this case does not suggest that click-through nexus laws inherently violate the ITFA. For example, New York's statute would appear to not be discriminatory under the court's reasoning because it applies to retailers who enter into affiliate agreements where the referral occurs "via a website link or otherwise " (emphasis added). Second, it is not clear that all Amazon laws are subject to the ITFA. For example, Colorado's notification law does not impose an obligation to collect and remit tax on remote sellers, and thus it might be argued the law could fall outside the ITFA's scope. Legislation Related to ITFA and Similar Concepts As mentioned above, the ITFA moratorium is scheduled to expire on December 11, 2015. Two bills have been introduced in the 114 th Congress to make the moratorium permanent, while allowing the grandfathering provision for states that tax Internet access to expire—the Internet Tax Freedom Forever Act ( S. 431 ) and the Permanent Internet Tax Freedom Act ( H.R. 235 ). H.R. 235 passed the House by a voice vote on June 9, 2015. For a policy discussion related to the ITFA legislation, see CRS Report R43772, The Internet Tax Freedom Act: In Brief , by [author name scrubbed]. Other legislation introduced in the 114 th Congress would create a moratorium similar to the ITFA. The Digital Goods and Services Tax Fairness Act of 2015 ( H.R. 1643 and S. 851 ) would prohibit state and local governments from imposing "multiple or discriminatory taxes" on the sale or use of digital goods and services, as well as provide that taxes on the sale of digital goods and services could only be imposed by the state or local jurisdiction whose territorial limits encompass the customer's address.

In recent years, there has been significant congressional interest in the states' ability to impose sales and use taxes on sales made over the Internet. While these taxes are imposed on the consumer, states generally prefer that retailers collect and remit them, rather than relying on the consumer to pay the tax. State laws requiring retailers to collect sales and use taxes are subject to federal law. First, such laws must comply with the U.S. Constitution, of which two provisions are particularly relevant—the dormant Commerce Clause and the Fourteenth Amendment's Due Process Clause. Second, such laws must comply with the Internet Tax Freedom Act. Both the dormant Commerce Clause and the Due Process Clause require that a retailer have a certain connection or "nexus" to the state before the state can require the collection of tax. The Supreme Court has held that the required nexus under the dormant Commerce Clause is the seller's "physical presence" in the state, while due process requires only that the seller have directed purposeful contact at state residents. Notably, Congress may change the "physical presence" standard under its power to regulate interstate commerce, so long as it is consistent with other constitutional provisions including due process. In the 114th Congress, legislation has been introduced (S. 698, Marketplace Fairness Act) that would allow a state to impose sales and use tax collection duties on remote sellers, regardless of physical presence, if the state (1) is a member of the multistate Streamlined Sales and Use Tax Agreement (SSUTA) or (2) sufficiently simplifies its sales and use tax laws and administration. In addition to the Constitution, state sales and use tax collection laws must also comply with the federal Internet Tax Freedom Act (ITFA). It imposes a temporary moratorium on states imposing discriminatory or multiple taxes on electronic commerce. The moratorium also generally prohibits state taxes on Internet access. The continuing resolution (P.L. 114-53) passed on September 30, 2015, extends the act until December 11, 2015. Meanwhile, some states have recently enacted laws, often called "Amazon laws" after the Internet retailer, in an attempt to capture uncollected taxes on Internet sales while still complying with the "physical presence" standard. States enacting these laws have used two basic approaches: (1) "click-through" nexus, which imposes the responsibility for collecting taxes on retailers who compensate state residents for placing links on their websites to the retailer's website and (2) requirements that remote sellers provide information about sales to the state and the customers. State Amazon tax laws have raised issues under both the U.S. Constitution and the ITFA and have had a mixed reception in the courts. While the highest court in New York upheld that state's click-through nexus law against facial challenges on Commerce Clause and due process grounds, a federal district judge struck Colorado's notification law as violating the dormant Commerce Clause. However, the appeals court subsequently determined that federal courts do not have jurisdiction to hear the Colorado challenge due to the federal Tax Injunction Act. In March 2015, the U.S. Supreme Court held in Direct Marketing Association v. Brohl that the act did not apply to this suit, but left open the possibility that the suit might be barred by the comity doctrine. Notably, Justice Kennedy wrote a concurrence in which he suggested that Quill should be reconsidered in light of technological advances and the development of the Internet. With respect to the ITFA, the Illinois Supreme Court held in 2013 that the state's click-through nexus law violated the statute's moratorium on discriminatory taxes because it treated retailers engaged in online performance-based marketing differently than those with similar print and broadcast marketing arrangements.

Introduction Construction of new long-distance transmission lines has become a hotly debated energy policy issue. Advocates see enhancements to the transmission grid as necessary for exploiting remote sources of renewable power and improving the reliability of the transmission system. Others argue that there are less costly and intrusive means of meeting energy needs than a large transmission build-out. Estimates of the cost of expanding the transmission grid to increase renewable power delivery and other goals run into the tens of billions of dollars. For example (all figures in nominal dollars): The estimated transmission cost of the Joint Coordinated System Plan to bring Great Plains wind power to the East Coast ranges from $49 billion to $80 billion. A Department of Energy (DOE) study of expanding the use of wind power estimated transmission expansion costs of $60 billion by 2030. A study of transmission funding requirements for all purposes for the period 2010 to 2030 estimated total costs of about $300 billion. The North American Electric Reliability Corporation (NERC) identified 39,000 circuit-miles of projected high-voltage transmission over the next 10 years, with roughly one-third of these transmission facilities used to integrate variable and renewable resources. Perhaps the most contentious transmission financing issue is cost allocation for new interstate transmission lines—that is, determining which customers must bear the costs of building and operating new transmission lines that cross several states. This report provides background and analysis of current transmission cost allocation policy and issues. The balance of the report is organized as follows: Background and history, including a discussion of federal authority under the Federal Power Act. Cost allocation policy at the federal and state levels in the years prior to the adoption by the Federal Energy Regulatory Commission (FERC) of Order No. 1000. A review of the transmission planning and cost allocation reforms in Order No. 1000. Background and History The Federal Power Act The authority of the Federal Energy Regulatory Commission (FERC) to regulate interstate electricity transmission is derived primarily from Sections 205 and 206 of the Federal Power Act (FPA). Section 205 of the FPA provides that all rates and charges for the transmission of electric energy subject to FERC's jurisdiction, as well as rules and regulations affecting those rates, must be "just and reasonable," and that no public utility's rates may "unduly discriminate" against any customers. FERC's section 205 authority has been characterized as "an essentially passive and reactive" role. However, Section 206 of the FPA gives FERC a broader and more proactive rate authority: Whenever the Commission, after a hearing had upon its own motion or upon complaint, shall find that any rate, charge, or classification, demanded, observed, charged or collected by any public utility for any transmission ... subject to the jurisdiction of the Commission, or that any rule, regulation, practice, or contract affecting such rate, charge or classification is unjust, unreasonable, unduly discriminatory or preferential, the Commission shall determine the just and reasonable rate, charge, classification, rule, regulation, practice or contract to be thereafter observed and in force, and shall fix the same by order. Section 206 thus permits FERC to make changes to existing utility rates, including transmission charges, either on its own initiative or at the request of an interested party. In order to make such changes, FERC must (1) find that the existing rates or practices are unjust, unreasonable, unduly discriminatory, or preferential; and (2) show that its proposed changes are just and reasonable. Section 206 also allows FERC to establish a just and reasonable rule, regulation, or practice "to be thereafter observed and in force," and to "fix the same by order." The statutory authority found in Section 206 of the FPA gives FERC broad authority to establish a set of general principles to be applied in setting just and reasonable rates upon a finding of unjust, unreasonable, unduly discriminatory, or preferential rates or practices in the industry. FERC has cited its Section 206 authority in promulgating other significant rulemakings related to interstate electricity transmission facilities, including Order No. 2000 (providing for the creation of Regional Transmission Organizations to manage electricity transmission grids) and Orders 888 and 890 (requiring utilities to provide open access to transmission facilities and creating a pro forma tariff for utilities to adopt for their transmission services). Most recently, FERC cited its Section 206 authority when it issued Order No. 1000, the order that altered Commission policy on transmission planning and cost allocation. Development of the Interstate Transmission Grid and FERC Oversight Prior to Order No. 890 FERC's transmission cost allocation activities have often addressed complex projects with one or more of the following types of characteristics: May traverse multiple utility service territories and cross the boundaries between power system planning areas. May have multiple owners. May provide benefits to many and diverse beneficiaries. These beneficiaries may be difficult to accurately identify, and it may be even more difficult to quantify the benefits. However, cost allocation for these and other transmission lines was less contentious—or at least less visible and pressing at the national level—in the past because of the nature of the industry itself and federal/state regulation of the industry prior to the mid-1990s. Transmission lines were historically constructed primarily by investor-owned utilities subject to traditional cost of service regulation by state utility commissions. These utilities sold a "bundle" of electric power transmission, generation, and distribution services to ratepayers as a single price. Customers in the utility's service area generally paid a share of the costs of transmission investments, whether or not a particular transmission investment was of value to the customer; this universal sharing of expenses is referred to as the "socialization" of costs. Under this regulatory regime, cost allocation was therefore generally not a complex issue, since the beneficiaries of the transmission service and the customers paying for the services were, in effect, assumed to be the same—the utility's entire set of captive ratepayers. As one analysis points out, the bundling of costs made it possible and acceptable for cost allocation issues to be "swept under the rug." Cost allocations, and related transmission planning issues, were also less contentious and visible because of the historical development of the electric power grid. Transmission lines were first built in the early 20 th century by single utilities to move electricity to population centers from relatively nearby power plants. As generation and transmission technology advanced, the distances increased, but the model of a single entity building lines within its own service territory to supply its own load still predominated. Over time, these local grids began to interconnect, due to utilities building jointly owned power plants and because power companies began to grasp the economic and reliability benefits of being able to exchange power. Nonetheless, this pattern of development did not emphasize the construction of very long-distance inter-regional lines involving multiple owners and jurisdictions, the kinds of projects likely to have difficult cost allocation issues. Cost allocation issues have become pressing in part because of the restructuring of the electric power generation and transmission industries that began in the late 1970s. The Public Utility Regulatory Policies Act of 1978 and the Energy Policy Act of 1992 had as one of their aims the introduction of competition into generation service. In order to facilitate the ability of non-utility generators to access the transmission grid, in 1996 FERC issued Orders 888 and 889, to establish an open access regulatory regime for the transmission grid. These orders directed transmission owners and operators to open their system to any connected generator or load on a "non-discriminatory" basis (that is, without giving preference to their own generation or load). Rates are to be cost or market based, and rates and conditions of service are to be embodied in an open access transmission tariff (OATT) approved by FERC. By allowing non-utility generators and loads to use the transmission system, open access broke the formerly rigid link between the entities that built transmission and their captive ratepayers. Now a new transmission line could be used by multiple entities to transmit or receive power. The operational links between utilities and transmission were further weakened by FERC's policy of promoting regional transmission organizations (RTOs) in the 1990s and 2000s. In RTOs, utilities retain ownership of the transmission grid but operational control is exercised by the RTO. The object is to further ensure that the transmission grid is operated in a non-discriminatory fashion to the benefit of all market participants. The restructuring of the transmission market had several consequences for transmission cost allocation and planning: Cost allocation became more complex and contentious because the clear links that existed under traditional regulation between the parties that built, operated, and benefited from new transmission lines were broken. Under the traditional regulatory regime, distinctions between transmission additions aimed at improving system reliability and those aimed at reducing the costs of operating the power system (i.e., "economic" projects) had little meaning. In the open access regime the distinction between reliability projects and economic projects became an important one, since each type of project could benefit different groups of customers to different degrees. In the open access regime, much of the responsibility for transmission planning shifted from utilities to either RTOs or, in the markets without RTOs, a plethora of other planning organizations built around utilities, generators, and other stakeholders. FERC Order No. 890 Prior to the adoption of Order No. 1000 in the summer of 2011, FERC's most significant articulation of the principles applicable to transmission cost allocation was Order No. 890, issued by FERC in February 2007. The purpose of the order was to improve the operation of the open access transmission market created by Order Nos. 888 and 889, including establishment of cost allocation procedures as an element of transmission planning. Order No. 890 established nine transmission planning principles, of which one is "Cost Allocation—a process must be included for allocating costs of new facilities that do not fit under existing rate structures, such as regional projects." This principle was included because FERC found that "[t]he manner in which the costs of new transmission are allocated is critical to the development of new infrastructure. Transmission providers and customers cannot be expected to support the construction of new transmission unless they understand who will pay the associated costs." A particular concern of FERC was cost allocation for long-distance transmission projects that would cross multiple utility service areas and state jurisdictions. Another concern was the treatment of projects that would yield economic benefits to multiple parties. According to FERC: … we are not modifying the existing mechanisms to allocate costs for projects that are constructed by a single transmission owner and billed under existing rate structures. Our intent is not to upset existing cost allocation methods applicable to specific requests for interconnection or transmission service under the pro forma OATT. The cost allocation principle discussed herein is intended to apply to projects that do not fit under the existing structure, such as regional projects involving several transmission owners or economic projects ….[emphasis added] FERC chose to leave transmission owners and operators with significant but not unlimited latitude in establishing cost allocation policies. On the one hand, FERC stated that it "will not impose a particular allocation method for such projects, but rather will permit transmission providers and stakeholders to determine their own specific criteria which best fit their own experience and regional needs." On the other hand, FERC did conclude that "some overall guidance [on cost allocation] is appropriate." FERC's overriding premise was that "'[a]llocation of costs is not a matter for the slide-rule. It involves judgment on a myriad of facts. It has no claim to an exact science.'" FERC would therefore "allow regional flexibility in cost allocation and, when considering a dispute over cost allocation, exercise our judgment by weighing several factors." Three factors were listed by FERC: First, we consider whether a cost allocation proposal fairly assigns costs among participants, including those who cause them to be incurred and those who otherwise benefit from them. Second, we consider whether a cost allocation proposal provides adequate incentives to construct new transmission. Third, we consider whether the proposal is generally supported by state authorities and participants across the region. These three factors are interrelated. For example, a cost allocation proposal that has broad support across a region is more likely to provide adequate incentives to construct new infrastructure than one that does not. The states, which have primary transmission siting authority, may be reluctant to site regional transmission projects if they believe the costs are not being allocated fairly. Similarly, a proposal that allocates costs fairly to participants who benefit from them is more likely to support new investment than one that does not. Adequate financial support for major new transmission projects may not be obtained unless costs are assigned fairly to those who benefit from the project. Examples of Cost Allocations Under Order 890 The transmission planning processes required by Order 890 were generally filed by utilities and RTOs (in the form of amendments to their OATTs) by December 7, 2007. The processes were usually accepted by FERC as filed or accepted with requirements for amendment to ensure compliance with Order 890's planning principles. Several examples are shown below to illustrate the diversity of approaches used throughout the nation. Although most of these approaches involve a combination of beneficiary pays (also referred to as "participant funding") and socialization of costs, the details are wholly dissimilar. While Order No. 1000 (discussed in detail later in this report) has been adopted recently, FERC will continue to allow the regions to define their own allocation methods. Therefore, the methods briefly summarized here are useful examples of the methodology that may carry over to filings in compliance with Order No. 1000. PJM Interconnection29 The cost allocation process established by PJM and approved by FERC allocated costs in terms of the physical characteristics and purpose of the proposed transmission line: The cost of projects planned by individual utilities to meet local needs rather than system-wide needs are to be charged to the customers in the zones of PJM that benefit (i.e., beneficiary pays). Beneficiaries are also to pay for new projects with a rating of less than 500 kilovolts (kV). FERC directed PJM and its customers to develop a standard methodology for allocating the costs of such projects. For "backbone" transmission projects with a rating of 500 kV or greater—that is, the proposed lines with the greatest capability to move large amounts of electricity—costs would be socialized throughout the PJM Interconnection (i.e., all customers within PJM would pay a portion of the costs of the facilities, regardless of their location relative to where the upgrades were made, on the assumption that all customers would benefit from these "backbone" upgrades). The socialization of the costs of 500 kV and greater facilities was controversial from the outset; for example, the Illinois utility commission reportedly characterized it as "not only unjust and unreasonable, but patently irrational." On August 6, 2009, the United States Court of Appeals for the Seventh Circuit, in response to petitions filed by the Ohio and Illinois utility commissions, rejected PJM's cost socialization approach and remanded the issue to FERC. The court stated that FERC is not authorized to approve a pricing scheme that requires a group of utilities to pay for facilities from which its members derive no benefits, or benefits that are trivial in relation to the costs sought to be shifted to its members.… No doubt there will be some benefit to the midwestern utilities just because the network is a network, and there have been outages in the Midwest. But enough of a benefit to justify the costs that FERC wants shifted to those utilities? Nothing in the Commission's opinions enables an answer to that question." This decision is discussed in greater detail below. New England ISO (NE-ISO) In NE-ISO the costs of reliability investments with region-wide benefits are paid for by all customers in the RTO. A reported $4 billion in reliability investments have been made and allocated region-wide since 2004. The ISO's rules also provide for cost socialization for economic investments that provide regional benefits, but "[t]hus far [i.e., through November 2009] there have been no Market Efficiency Upgrades determined to be needed through the regional system planning process." This experience illustrates how cost socialization for reliability upgrades can be more easily justified than for economic upgrades. This is because a failure at one point in a regional grid can potentially disrupt the entire system, while an economic upgrade may benefit only a subset of the region, making it harder to justify region-wide cost allocation. Florida Power and Light Company (FPL) FPL follows cost allocation procedures approved by the Florida Reliability Coordinating Council (FRCC), the regional electric grid reliability entity (but not a RTO) covering most of Florida. In brief, a party may be able to recover a portion of its costs for a new transmission project intended to serve incremental load or generation if, among other factors, the upgrade will affect the reliability of the FRCC grid and the transmission owner participates in the FRCC Regional Transmission Planning Process. If these criteria are met, a portion of the costs associated with the project will be split evenly between the customers in the zone with the need for the project and the "sources or cluster of sources" that are creating the need. Duke Energy Carolinas and Progress Energy Carolinas These utilities made a joint filing in response to Order 890. Both companies participate in the North Carolina Transmission Planning Collaborative (NCTPC) regional transmission planning process and adopted the organization's standard cost allocation approach. In summary, that approach defines exceptions to the general principle that investments in the transmission grid should be allocated to the initiating utility company and its ratepayers (i.e., beneficiaries pay). One exception is "Regional Reliability Projects" included in the NCTPC planning process. These are projects undertaken by one utility that has region-wide reliability benefits; in this case costs are allocated to other utilities in proportion to the savings each company receives by not having to undertake its own reliability project. The second exception is Regional Economic Transmission Path projects that reduce the cost of transmission service across two or more utility systems. These are envisioned as projects with multiple participants who will pay the upfront costs of the project. In return the participants will receive back their investment via payments made by the utilities over a period of up to 20 years. The utilities in turn will have the opportunity to recover the cost of these payments from ratepayers. Economic projects must be included in the NCTPC planning process to qualify for this type of cost allocation. Concluding Comments on Cost Allocation Examples The examples presented above are only four of the dozens of Order No. 890 cost allocation filings made with FERC. Nonetheless, they do illustrate several points about current cost allocation policy at the federal and state levels. First, there is no uniformity in the cost allocation procedures, and at least to date FERC has declined to go beyond establishing general principles. Second is the regional focus of all four processes. NE-ISO and PJM are multi-state RTOs and inherently take a regional perspective, but even the FPL, Duke, and Progress Energy processes are tied back to regional transmission planning organizations. This is consistent with FERC's efforts to encourage a regional perspective on transmission planning that incorporates many stakeholders in the planning process. Third, these examples illustrate the complexity involved in socializing transmission costs. The PJM process was rejected by a federal court and remanded to FERC. The NE-ISO process for socializing the costs of economic projects has never been used. The NCTPC and FPL cost socialization processes for regional reliability upgrades are fairly straightforward, but the NCTPC process for socializing economic project costs involves a multi-step procedure extending for up to 20 years. FPL did not include socialization of economic projects in its filing. Illinois Commerce Commission v. FERC The debate over the proper method of allocation of transmission costs has not been confined to the executive and legislative branches of government. In Illinois Commerce Commission v. FERC , the U.S. Court of Appeals for the Seventh Circuit heard a challenge to FERC's approval of a cost allocation proposal for certain new transmission facilities in the PJM Interconnection. Two state utility commissions in Midwestern states protested a FERC-approved allocation of transmission costs for the PJM interconnection that required pro rata contributions from all utilities in the region; that is, the utilities in the PJM region would increase their rates by a uniform amount sufficient to cover the cost of the new facilities. According to the court, FERC's rationale for this pro rata increase was that (1) some of the PJM members entered into similar pro rata cost sharing agreements in the past and would like to continue to allocate costs in that manner; (2) the burden of determining which parties would benefit from the new transmission (and to what degree they would benefit) would be onerous and would likely result in litigation; and (3) that every member of the PJM Interconnection would benefit from the new transmission facilities because the reliability of the entire network would improve. The court held that the FERC-approved pro rata rate increase for recovery of transmission costs was not supported by substantial evidence. The court quickly dispatched FERC's two arguments in favor of the reasonableness of the pro rata rates. According to the court, the fact that previous arrangements among the PJM members had pro rata cost sharing arrangements in the past carried no weight. The court rejected FERC's argument regarding the difficulty of measuring benefits and the likelihood of litigation, because of an absence of evidence of the relative difficulty of assessing the benefits. The court did not dismiss the possibility of such a finding, noting that feasibility concerns can play a role in rate determinations. However, in this instance, the court found that FERC had not offered a sufficient explanation for this factor and the role it played in the rate decision. The court spent more time addressing FERC's third line of reasoning: that the new transmission facilities would benefit every PJM member, and therefore that the costs should be allocated among all of them. As the court acknowledged, even though the purpose of the new facilities was to satisfy demand for eastern customers in the PJM system, the entire PJM system would benefit from greater reliability as a result. However, the court found that it was possible that such secondary benefits could be minor in relation to the costs to customers not in the eastern region expected to benefit directly from the new transmission capacity, and that FERC had not provided any information by which these benefits could be assessed. According to the court: [i]f FERC cannot quantify the benefits to the midwestern utilities from new ... lines in the East, but it has an articulable and plausible reason to believe that the benefits are at least roughly commensurate with those utilities' share of the total electricity sales in PJM's region, then ... the Commission can approve PJM's proposed pricing scheme on that basis. But it cannot use the presumption to avoid the duty of "comparing the costs assessed against a party to the burdens imposed or benefits drawn by that party." The impact of this decision on cost allocation going forward is not entirely clear. On the one hand, as several observers have noted, the case appears to create a new obligation for FERC to reconsider and potentially discard pro rata allocation of transmission costs. However, the ruling seems to be directed more at FERC's procedural failure to justify the ratemaking than a substantive failure in the application of the law. The court repeatedly mentioned that FERC's arguments in favor of the pro rata allocation were dismissed not because such a cost allocation method was unreasonable on its face, but rather because FERC had failed to demonstrate the reasonableness of the rates. Perhaps the most significant restriction on FERC articulated by the Seventh Circuit is that FERC must show reason to believe that the benefits received by the parties are "at least roughly commensurate" with the pro rata cost allocation. Legislative Efforts to Dictate Transmission Cost Allocation Principles As described above, the FPA's only direction regarding the allocation of transmission costs are that the rates charged for transmission service must be "just and reasonable." This gives FERC broad authority to dictate transmission cost allocation policy, although that authority has its limits, as the Illinois Commerce Commission decision demonstrates. However, in recent years Members of Congress have introduced legislation intended to provide a tighter framework for FERC's transmission cost allocation policy. In the 112 th Congress, at least one bill has been introduced that would amend the FPA to specifically address transmission cost allocation. S. 400 , introduced on February 17, 2011, by Senator Bob Corker, would amend Section 205 of the Federal Power Act to provide that: No rate or charge for or in connection with the transmission of electric energy contained in any filing made [by a public utility] after June 17, 2010 shall be considered just and reasonable unless the rate or charge is based on an allocation of costs for new transmission facilities that is reasonably proportionate to measurable economic or reliability benefits projected, as determined by the Commission, to accrue to the 1 or more persons that pay the rate or charge. This was not the first legislative effort to adopt principles for transmission cost allocation requiring that costs be allocated in a way that is "reasonably proportionate to measurable economic or reliability benefits." During the 111 th Congress, the Senate Committee on Energy and Natural Resources reported out of committee S. 1462 , the American Clean Energy Leadership Act. The bill contained an amendment proposed by Senator Corker that would direct FERC to issue a new electricity transmission cost allocation rule that could allow for "allocation of the costs of high-priority national transmission projects to load-serving entities within all or a part of a region, except that costs shall not be allocated to a region, or sub-region, unless the costs are reasonably proportionate to measurable economic and reliability benefits." When the amendment to S. 1462 was proposed during the 111 th Congress, some advocates of new electricity transmission construction expressed concern that it would limit FERC's ability to spread costs widely among all users in a given region. They also argued that the benefits from a new transmission project may accrue over many years and therefore may not presently be "measurable." FERC Chairman Jon Wellinghoff was also critical of the amendment, saying that it would both restrict the Commission's ability to spread transmission costs across the region and also needlessly tie up FERC in litigation over individual transmission cost allocations. Three former FERC chairmen also voiced their disapproval of the amendment, noting in a letter that the amendment could "hamstring" FERC and that the language could jeopardize planned infrastructure investment due to uncertainty about cost recovery. However, others voiced support for the amendment. A coalition of utilities offered its support, noting that they believe transmission facility costs should be allocated narrowly in order to focus on those receiving clear benefits from the new or upgraded facilities. Their concern was that the broad allocation of costs could result in the subsidization of transmission with mostly localized benefits (for example, Midwest wind power facilities) by those outside the area of direct benefit. Others argued that socialization of transmission costs over wide areas would give long-distance transmission projects an economic advantage over alternatives (such as the local development of renewable power, including off-shore wind farms, and energy efficiency) which might be preferable if the playing field was kept level. Order No. 1000 After the ruling in Illinois Commerce Commission v. FERC and legislative efforts to amend the FPA to direct FERC transmission cost allocation decisions, FERC initiated a rulemaking proceeding to formulate a clearer policy for transmission cost allocation. Background to the Rulemaking and Initial Comments FERC initiated Docket AD09-8, Transmission Planning Processes under Order No. 890 , on June 30, 2009. FERC's first action under this docket, in September 2009, was to hold technical conferences on transmission planning with transmission owners, operators, and other stakeholders in Atlanta, Phoenix, and Philadelphia. Based on these meetings, the Commission concluded that significant issues remained with the effectiveness of transmission planning generally and regional and inter-regional planning specifically; the treatment of certain types of electricity resources in the planning process (such as renewable power); and cost allocation for new transmission projects. In relation to cost allocation, the Commission found that: Determining the costs and benefits of adding transmission infrastructure to the grid is a complex process, particularly for projects that affect multiple systems and therefore may have multiple beneficiaries. At the same time, the expansion of regional power markets and the increasing adoption of renewable energy requirements have led to a growing need for transmission projects that cross multiple utility and RTO systems. There are few rate structures in place today that provide the allocation and recovery of costs for these inter-system projects, creating significant risk for developers that they will have no identified group of customers from which to recover the cost of their investment. [emphasis added] Following these meetings, FERC signaled, in an October 8, 2009, notice requesting comments on cost allocation and other transmission planning issues, that it may take a more direct approach toward cost allocation processes than in the past. The Commission noted that its "best remaining opportunity to eliminate barriers to new transmission construction may therefore be to provide greater certainty in its policies for allocating the cost of new transmission facilities, particularly for facilities that cross multiple transmission systems ." The specific questions for which FERC requested comments also provide a window into FERC's thinking. The questions included, among others: How can the beneficiaries of a specific project be identified, and should the delineation of beneficiaries include generators in addition to loads? The unstated but concomitant question is how should the level of benefits, and therefore the cost responsibility of different customer groups, be determined? This goes to the heart of the issue raised by the Seventh Circuit's rejection of the PJM Interconnection cost allocation process. Should cost allocation processes be designed to cover larger geographic regions? This would seem to raise the contentious issue of whether costs should be allocated over large areas and perhaps interconnection-wide. Should cost allocations be static or change over time? This question was posed by FERC as a general issue, and specifically in respect to transmission lines which are initially built with overcapacity in anticipation of demand growth. How, if at all, should non-quantifiable costs and benefits be incorporated into cost allocations? By the end of November 2009 FERC had received 103 sets of comments. The comments manifest a wide range of opinions on how FERC should proceed. For example: American Electric Power, a large utility company operating within the PJM, SPP, and ERCOT RTOs, argued for interconnection-wide planning and cost allocation for extra-high voltage transmission lines, to be implemented by a FERC rulemaking. Southern Company, a large southeastern utility operating outside of RTOs, rejected the whole notion that problems with transmission planning and cost allocation were inhibiting transmission development. Southern concluded that: A significant misconception being promoted by certain aspects of the industry in the name of promoting renewable resources is that the current transmission planning processes and cost allocation methodologies are obstacles to the expansion of the transmission grid. This is not the case. The reason that more inter-regional transmission projects are not being built, at least in the Southeast, is that they have not proven to be economic as compared to other options. As a result, those who would benefit from these projects desire to have other entities subsidize their costs by seeking to mandate the planning of these projects through restructured "top-down" planning processes and through the broad socialization of the costs of such uneconomic transmission projects. The New England Power Pool Participants Committee (a committee of stakeholders operating within the NE-ISO) stated that " it would be helpful for the Commission to provide policy guidance on how it would treat a range of cost allocation options. " [emphasis in the original] However, the committee was opposed to the establishment of interconnection-wide or national cost allocation rules, or to the notion of interconnection-wide cost allocation. The Southwest Power Pool RTO suggested that FERC implement standardized rules for inter-regional transmission planning and cost allocation. It also supported the establishment of cost allocation processes across broad areas, such as the Eastern Interconnection. SPP stated that: attempts to precisely define benefits are misplaced. The real benefits of a major transmission project, as part of a robust EHV network, over its useful life will never be fully captured in an economic model as there are many benefits that fall outside the scope of economic modeling. While precise analysis may be desirable, the limitations of such analysis must be acknowledged. Moreover, it is important to recognize that doing nothing also has a cost…. Currently, SPP is working to implement a cost allocation method that would even provide more cost sharing for regional projects and simplify the cost allocation. In virtually complete contradiction to the position of SPP, the Electricity Consumers Resource Council (ELCON), an association of industrial electricity users, emphasized that cost allocation should follow a fundamental principal of "beneficiary pays." Rather than viewing the issue of allocating benefits as a stumbling block to transmission project development, ELCON stated that: [A]s FERC notes in the Request [for comments], how to allocate costs is "not a new problem." Indeed, courts have developed a carefully crafted body of law to guide the allocation of the costs of transmission investment, centering on the principle that the beneficiaries of a service are to pay for it. [T]hose who are allocated costs based on actual, demonstrable benefits are less likely to object to the construction of new transmission facilities than those who are allocated costs based on an assumption that they will receive some general, unquantifiable benefit. The "beneficiary pays" model is, therefore, more likely to reduce controversy and assure that future transmission would be built where the costs truly are justified. The diversity of these comments indicated the lack of agreement on how FERC should have proceeded in respect to cost allocation. In November 2009, at about the same time these comments were filed, a transmission trade group and a consortium of environmental groups filed separate petitions with FERC asking the Commission to establish a rulemaking to set transmission cost allocation standards. The Final Rule72 The rulemaking proceeding culminated with the issuance of Order No. 1000 on July 21, 2011. Order No. 1000 states that the Commission is amending Order No. 890 to ensure that FERC-jurisdictional transmission services are provided at just and reasonable rates, and on a basis that is just and reasonable, and not unduly discriminatory or preferential. The following paragraphs summarize the Final Rule (which becomes effective October 11, 2011) and its major requirements. Planning Requirements Order No. 1000 establishes three requirements for transmission planning: Public utility transmission providers are required to participate in a regional transmission planning process that satisfies Order No. 890 principles and produces a regional transmission plan. Local and regional transmission planning processes must consider transmission needs driven by public policy requirements established by state or federal laws or regulations. Public utility transmission providers in each pair of neighboring planning regions must coordinate to determine if more efficient or cost-effective solutions are available. Order No. 1000 further requires that each transmission provider participate in a regional transmission planning process that includes both a regional cost allocation method for the cost of new transmission facilities selected in a regional transmission plan and an interregional cost allocation method for the cost of certain new transmission facilities located in two or more neighboring transmission planning regions. Cost Allocation Requirements Order No. 1000 establishes three additional requirements for transmission cost allocation: Regional transmission planning process must have a regional cost allocation method for a new transmission facility selected in the regional transmission plan for purposes of cost allocation. The cost allocation method must satisfy six regional cost allocation principles. Neighboring transmission planning regions must have a common interregional cost allocation method for a new interregional transmission cost facility that the regions select. Cost allocation method must satisfy six similar interregional cost allocation principles. Participant-funding of new transmission facilities is permitted, but is not allowed as the regional or interregional cost allocation method unless the individual market participants agree to it. While FERC declines to specify a standard or preferred methodology in Order No. 1000, it does require each regional or interregional cost allocation method to satisfy six generalized cost allocation principles: Regional cost allocation principle 1: The cost of transmission facilities must be allocated to those within the transmission planning region that benefit from those facilities in a manner that is at least roughly commensurate with estimated benefits. Interregional cost allocation principle 1: The costs of a new interregional transmission facility must be allocated to each transmission planning region in which that transmission facility is located in a manner that is at least roughly commensurate with the estimated benefits of that transmission facility in each of the transmission planning regions. Regional cost allocation principle 2: Those that receive no benefit from transmission facilities, either at present or in a likely future scenario, must not be involuntarily allocated any of the costs of those transmission facilities. Interregional cost allocation principle 2: A transmission planning region that receives no benefit from an interregional transmission facility that is located in that region, either at present or in a likely future scenario, must not be involuntarily allocated any of the costs of that transmission facility. Regional cost allocation principle 3: If a benefit to cost threshold is used to determine which transmission facilities have sufficient net benefits to be selected in a regional transmission plan for the purpose of cost allocation, it must not be so high that transmission facilities with significant positive net benefits are excluded from cost allocation. Interregional cost allocation principle 3: If a benefit-cost threshold ratio is used to determine whether an interregional transmission facility has sufficient net benefits to qualify for interregional cost allocation, this ratio must not be so large as to exclude a transmission facility with significant positive net benefits from cost allocation. Regional Cost Allocation Principle 4 : The allocation method for the cost of a transmission facility selected in a regional transmission plan must allocate costs solely within that transmission planning region unless another entity outside the region or another transmission planning region voluntarily agrees to assume a portion of those costs. Interregional Cost Allocation Principle 4 : Costs allocated for an interregional transmission facility must be assigned only to transmission planning regions in which the transmission facility is located. Costs cannot be assigned involuntarily under this rule to a transmission planning region in which that transmission facility is not located. Regional Cost Allocation Principle 5: The cost allocation method and data requirements for determining benefits and identifying beneficiaries for a transmission facility must be transparent with adequate documentation to allow a stakeholder to determine how they were applied to a proposed transmission facility. Interregional Cost Allocation Principle 5 : The cost allocation method and data requirements for determining benefits and identifying beneficiaries for an interregional transmission facility must be transparent with adequate documentation to allow a stakeholder to determine how they were applied to a proposed interregional transmission facility. Regional Cost Allocation Principle 6: A transmission planning region may choose to use a different cost allocation method for different types of transmission facilities in the regional transmission plan, such as transmission facilities needed for reliability, congestion relief, or to achieve Public Policy Requirements. Interregional Cost Allocation Principle 6 : The public utility transmission providers located in neighboring transmission planning regions may choose to use a different cost allocation method for different types of interregional transmission facilities, such as transmission facilities needed for reliability, congestion relief, or to achieve Public Policy Requirements. Nonincumbent Developer Requirements The Final Rule curtails the existing right of first refusal for incumbent transmission providers previously had to build new transmission lines. FERC concludes in Order No. 1000 that retaining a federal right of first refusal for transmission facilities selected in a regional transmission plan for purposes of cost allocation could result in rates for FERC-jurisdictional services that are unjust and unreasonable, or could otherwise result in undue discrimination by public utility transmission providers. This aspect of the Final Rule will not affect any state or local laws or regulations regarding the construction of transmission facilities (including but not limited to siting or permitting), or the following types of projects: The transmission facility is not in a regional transmission plan for purpose of cost allocation. The transmission facility is not a result of an upgrade to existing transmission facilities, such as a tower change out or reconductoring. The new transmission facility has already been subject to a regional process which allows non-incumbent developers to compete with incumbents. Compliance Order No. 1000 will take effect on October 11, 2011, 60 days after publication in the Federal Register . Each public utility transmission provider is required to make a compliance filing by October 11, 2012, or within 12 months of the effective date of the Final Rule. Compliance filing for interregional transmission coordination and interregional cost allocation must be filed within 18 months of the effective date, that is by April 11, 2013. FERC expects that some RTO regions may submit their existing procedures as being compliant with Order No. 1000's regional cost allocation requirements. Order No. 1000 does not provide details regarding how FERC might enforce the Final Rule. Public utility transmission providers are given schedules for compliance filings, and revision of OATT schedules to reflect cost allocation methods as transmission providers are required to show that they meet the provisions of the Final Rule. It is possible that potential issues regarding the formation of regions could affect transmission provider compliance. Specific Observations on the Final Rule Planning Requirements The need for transmission planning has traditionally resulted from load growth and the need to connect new power generation resources to load centers. More recently, an increased focus on power markets and reliability has caused discussion on the need for new transmission lines. With Order No. 1000, FERC has issued regulations which seek to add state and federal public policies as a factor in the decision-making process concerning which transmission projects emerge from planning processes as construction projects. However, FERC's use of the word "consider" with regard to state or federal public policy requirements (i.e., as a factor in the planning process) may not be enough of an imperative to actually push such transmission projects forward. In the wake of the issuance of the Final Rule, the American Public Power Association (APPA) observed that FERC may already have had the authority to move transmission projects forward which are driven by the needs of load-serving entities (LSEs). APPA believes that transmission planning should also focus on LSE needs as stipulated in the FPA, which by necessity may likely include transmission facilities to access renewable resources as mandated by state RPS requirements and other clean energy resources necessitated by state and federal environmental regulations. APPA refers to section 217(b)(4) of the FPA, which states following: The Commission shall exercise the authority of the Commission under this Act in a manner that facilitates the planning and expansion of transmission facilities to meet the reasonable needs of load-serving entities to satisfy the service obligations of the load-serving entities ... Cost Allocation Requirements Definition of benefits will likely be key in determinations of cost allocation. Order No. 1000 discusses many different types of potential benefits (e.g., economic, reliability, system-wide, etc.) but does not seek to define specifically what a benefit is. The definition of benefits will lead to the identification of beneficiaries, and thence to the identification of how much and to whom costs will be allocated to. FERC is not prescribing a particular definition of "benefits" or "beneficiaries" in this Final Rule. FERC noted that "[i]n our view, the proper context for further consideration of these matters is on review of compliance proposals and a record before us." FERC does not propose interconnection-wide cost allocation as a regional allocation method for transmission facilities. The regions will define benefits, and FERC considers at least three primary areas for benefits will be considered—reliability, economics and public policy. Order No. 1000 states there will be no cost allocation where there is no benefit: Those that receive no benefit from new transmission facilities, either at present or in a likely future scenario, must not be involuntarily allocated any of the costs of those facilities. That is, a utility or other entity that receives no benefit from transmission facilities, either at present or in a likely future scenario, must not be involuntarily allocated any of the costs of those facilities. FERC also believes this Final Rule will protect transmission customers from free riders, that is, those who receive benefits without paying for them. Order No. 1000 addresses the "free rider" issue by invoking cost-causation principles: In Order No. 890, the Commission recognized that the cost causation principle provide that costs should be allocated to those who cause them to be incurred and those that otherwise benefit from them. We conclude now that this principle cannot be limited to voluntary arrangements because if it were "the Commission could not address free rider problems associated with new transmission investment, and it could not ensure that rates, terms and conditions of jurisdictional service are just and reasonable and not unduly discriminatory. FERC is allowing the regions to define themselves, with the caveat that there must be more than one utility in a region. Existing RTOs or ISOs are considered "natural regions that have agreements in place already that will define those regions." FERC expects that these regions will be defined by transmission-owning utilities. It should also be recognized that some RTOs stretch over non-continuous areas, which may lead to some RTO/ISOs or their members being in more than one transmission planning region. The definition of transmission-owning utility may be a complicating factor as some owners/operators of generation facilities have been designated as transmission owners for reliability purposes. Such entities could also be impacted by aspects of requirements from the Final Rule. Established regulatory principles may also bear on the definition of benefits, especially if rate recovery extends to state jurisdictions or if states (or portions of states) are considered planning regions. Timing is very important to the definition of benefits, as principles of intergenerational equity may arise. FERC has stated that consideration of public policies should be limited to existing policies. The time frame to which these existing policies apply would likely be used as the limit to the planning horizon for which benefits and their costs could be allocated to beneficiaries based on established "cost-causation" principles. Alternatively, under "used and useful" ratemaking principles, the allocation of costs could be spread over the life of the transmission facility asset itself, and the benefits timeline may be allocated over such a lifespan. Nonincumbent Developer Requirements FERC makes a distinction between a transmission facility in a regional plan, and a transmission facility selected in a regional plan for purposes of cost allocation. FERC considers the latter a more efficient/cost-effective solution to regional needs, presumably by virtue of being selected pursuant to a Commission-approved regional planning process, even though there are no standard procedures for a process likely to be approved by FERC. FERC assumes that the region will select the most efficient solution since a cost-allocation scheme has been settled on by transmission owning interests. This distinction also seems to illuminate the partial elimination of a right of first refusal (ROFR) of a transmission provider to build a transmission facility chosen for regional cost allocation. FERC is not preempting any state or local law or regulation that establishes a ROFR, and only eliminates the ROFR in this very limited situation. Order No. 1000 notes that each transmission provider would be required to amend its OATT if a transmission facility project selected in a regional plan for purposes of cost allocation is delayed. Local utilities would then be allowed to consider alternative solutions to ensure that reliability needs and service obligations are met. General Comments Order No. 1000 is broadly intended to ensure that there is enough transmission capacity to meet future U.S. electricity needs, and provide for the allocation of new costs to build the transmission facilities by "identify[ing] transmission facilities that more efficiently or cost-effectively meet the region's reliability, economic and public policy requirements." In paragraph 29 of Order No. 1000, FERC cites the expectations of the U.S. Department of Energy and NERC with regard to the expansion of high-voltage transmission lines and facilities, with up to a third of this new transmission capacity intended to serve new variable and renewable energy generation. State renewable energy portfolio standards are seen as a major driver of this new capacity. However, with most of the best regions for wind and solar resources located in the western United States, and many of the load centers and many states with RPS requirements in the eastern part of the country, some observers have discussed the potential for long, interstate transmission lines to carry renewable energy to markets in the east. Order No. 1000 allows for neighboring transmission planning regions to work out interregional plans for state public policies such as RPS requirements. In the absence of a federal renewable energy or clean energy standard, an imperative for a west-to-east, multistate renewable energy transmission line is unlikely, but a segmented build-out of transmission facilities could accomplish a similar goal if benefits to local regions can be shown. In that instance, the technologies and facility designs chosen to accomplish the build out could be crucial to a benefits determination since alternating current transmission lines have the potential for future "on- and off-ramps" to serve load growth along such routes, while direct current transmission lines are limited in that capability. Federal regulations may reduce the need for states or regions to have their own regulations to address the same or similar issues. As such, federal regulations ease interstate commerce because a multiplicity of state regulations is avoided, especially when the regulations developed in states and regions addressing a specific issue can differ substantially. In Order No. 1000, FERC intends to provide broad guidance on planning transmission facilities and cost allocation, while allowing regions to tailor such arrangements to their own or interregional requirements with consideration given to public policy goals: The cost allocation principles are not intended to prescribe a uniform approach, but rather each public utility transmission provider should have the opportunity to first develop its own method or methods. Also, we recognize that regional differences may warrant distinctions in cost allocation methods. Thus, in providing such discretion, FERC leaves the door open for broad interpretation of the regulations, with the likelihood that a wide variation of plans will result. FERC states in Order No. 1000 that transmission planners should seek the most efficient and cost-effective ways to meet the transmission needs of regions. Order No. 1000 also identifies a transmission facility selected in a regional plan for cost allocation purposes as a "more efficient or cost-effective solution to regional transmission needs." Sometimes, the optimal location of a power generation facility can ease congestion-related reliability issues, and present a cost effective solution with potential benefits to other regional transmission needs. It is not clear to what extent the regional transmission planners will be required to think broadly and consider a power generation solution when considering Order No. 1000 requirements for the most "efficient or cost-effective solution" to regional power needs. The Final Order comes as state renewable portfolio requirements and the upcoming U.S. Environmental Protection Agency (EPA) regulations for coal power plants may increase demand for new transmission lines. The uncertainty regarding the implications for generation resources of upcoming EPA regulations has caused some utilities to delay decisions on building new generation, with plans to satisfy (at least interim) power needs from power markets until the regulatory clarity they seek is provided. Some commenters expect that shortfalls in transmission capacity in some regions of the United States may have possible impacts on reliability resulting from these additional needs. State public utility commission decisions authorizing new power plants in rate base to replace retired coal plants will likely impact regional transmission planning decisions. There are many issues and many questions beyond those discussed in this report which will likely arise as the many different stakeholders involved move to understand and satisfy their obligations under the Final Rule. FERC acknowledges that some key questions may only be answered in the compliance filing process. Update on Order 1000 FERC issued Order 1000-A on May 17, 2012, to deny many rehearing requests for its Order 1000, affirming that all jurisdictional electric transmission providers must comply with Order 1000's requirements to participate in regional and interregional planning processes for planning new transmission facilities. Transmission cost allocation methods specified in Order 1000 are to be employed for these new transmission facilities. FERC subsequently issued Order 1000-B on October 18, 2012, to uphold its previous Orders 1000 and 1000-A, and to make clarifications to its rule. FERC again denied any requests for rehearing of Order 1000 or Order 1000-A.

Perhaps the most contentious electricity transmission financing issue is cost allocation for new interstate transmission lines—that is, deciding which electricity customers pay how much of the cost of building and operating a new transmission line that crosses several states. This report provides background and analysis of current transmission cost allocation policy and issues. For many years, the Federal Energy Regulatory Commission (FERC) declined to go beyond establishing general principles as set forth in its Order No. 890, which addressed "undue discrimination and preference" in the providing of transmission services. Transmission cost allocation proposals made by transmission service providers were therefore reviewed by FERC to ensure compliance with the general principles outlined in Order No. 890 and the Federal Power Act (FPA). However, there were calls for FERC to provide a clearer framework for cost allocation. The decision of the Seventh Circuit in Illinois Commerce Commission v. FERC, to reject a cost allocation plan approved by FERC which would have permitted "socialization" of the costs for some new transmission projects (i.e., allowing the costs to be spread widely among ratepayers in the PJM Interconnection, even those who do not substantially or clearly benefit from a project) encouraged FERC to seek more clarity with respect to cost allocation. Congress also entered the fray in the form of legislative proposals that would amend the Federal Power Act to include new transmission cost allocation guidelines that FERC would be required to follow. In 2009 FERC decided to take an in-depth look at cost allocation and other transmission planning issues as part of a new docket. FERC observed that its "best remaining opportunity to eliminate barriers to new transmission construction may therefore be to provide greater certainty in its policies for allocating the cost of new transmission facilities, particularly for facilities that cross multiple transmission systems." FERC requested comments from stakeholders on transmission planning issues. After receiving and reviewing comments from stakeholders and offering a proposed rule in 2010, FERC published Order No. 1000, a final rule reforming FERC's transmission planning and cost allocation requirements for transmission service providers, on July 21, 2011. The final rule required transmission service providers to (1) participate in a regional transmission planning process; (2) amend their transmission tariffs to provide for consideration of public policy; (3) remove from their tariffs a federal right of first refusal for certain new transmission facilities; and (4) improve coordination between neighboring transmission planning regions. The Final Order comes as state renewable portfolio standards and the upcoming U.S. Environmental Protection Agency (EPA) regulations for coal power plants may drive demand for new transmission lines. The uncertainty regarding the implications for generation resources of upcoming EPA regulations has caused some utilities to delay decisions on building new generation, with plans to satisfy (at least interim) power needs from power markets until the regulatory clarity they seek is provided. This report analyzes recent developments concerning transmission cost allocation leading up to Order No. 1000, as well as the contents of the order and their potential impact on the transmission planning process in the future. FERC acknowledges that some key questions may only be answered in the compliance filing process.

Introduction 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. Although 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. Many 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. Payment 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. Many 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. Improving 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. Ongoing 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. This 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. The Role of Quality Measurement 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. Where 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. Several 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. The 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. In 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. Quality 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. There 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). The 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, payers 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). Despite 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. Payment Incentives for 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. Payment 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. This 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. The Role of Medicare 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. Although 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." The 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." Overview of Payment Incentives 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. Payment 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. A 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. Payment 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. Public Reporting of 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 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. The 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. The Theory Underlying Public Reporting 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. The 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." Issues with Consumer Use of Performance Information 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). Characteristics 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. Consumer 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. The Effectiveness of Public Reporting 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). The 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.

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, with multiple indicators showing that quality of care could be improved. Although 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. Ongoing 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, the Medicare and Medicaid programs. 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. 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 is often referred to as value-based purchasing or value-driven health care, and such efforts may include payment incentives in the form of adjustments, performance-based payments, or fees. At the federal level, the Medicare program provides policymakers the opportunity to implement value-based purchasing approaches and other payment modifications; payment incentive policies implemented in the Medicare program may provide valuable data that private insurers and others may use when considering implementing these approaches. 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.

Introduction: Policy and Technological Convergence Members of the 2 nd Session of the 110 th Congress who support sustaining and improving emergency communications have a body of recent legislation on which to build. Since September 11, 2001, successive Congresses have passed legislation regarding technology, funding, spectrum access and other areas critical to emergency communications. These new laws have tended to address specific issues, dealing separately, for example, with interoperability for first responders, improvements in emergency alerts, and 911 call centers. When reviewing emergency communications legislation, whether for oversight or new initiatives, Congress may review the pace of technological convergence and its impact on policies for emergency communications. What once were discrete areas of emergency response are increasingly sharing common technologies. First responders and other emergency workers not only have access to better tools, but also—by adopting new technologies—find themselves confronted with the need to rethink their internal organizational structure and the ways that they communicate with external groups. Most emergency communications in use today have been built on core technologies such as two-way radio for emergency responders, telephone line switches for 911 calls, and broadcasting for emergency alerts. Operated independently of each other, these three pillars of emergency response have developed along separate technology tracks. Advances in information technology—and particularly the ubiquity of the Internet—have laid the groundwork for connecting the functions of communications for emergency responders, 911 call centers, and public alerts. For example: digital broadcasting used for emergency alerts can also be used to deliver information to emergency responders; the use of Internet Protocols (IP) provides a standard for network inter-connectivity; interoperable radio networks used by first responders can open a channel for real-time participation by operators in 911 call centers; these same call centers can be used to generate local alerts, over all types of communications media, to virtually any enabled device. Developing communications technologies with common elements provide synergies that benefit both provider and user. Federal policy and congressional action tend to treat these three important areas of emergency communications through different agencies and different committees. Some observers cite cross-agency coordination at the federal level and cross-jurisdiction cooperation at the congressional level as areas where rapprochement could facilitate homeland security. Because the preponderance of incidents involving emergency workers occurs at the local level, local, state and regional participation and coordination are included in federal solutions. Encouraging the right balance of cooperative policy and federal leadership—to support both daily operations and national response in catastrophic situations—is one of the goals of Congress. Through legislation, Congress has proposed methods for blending the use of advanced technology with the changes in organization that shifts in technology tend to foster. In time, the convergence of communications technology may lead to new approaches in policy-making and oversight based on a recognition that both function and technology are interconnected. First Responders and Emergency Communications Congressional interest in the federal government's support of interoperable emergency communications capability has increased since September 11, 2001. Chaotic situations at the Pentagon and the World Trade Center were exacerbated by inadequate communications support for local, state, and federal responders at the sites. Radio communications systems, in particular, were not interoperable, hampering coordination of rescue efforts. The different types of technology, operating on different radio frequencies, could not interface with each other. Congress first addressed interoperability in the Homeland Security Act of 2002 ( P.L. 107-296 ). Then, responding to recommendations of the National Commission on Terrorist Attacks Upon the United States (9/11 Commission), Congress included a section in the Intelligence Reform and Terrorism Prevention Act of 2004 ( P.L. 108-458 ) that expanded its requirements for action in improving interoperability and public safety communications. Also in response to a recommendation by the 9/11 Commission, Congress set a firm deadline for the release of radio frequency spectrum needed for public safety radios as part of the Deficit Reduction Act of 2005 ( P.L. 109-171 ). These laws provide the base from which the Department of Homeland Security (DHS) can develop a national public safety communications capability as required by the Homeland Security Appropriations Act, 2007 ( P.L. 109-295 ). Title VI, Subtitle D of the act, cited as the 21 st Century Emergency Communications Act of 2006, placed new requirements on DHS as well as reaffirming key passages in the Intelligence Reform and Terrorism Prevention Act. The act created the position of Director of Emergency Communications within the Department of Homeland Security. The Homeland Security Act of 2002 and Actions by the Department Provisions of the Homeland Security Act instructed DHS to address some of the issues concerning public safety communications in emergency preparedness and response and in providing critical infrastructure. Telecommunications for first responders is mentioned in several sections, with specific emphasis on technology for interoperability. The newly created DHS placed responsibility for interoperable communications within the Directorate for Science and Technology, reasoning that the focus of DHS efforts would be on standards and on encouraging research and development for communications technology. Responsibility to coordinate and rationalize federal networks, and to support interoperability, had previously been assigned to the Wireless Public SAFEty Interoperable COMmunications Program—called Project SAFECOM—by the Office of Management and Budget (OMB) as an e-government initiative. With the support of the Administration, SAFECOM was placed in the Science and Technology directorate and became the lead agency for coordinating federal programs for interoperability. The Secretary of Homeland Security assigned the responsibility of preparing a national strategy for communications interoperability to the Office of Interoperability and Compatibility (OIC), which DHS created, an organizational move that was later ratified by Congress in the Intelligence Reform and Terrorism Prevention Act. SAFECOM continued to operate as an entity within the Office of Interoperability and Compatibility, which assumed the leadership role. The director of SAFECOM was promoted to head the OIC. Intelligence Reform and Terrorism Prevention Act Acting on recommendations made by the National Commission on Terrorist Attacks Upon the United States (9/11 Commission), Congress included several sections regarding improvements in communications capacity—including clarifications to the Homeland Security Act—in the Intelligence Reform and Terrorism Prevention Act ( P.L. 108-458 ). The Commission's analysis of communications difficulties on September 11, 2001 was summarized in the following recommendation. Congress should support pending legislation which provides for the expedited and increased assignment of radio spectrum for public safety purposes. Furthermore, high-risk urban areas such as New York City and Washington, D.C., should establish signal corps units to ensure communications connectivity between and among civilian authorities, local first responders, and the National Guard. Federal funding of such units should be given high priority by Congress. Congress addressed both the context and the specifics of the recommendation for signal corps. The Intelligence Reform and Terrorism Prevention Act amended the Homeland Security Act to specify that DHS give priority to the rapid establishment of interoperable capacity in urban and other areas determined to be at high risk from terrorist attack. The Secretary of Homeland Security was required to work with the Federal Communications Commission (FCC), the Secretary of Defense, and the appropriate state and local authorities to provide technical guidance, training, and other assistance as appropriate. Minimum capabilities were to be established for "all levels of government agencies," first responders, and others, including the ability to communicate with each other and to have "appropriate and timely access" to the Information Sharing Environment, an initiative treated elsewhere in the act. The act further required the Secretary of Homeland Security to establish at least two pilot programs in high-threat areas. The process of development for these programs was to contribute to the creation and implementation of a national model strategic plan; its purpose was to foster interagency communications at all levels of the response effort. Building on the concept of using the Army Signal Corps as a model, the law directed the Secretary to consult with the Secretary of Defense in the development of the pilot projects, including review of standards, equipment, and protocols. Congress also raised the bar for performance and accountability. Section 7303 (a) (1) set program goals for the Department of Homeland Security, in consultation with the Secretary of Commerce and the FCC. Briefly, the goals were to: Establish a comprehensive, national approach for achieving interoperability; Coordinate with other federal agencies; Develop appropriate minimum capabilities for interoperability; Accelerate development of voluntary standards; Encourage open architecture and commercial products; Assist other agencies with research and development; Prioritize, within DHS, research, development, testing and related programs; Establish coordinated guidance for federal grant programs; Provide technical assistance; and Develop and disseminate best practices. The act included a requirement that any request for funding from DHS for interoperable communications "for emergency response providers" be accompanied by an Interoperable Communications Plan, which must be approved by the Secretary. Criteria for the Plan were also provided in the act. The act conveyed the sense of Congress that "interoperable emergency communications systems and radios should continue to be deployed as soon as practicable for use by the first responder community, and that upgraded and new digital communications systems and new digital radios must meet prevailing national, voluntary consensus standards for interoperability." Spectrum allocation, needed for radio communications by first responders and other emergency workers, is also an important issue. The act required two studies on spectrum and communication networks for public safety and homeland security, to be prepared for Congress by year end 2005. The FCC was designated to lead a study on spectrum needs for emergency response providers. The Secretary of Homeland Security, with the FCC and the National Telecommunications and Information Administration (NTIA), was required to prepare a study on strategies to meet public safety and homeland security needs for first responders and all other emergency response providers. The FCC report was released December 2005. For the study, the FCC sought comment on whether additional spectrum should be made available for public safety, possibly from the 700 MHz band. Comments received from the public safety community overwhelmingly supported the need for additional spectrum, although other bands besides 700 MHz were also mentioned. The FCC did not make a specific recommendation for additional spectrum allocations in the short-term although it stated that it agreed that public safety "could make use of such an allocation in the long-term to provide broadband services." It qualified this statement by observing that spectrum is only one factor in assuring access to mobile broadband services for emergency response. It further announced that it would move expeditiously to see whether the current band plan for the 24 MHz at 700 MHz currently designated for public safety could be modified to accommodate broadband applications. The second required study, to be conducted by DHS in cooperation with the FCC and the NTIA, has not been released in final form. In addition to the requirement from Congress, the Secretary of Homeland Security had also been ordered by a Presidential Executive Memorandum to participate in a national study of spectrum policy. The Presidential Spectrum Policy Initiative planning process is moving forward under the direction of the NTIA and will apparently incorporate information intended to meet the congressional study requirement. The act also included a sense of Congress provision that the 109 th Congress should pass legislation supporting the Commission's recommendation to expedite the release of spectrum. This was addressed by the 109 th Congress in the " The Deficit Reduction Act ", discussed below. The Deficit Reduction Act The Balanced Budget Act of 1997 required the FCC to allocate 24 MHz of spectrum at 700 MHz to public safety, without providing a hard deadline for the transfer. The channels designated for public safety are among those currently held by TV broadcasters; they are to be cleared as part of the move from analog to digital television (DTV). The 9/11 Commission urged that Congress take prompt action to assure the release of spectrum at 700 MHz—allocated for public safety, but not released—to support needed interoperable network capability and more robust communications capacity. Provisions in the Deficit Reduction Act of 2005 planned for the release of spectrum by February 18, 2009 and created a fund to receive spectrum auction proceeds and disburse designated sums to the Treasury and for other purposes. The fund is to transfer $7.363 billion to the Treasury to reduce the budget deficit as specified in H.Con.Res. 95 . Other disbursements from the fund include advances of up to $1.5 billion to assist consumers with the transition to digital television and a grant program of up to $1 billion for public safety agencies. The fund's disbursements are to be administered by the NTIA, which was empowered to borrow funds for communications interoperability grants effective October 1, 2006. At the time, the Congressional Budget Office projected that the grants program for public safety would receive $100 million in FY2007, $370 million in FY2008, $310 million in FY2009 and $220 million in FY2010. However, the 109 th Congress, in its closing hours, passed a bill with a provision requiring that the grants program receive "no less than" $1 billion to be awarded "no later than" September 30, 2007. Language in Implementing Recommendations of the 9/11 Commission Act of 2007 ( P.L. 110-53 ) reaffirms the 2007 fiscal year deadline, but makes changes in the grant program. Further Actions Regarding the Deficit Reduction Act: Spectrum Assignment for Public Safety The FCC established auction rules that comply with the Deficit Reduction Act and also provide for a new, interoperable communications network for public safety users to be shared with commercial users. A national license for 10 MHz, designated as Upper Block D, was put up for auction under service rules that required working with a Public Safety Licensee to build and manage a shared network. The Public Safety Licensee would be assigned a single, national license for 10 MHz that is intended to provide the core capacity for public safety users of the new network. Under the auction rules, there was no winning bidder for the D Block. The FCC is in the process of reconsidering its options and has issue a Second Further Notice of proposed Rulemaking, in which it solicits comment on a wide variety of options. A partnership would give public safety communications users access to private-sector capital and expertise to build the network. Although public safety users would be charged for access to the network, proponents of the plan argue that overall costs will be less than if the network were purely for public safety, because of greater economies of scale. Further Actions Regarding the Deficit Reduction Act: Memorandum of Understanding for Communications Grants and Subsequent Modifications In February 2007, the NTIA, designated by Congress to administer the $1 billion grant program in cooperation with the Department of Homeland Security, signed a memorandum of understanding (MOU) with the Office of Grants and Training at DHS to administer the expenditure of the designated funds. The MOU includes an overview of how the Public Safety Interoperable Communications (PSIC) Grant Program will be administered. The overview was reiterated and explained in testimony. Both the MOU and the testimony indicate that the priority will be to fund needs identified through Tactical Interoperable Communications Plans and Statewide Interoperable Plans developed in conjunction with SAFECOM. In particular, tactical plans for urban areas are to be supported. On July 18, 2007, the Secretaries of Commerce and Homeland Security jointly announced the details of the grants program. The grants program, as announced, is to provide $968,385,000 in funding for all 50 states, the District of Columbia, and U.S. Territories. Seven urban areas which are part of an ongoing Urban Area Security Initiative are specifically funded. The amounts are subsets of the amount designated for the state associated with the urban area. The New York City Area, for example, is slotted to receive $34,812,602, accounting for over half of the $60,734,783 designated for New York State. The other urban areas are centered on: San Francisco, CA; Chicago, IL; Houston, TX; Newark-Jersey City, NJ; Los Angeles-Long Beach, CA; and Washington, DC. The announcement of the top-level, statewide allocations meets the September 30 deadline set by Congress. The states, however, have additional time to submit their detailed requests, and will receive funds through FY2010. The funding program has been modified slightly to conform to provisions established in P.L. 110-53 . In addition, states will have to reappraise their plans for grant requests to meet the new guidelines established by the law. One of the most significant changes has been to provide for grants for strategic technology reserves for communications in an emergency. The $75 million for strategic reserves required by the new law will be distributed among the recipients in proportion to the funds already set aside. The Homeland Security Appropriations Act, 2007 The destruction caused by Hurricanes Katrina and Rita in August-September 2005 reinforced the recognition of the need for providing interoperable, interchangeable communications systems for public safety and also revealed the potential weaknesses in existing systems to withstand or recover from catastrophic events. Testimony at numerous hearings following the hurricanes suggested that DHS was responding minimally to congressional mandates for action, most notably as expressed in the language of the Intelligence Reform and Terrorism Prevention Act. Bills subsequently introduced in both the House and the Senate proposed strengthening emergency communications leadership and expanding the scope of the efforts for improvement. Some of these proposals were included in Title VI of the Homeland Security Appropriations Act, 2007 ( P.L. 109-295 ). Title VI—the Post-Katrina Emergency Management Reform Act of 2006—reorganized the Federal Emergency Management Agency (FEMA), gave the agency new powers, and clarified its functions and authorities within DHS. Subtitle D—the 21 st Century Emergency Communications Act of 2006—created an Office of Emergency Communications and the position of Director, reporting to the Assistant Secretary for Cybersecurity and Communications. The Director is required to take numerous steps to coordinate emergency communications planning, preparedness, and response, particularly at the state and regional level. These efforts are to include coordination with Regional Administrators appointed by the FEMA Administrator to head ten Regional Offices. Among the responsibilities of the Regional Administrators is "coordinating the establishment of effective regional operable and interoperable emergency communications capabilities." Two major programs previously supported by other sections of the Department of Homeland Security are included in the responsibilities of the Director of Emergency Communications—SAFECOM and participation in the Integrated Wireless Network (IWN). IWN was planned as a joint law enforcement network for the Departments of Justice, the Treasury, and Homeland Security. DHS has been represented in the IWN Joint Program Office through the Wireless Management Office of the Chief Information Officer. Another important organizational shift required by the new law is the requirement that the Director of Emergency Communications coordinate, with the cooperation of the National Communications System (NCS), the establishment of a national response capability. The NCS had been designated the Primary Agency and Emergency Support Function Administrator for the Communications Annex of the Federal Response Plan, a role it continues in the revised National Response Framework. Originally created to assure continuity of the federal government and its operations, NCS has a small role in state and local response and recovery. The law also instructs the Director of Emergency Communications to work with the Director of the Office of Interoperability and Compatibility (OIC). The responsibilities of the Office of Interoperability and Compatibility are clarified regarding standards development, research, developing and assessing new technology, coordination with the private sector, and other duties. The development of a comprehensive research and development program is required. Among the key responsibilities assigned to the Director of Emergency Communications is to assist the Secretary for Homeland Security in carrying out the program responsibilities required by the " Intelligence Reform and Terrorism Prevention Act " in Sec. 7303 (a) (1) [6 U.S.C. 194 (a) (1)], summarized above. Other responsibilities of the Director include conducting outreach programs, providing technical assistance, coordinating regional working groups, promoting the development of standard operating procedures and best practices, establishing non-proprietary standards for interoperability, developing a national communications plan, working to assure operability and interoperability of communications systems for emergency response, and reviewing grants. Required elements of the National Emergency Communications Plan include establishing requirements for assessments and reports, and an evaluation of the feasibility of developing a mobile communications capability modeled on the Army Signal Corps. General procedures are provided for coordination of emergency communication grants, and for a Regional Emergency Communications Coordination (RECC) Working Group. An Emergency Communications Preparedness Center is to be established. Specific provisions are included covering urban and other high risk communications capabilities that closely resemble the provisions of the Intelligence Reform and Terrorism Prevention Act. The formation of the regional working groups, the RECCs, responded in part to requests from the public safety community to expand interoperable communications planning to include the second tier of emergency workers. Non-federal members of the RECC include first responders, state and local officials and emergency managers, and public safety answering points (911 call centers). Additionally, RECC working groups are to coordinate with a variety of communications providers (such as wireless carriers and cable operators), hospitals, utilities, emergency evacuation transit services, ambulance services, amateur radio operators, and others as appropriate. Congress also required assessments of emergency communications capabilities, including an inventory that identifies radio frequencies used by federal departments and agencies. 9/11 Commission Recommendations As noted above, Congress initially responded to the 9/11 Commission recommendation about emergency communications with provisions in the Intelligence Reform and Terrorism Prevention Act. In addition to the recommendation, which urged the release of spectrum, creation of better communications connectivity in high-risk urban areas, and high priority for federal funding for communications capacity, the section containing this recommendation mentioned other concerns. The Commission report commented on the impact on emergency response capacity when "an attack is large enough" and the need for "Teamwork, collaboration, and cooperation" as well as "regular joint training sessions." The report states that "Public safety organizations, chief administrative officers, state emergency management agencies, and the Department of Homeland Security should develop a regional focus.... " The Commission expressed the opinion that the problems of communications at all three crash sites provided "strong evidence that compatible and adequate communications among public safety organizations at the local, state, and federal levels remains an important problem." Both the 108 th and 109 th Congresses provided authorities and funds to address the Commission's concerns. The 110 th Congress has continued the work, meeting a Democratic campaign pledge to implement fully the 9/11 Commission's recommendations with the passage of Implementing Recommendations of the 9/11 Commission Act of 2007 ( P.L. 110-53 ), see below. Actions in the 110th Congress The passage of the Implementing Recommendations of the 9/11 Commission Act of 2007 ( P.L. 110-53 ) further advanced the efforts of Congress to provide better and interoperable communications for public safety. Title III of the law is to assist in meeting the goals set for the Office of Emergency Communications in the 21 st Century Emergency Communications Act of 2006 ( P.L. 109-295 , Title VI, Subtitle D) with an Interoperable Emergency Communications Grant Program. Title XXII revised provisions of the Deficit Reduction Act regarding the nature of programs eligible for grants from the Digital Television Transition and Public Safety Fund, making funds generally available for planning, system designing, and purchasing decisions related to achieving interoperability. Part of the funds must be allocated for grants to establish strategic reserves. The bill also has required the FCC to study feasible ways to set up a backup system for emergency communications with the objective of developing "a resilient interoperable communications system." The requirement for funding the billion-dollar program in FY2007, as required by the Call Home Act, was reaffirmed in the text. National Emergency Communications Plan Title III of the Implementing Recommendations of the 9/11 Commission Act established new guidelines for funding, tightened requirements for meeting state and national planning goals, and set a deadline by which interoperable communications must be achieved as part of the National Emergency Communications Plan required by Title VI Subtitle D of P.L. 109-295 . The Department of Homeland Security issued the National Emergency Communications Plan (NECP) in July 2008. The report stated that 56 states and territories had submitted Statewide Communications Interoperability Plans, confirming their eligibility for grants as stipulated in the Homeland Security Act, as amended. At a hearing on July 15, 2008, members of Congress had expressed concern at the lateness of the plan, which is a pre-condition for releasing grant funds. The NECP sets three goals for levels of interoperability By 2010, 90% of all areas designated within the Urban Areas Security Initiative (UASI) will demonstrate response-level emergency communications, as defined in grant programs, within one hour for routine events involving multiple jurisdictions and agencies. By 2011, 75% of non-UASI will have achieved the goal set for UASIs. By 2013, 75% of all jurisdictions will be able to demonstrate response-level emergency communications within three hours for a significant incident as outlined in national planning scenarios. These jurisdictional goals are to be knit together into a national communications capability through program efforts such as FEMA's Regional Emergency Communications Coordination (RECC) Working Group. The three goals are bolstered by seven objectives for improving emergency communications for first responders, dealing largely with organization and coordination. Each of these objectives have "Supporting Initiatives" and milestones. Some of the initiatives do not specify what entity is to accomplish the step described in the NECP but many of them include a commitment from FEMA to deliver a product by deadlines ranging from six months to three years, providing the 111 th and successive Congresses ample opportunity for oversight. Proposed Legislation The Homeland Security Trust Fund Act of 2007 (Senator Biden, S. 345 ) would establish and fund a Homeland Security and Neighborhood Safety Trust Fund. Expenditures from the fund would go for grants to support programs that fulfill recommendations by the 9/11 Commission. In particular, provisions are made for $1 billion annually in grants for fiscal years 2007 through 2011 for state and local interoperable communications, to be distributed through the Office of Community Oriented Policing Services. The bill also contains a requirement for the immediate release of the 24 MHz of spectrum for public safety use, now scheduled for 2009, discussed above. Also in the Senate, Senator Charles E. Schumer introduced a bill to ensure adequate funding for high-threat areas ( S. 74 ). In the 108 th Congress, Senator Schumer had sponsored similar legislation, some of which found its way into the Intelligence Reform and Terrorism Prevention Act in the form of requirements for at least two pilot programs in high-threat areas. The Reliable, Effective, and Sustained Procurement of New Devices for Emergency Responders (RESPONDER) Act of 2008 ( S. 3465 , Wicker) would create a First Responders Interoperable Device Availability Trust Fund to provide grants to purchase interoperable radios for the new public safety network proposed for some of the channels being released in the transition to digital TV. The network plan is linked to the auction of a remaining block of analog spectrum, known as the D Block. The RESPONDER Act would place the entire net proceeds of the D Block Auction in the Trust. Additional funds would come from a percentage of future auctions. Auction authority for the Federal Communication Commission would be extended to assure the continuation of revenue-producing auctions. In the House, H.R. 130 (Representative Frelinghuysen), Smarter Funding for All of America's Homeland Security Act of 2007, would provide additional formulas for assuring funding, but does not specifically address interoperability. Among its provisions, H.R. 130 would create an Advisory Council on First Responders and would also require the Under Secretary of Science and Technology within DHS to conduct a study evaluating the need to assign additional spectrum for use by public safety. The Re-Channelization of Public Safety Spectrum Act ( H.R. 1788 , Representative Ferguson) would require the FCC to provide a band plan for public safety use of channels at 700 MHz to accommodate commercial broadband applications. The Public Safety Interoperability Implementation Act ( H.R. 3116 , Representative Stupak) would establish a separate fund within the Digital Television Transition and Public Safety Fund that would be used for public safety communications grants. This separate fund would receive the proceeds remaining from the auction required by the Deficit Reduction Act, after the payments required by the act had been made. It would also receive up to half of the net proceeds of future auctions, although this share could be reduced. In addition a total of $1.5 billion would be authorized for appropriations over three years, beginning with FY2008. The grant program would be administered by the NTIA with a board created for that purpose, with five members appointed by the Secretary of Commerce. Grants would go for communications critical to public safety, with a preference for programs providing broad-based interoperability.

Since September 11, 2001, several bills introduced in the U.S. Congress have included provisions to assist emergency communications. Key provisions from a number of these bills have become law. Legislation addressing communications among first responders focused first on interoperability—the capability of different systems to connect—with provisions in the Homeland Security Act (P.L. 107-296). The Intelligence Reform and Terrorism Prevention Act (P.L. 108-458) provided more comprehensive language that included requirements for developing a national approach to achieving interoperability. Some of the legislative requirements were based on recommendations made by the National Commission on Terrorist Attacks Upon the United States (9/11 Commission). Also in response to a 9/11 Commission recommendation regarding the availability of spectrum for radio operations, Congress set a date to release needed radio frequency spectrum by early 2009, as part of the Deficit Reduction Act (P.L. 109-171). The act also provided funding for public safety and for the improvement of 911 systems through a Digital Television Transition and Public Safety Fund. In a section of the Homeland Security Appropriations Act, 2007 (P.L. 109-295, Title VI, Subtitle D), Congress revisited the needs of an effective communications capacity for first responders and other emergency personnel and expanded the provisions of P.L. 108-458. The 109th Congress also passed provisions to improve emergency alerts, incorporated in the Port Security Improvement Act (P.L. 109-347). In the 110th Congress, the Implementing Recommendations of the 9/11 Commission Act of 2007 (P.L. 110-53) was passed in the 1st Session. Sections in the act modified and expanded provisions for emergency communications passed in P.L. 109-171 and P.L. 109-295. Among introduced bills that would fund public safety are: S. 74 (Senator Schumer), to ensure adequate funding for high-threat areas; S. 345 (Senator Biden), that would provide funding and includes a requirement for the immediate release of spectrum for public safety use, now scheduled for 2009; S. 3465 (Senator Wicker), to create a First Responders Interoperable Device Availability Trust Fund that would provide grants to purchase interoperable radios for the new public safety network proposed for some of the spectrum made available by the transition to digital TV; H.R. 3116 (Representative Stupak), creating a Public Safety Communications Trust Fund to receive, among other sources of funding, the uncommitted balance remaining in the Digital Television Transition and Public Safety Fund; and H.R. 130, a funding bill for first responders (Representative Frelinghuysen), with a provision that would require the Department of Homeland Security to conduct a study evaluating the need to assign additional spectrum for use by public safety. The bills that carry provisions regarding spectrum are referring, for the most part, to licenses at 700 MHz that were auctioned in January-March 2008; some of the licenses have been assigned to public safety. The proceeds from the auction are to be deposited in the Digital Television Transition and Public Safety Fund, from which mandated disbursements will be made by the National Telecommunications and Information Administration (NTIA). The auction grossed approximately $19.6 billion.

Most Recent Developments On December 22, 2010, President Barack Obama signed H.R. 3082 , amending the Continuing Appropriations Act, 2011 ( P.L. 111-242 ), to replace December 3, 2010, in Section 106 (3), with March 4, 2011. In effect, spending levels would be "at a rate for operations as provided in the applicable appropriations Acts for fiscal year 2010 and under the authority and conditions provided in such Acts" ( P.L. 111-242 , sec. 101). On February 1, 2010, the President, in his budget for FY2011, had requested $2,182,300,000 for U.S. contributions to U.N. peacekeeping operation assessed accounts in the Contributions to International Peacekeeping Activities (CIPA) account, Department of State. That compares with $2,125,000,000 enacted for FY2010. The request also included language amending the assessment cap on U.S. contributions to U.N. peacekeeping operations made during calendar year 2011 to 27.5%. On June 30, 2010, the House Subcommittee on State, Foreign Operations, and Related Programs reported its recommendations to the full House Appropriations Committee. They included $2,126,382,000 for the CIPA account. The full committee did not report a bill. On July 29, 20010, the Senate Appropriations Committee reported S. 3676 , the Department of State, Foreign Operations, and Related Programs Appropriations Bill, 2011, recommending $2,126,382,000 for the CIPA account. The President's March 24, 2010, FY2010 supplemental request for funding costs associated with relief and reconstruction support for Haiti following the January 12, 2010, earthquake included $96,500,000 to finance additional U.S. assessed contributions to the U.N. Stabilization Mission in Haiti (MINUSTAH), the U.N. peacekeeping operation in Haiti, through the CIPA account. On July 29, 2010, the President signed H.R. 4899 , Supplemental Appropriations Act, 2010 ( P.L. 111-212 ), with the funding for U.S. assessed contributions to MINUSTAH intact. Introduction The role of the United Nations in facilitating dispute settlement and establishing peacekeeping operations to monitor cease-fires and participate in other duties as assigned by the U.N. Security Council increased markedly in the 1990s. Between April 1988 and April 1994, a total of 20 peacekeeping operations were set up, involving 16 different situations. Since May 1994, however, the pace of Council creation of new U.N. controlled peacekeeping operations dropped noticeably. This reduction resulted, in part, from the U.S. decision, in Presidential Decision Directive 25 (PDD 25), signed May 1994, to follow strict criteria for determining its support for an operation. This U.S. decision was accompanied by a Security Council statement adopting similar criteria. If the trends between 1978 and 2010 (see Appendix C ) and situations at the start of 1988 and in more recent years are compared, the following trends emerge: Numbers of Operations : As of the end of 1978, six U.N. peacekeeping operations existed. No operations were created between the start of UNIFIL in March 1978 and April 1988. The number of operations increased from 8 in 1970 to 17 in 1993 and 1994, 16 in 1995 and 1996, and 17 again in 1999. Since 2000, the number of operations as of the end of the year has generally fluctuated between 15 and 16. As of December 31, 2010, there were 15 U.N. peacekeeping operations. Five of the six operations in existence in 1978 still exist. U.N. Costs : For calendar year 1978, U.N. peacekeeping expenditures totaled $202 million and were up to $635 million for 1989. This went up to $1.7 billion for 1992 and to $3 billion annually for 1993, 1994, and 1995. The total for 1996 went down to $1.4 billion and below $1 billion for 1998. Since 2000, U.N. peacekeeping costs were, annually, over $2 billion, reaching $3.6 billion in 2004 and $4.7 billion for 2005. U.N. Personnel : As of December 31, 1978, personnel in U.N. peacekeeping operations totaled 16,700. The highest number during 1993 was 78,500, but the total was down to 68,900 in 1995. In 1996, the highest number was down to 29,100 and 14,600 in 1998. For 2000, the highest number was 38,500 and climbing. For 2004, 64,700 was the highest number and at the end of 2007, the number in U.N. peacekeeping operations totaled 84,309. As of December 31, 2010, the number of uniformed personnel in U.N. peacekeeping operations totaled 98,638, down from 100,645, as of June 30, 2010. U.S. contributions for assessed peacekeeping accounts : For CY1988, U.S. assessed contributions totaled $36.7 million. CY1994 U.S. payments to U.N. peacekeeping accounts were $991.4 million; and $359 million in CY1996. U.S. assessed contributions totaled $518.6 million in CY2000 but were up to $1.3 billion, including arrears payments, in CY2001. U.S. contributions were $1.1 billion in CY2005, $1.1 billion in CY2006, and $2.26 billion in CY2008. U.S. Personnel in U.N. Peacekeeping : When 1988 started, the U.S. military participated, as observers, in one U.N. operation, the U.N. Truce Supervision Organization in Palestine (36 officers). As of December 31, 1995, a total of 2,851 U.S. military personnel served under U.N. control in seven operations. As of December 31, 2003, 518 U.S. personnel served in seven operations and as of the end of 2007, 316 U.S. personnel served in seven operations. By December 31, 2010, the number of U.S. personnel serving in six operations had dropped to 87. Current Funding Situation Fiscal Year 2011 On February 1, 2010, President Obama requested, for FY2011, $2,182,300,000 to pay U.S. assessed contributions to U.N. peacekeeping operations, in the State Department's Contributions to International Peacekeeping Activities (CIPA) account. It compares with $2,125,000,000 enacted for FY2010. The FY2011 request included $37,972,000 for the two international war crimes tribunals (Yugoslavia and Rwanda) that are not peacekeeping operations. The request also included language amending the assessment cap on contributions to U.N. peacekeeping operations made during calendar year 2011 to 27.5%. On June 30, 2010, the House Subcommittee on State, Foreign Operations, and Related Programs reported its recommendations to the full House Appropriations Committee. They included $2,126,382,000 for the CIPA account. The full committee has not reported a bill. On July 29, 2010, the Senate Appropriations Committee reported S. 3676 , the Department of State, Foreign Operations, and Related Programs Appropriations Bill, 2011, recommending $2,126,382,000 for the CIPA account. This was $55,918,000 below the President's request, which had included that amount to finance U.S. assessed contributions to the U.N. Support to the African Union Mission in Somalia (UNSOA). This amount was transferred to the Peacekeeping Operations (PKO) account to cover such assessed payments. Section 7047 (b) of S. 3676 sets the peacekeeping assessment cap for assessments received by the United States in calendar years 2010 and 2011 at 27.3%. President Obama's March 24, 2010, FY2010 supplemental request for funding costs associated with relief and reconstruction support for Haiti following the January 12, 2010, earthquake included $96,500,000 to finance additional assessed U.S. contributions to the U.N. Stabilization Mission in Haiti (MINUSTAH), the U.N. peacekeeping operation in Haiti, through the State Department's CIPA account. Immediately following the earthquake, the U.N. Security Council had increased force levels for MINUSTAH. The FY2010 supplemental budget request also included, under Foreign Operations, in the International Narcotics Control and Law Enforcement Affairs (INCLE) account, $45,000,000 to support U.S. personnel to MINUSTAH, adding 30 police advisers and five corrections advisers. These funds would increase the U.S. totals to MINUSTAH to 91: 80 police, 10 corrections officers, and one drug specialist. On July 29, 2010, the President signed H.R. 4899 , the Supplemental Appropriations Act, 2010, with the funding requested for or related to MINUSTAH intact ( P.L. 111-212 ). Fiscal Year 2010 On May 7, 2009, the President requested, for FY2010, $2,260,000,000 to pay U.S. assessed contributions to U.N. peacekeeping operations, in the State Department's Contributions to International Peacekeeping Activities (CIPA) account. This request included $46,233,000 for the two international war crimes tribunals (Yugoslavia and Rwanda) that are not peacekeeping operations. It also included $135,100,000 for U.S. assessed contributions to a special assessed account created by the U.N. General Assembly to support the African Union Mission in Somalia (AMISOM). On June 26, 2009, the House Appropriations Committee recommended $2,125,000,000 for the CIPA account; this was $135,000,000 lower than the request. The committee decided that most of the funds requested for the U.S. assessment to the U.N. logistical support package for Somalia ($135,000,000 of the requested $135,100,000) be funded from the PKO account, used normally for voluntary contributions. The committee provided $102,000,000 in the PKO account for assistance for Somalia, including $55,000,000 to be used to pay assessed expenses. The committee urged the Department to "give priority funding consideration" for the U.N. peacekeeping operations in the Central African Republic and Chad (UNMURCAT) and the Congo (MONUC) "during allocation of resources." The committee directed the State Department "to provide the necessary support to ensure that OIOS [U.N. Office of Internal Oversight Services] oversight is systemically brought to bear on every UN peacekeeping mission, including through the presence of resident auditors. The Committee directs the Department to request a performance report on the efforts of this Office to root out the causes of waste, fraud, and abuse." In addition, the committee stresses "that the UN needs to press troop contributing countries to seek justice" against those U.N. peacekeepers found to commit trafficking in persons and illegal sexual exploitation. Finally, on the issue of the 25% cap on peacekeeping assessments, the committee included a provision adjusting the level of U.S. assessments for peacekeeping during calendar year 2010 from 25.0% to 27.1%. The committee did not include the request increase for calendar year 2011, instead encouraging the Department to "negotiate a lower assessment." The House passed H.R. 3081 on July 9, 2009. On July 9, 2009, the Senate Appropriations Committee reported S. 1434 , Department of State, Foreign Operations and Related Appropriations Act, 2010, recommending $2,125,000,000 for the CIPA account. This was $135,000,000 below the President's request. The committee moved the funding requested for the logistics support package for Somalia, "with modifications" to the PKO account. The committee, in the PKO account, recommended up to $102,000,000 for peacekeeping activities in Somalia, "of which up to $55,000,000 is for United Nations assessed costs." On December 16, 2009, the President signed H.R. 3288 , the Consolidated Appropriations Act, 2010, Division F of which was the Department of State, Foreign Operations, and Related Programs Appropriations Act, 2010. Congress provided $2,125,000,000 for the CIPA account, of which 15% shall remain available until September 30, 2011. The conferees support the United Nations Office of Internal Oversight Services (OIOS) to "identify waste, fraud and abuse, including sexual abuse in peacekeeping operations, and to recommend corrective action and reform. The conferees direct the Department of State to work to ensure that the OIOS has sufficient resources to carry out its mandate." The conference agreement, in Section 7051 on the Peacekeeping Assessment, includes a provision that amends Section 404 (b)(2)(B) of the Foreign Relations Authorization Act, Fiscal Years 1994 and 1995, by adding that the cap on peacekeeping assessments made during calendar year 2010 is set at 27.3%. In addition, the PKO account included funding for peacekeeping activities in Somalia already proposed by the House and Senate. Fiscal Year 2009 On February 4, 2008, President Bush, in his budget for FY2009, requested $1,497,000,000 for U.S. contributions to U.N. peacekeeping operation assessed accounts in the Contributions to International Peacekeeping Activities account (CIPA). This included $31,000,000 for U.S.-assessed contributions to the two war crimes tribunals (Yugoslavia and Rwanda) that are not peacekeeping operations. Bush also requested $247,200,000 for the FY2009 Peacekeeping Operations (PKO) account. This account finances, inter alia, U.S. contributions to the Multilateral Force and Observers (MFO), a non-U.N. peacekeeping operation, and other U.S. support of regional and international peacekeeping efforts. The MFO implements and monitors the provisions of the Egyptian-Israeli peace treaty of 1979 and its 1981 protocol, in the Sinai. On May 2, 2008, President Bush sent Congress an amendment to his FY2009 budget, requesting for the PKO account an additional $60 million, to fund U.S. assistance to international efforts to monitor and maintain peace in Somalia and Democratic Republic of Congo. This brought the FY2009 PKO request to $307,200,000. In February 2008, President Bush also requested authority to pay up to 27.1% of the cost of any U.N. peacekeeping operation assessments received from calendar year 2005 through calendar year 2009. The Administration noted that the U.S.-assessed share of U.N. peacekeeping accounts has "been reduced in recent years from well over 27 percent for assessments made in 2005 to just under 26 percent for assessments received in 2008 and 2009." The Administration request was made "in order to allow for the payment of peacekeeping assessments at the rates assessed by the United Nations, including amounts withheld because of the statutory cap limited payments to 25 percent of UN peacekeeping costs from 2005 through 2007...." On June 30, 2008, President Bush signed H.R. 2642 , the Supplemental Appropriations Act, 2008 ( P.L. 110-252 ), which included supplemental funding for U.S. contributions to U.N. peacekeeping accounts in the CIPA account, Department of State, for both FY2008 and FY2009 and supplemental funding for the PKO account for FY2009. Subchapter A, of Chapter 4—Department of State and Foreign Operations—was titled Supplemental Appropriations for Fiscal Year 2008. Under the CIPA account, $373,708,000 was appropriated, to remain available until September 30, 2009, of which $333,600,000 "shall" be for the U.N.-African Union Hybrid Mission in Darfur (UNAMID). The $40,108,000 difference was "to meet unmet fiscal year 2008 assessed dues for the international peacekeeping missions to countries such as the Democratic Republic of the Congo, Cote d'Ivoire, Haiti, Liberia, and Sudan." Subchapter B, of Chapter 4 was titled Bridge Fund Supplemental Appropriations for Fiscal Year 2009. Congress appropriated an additional $150,500,000 for the CIPA account, which shall become available on October 1, 2008, and remain available through September 30, 2009; and an additional amount for the PKO account of $95,000,000, which shall become available on October 1, 2008, and remain available through September 30, 2009. This additional PKO money would not be used to finance U.S. contributions to U.N. peacekeeping assessed accounts. On July 18, 2008, the Senate Appropriations Committee reported S. 3288 , the Department of State, Foreign Operations, and Related Programs Appropriations Act, 2009. The committee recommended $1,650,000,000 in FY2009 appropriations to the CIPA account, an amount that was $153,000,000 above the President's request. This was in addition to the $150,500,000 provided in Bridge Funding for FY2009 in P.L. 110-252 . The committee noted "that the budget request for U.S. assessed contributions to international peacekeeping missions assumed a reduction in the cost of every mission below the fiscal year 2008 operating level.... The Committee recognizes the significant contribution to international peace and stability provided by U.N. peacekeeping activities, without the participation of U.S. troops. The Committee does not support OMB's practice of under-funding peacekeeping activities and relying on limited supplemental funds to support only a few missions." The committee bill included language, as requested by the President, to "adjust the authorized level of U.S. assessments for peacekeeping activities for calendar year 2009 and prior years from 25 percent to 27.1 percent, consistent with the level set in fiscal year 2008 ( P.L. 110-161 )." The committee expected "that future budget requests shall include sufficient funding to support such authorization." The committee report also included the following: The Committee directs the Department of State to seek to ensure that all peacekeepers, civilian police, and other United Nations personnel being trained and equipped with funds contributed by the United States in preparation for deployment as part of peacekeeping missions, receive proper training to prevent and respond to violence against women and girls. The Secretary of State should work aggressively with the United Nations to ensure that individuals who are found to have engaged in exploitation or violence against women are held accountable, including prosecution in their home countries. S. 3288 was placed on the Senate Legislative Calendar but was not considered on the Senate floor. On July 16, 2008, the State and Foreign Operations Subcommittee of the House Appropriations Committee approved its FY2009 bill, which was sent to the full committee. The subcommittee recommendation was never issued as a bill. On September 30, 2008, President Bush signed H.R. 2638 , the Consolidated Security, Disaster Assistance, and Continuing Appropriations Act, 2009, into law as P.L. 110-329 . Division A of the Act, the Continuing Appropriations Resolution, 2009, provided appropriations for nine regular appropriations for FY2009, through March 6, 2009, at FY2008 spending levels, as apportioned by the Office of Management and Budget (OMB). According to the State Department, the funds available for the CIPA during this period are $525,800,000. Funds available for the PKO account during this period total $97,366,613. On March 11, 2009, President Obama signed H.R. 1105 , the Omnibus Appropriations Act, 2009 ( P.L. 111-8 ). Division H of the Act was the Department of State, Foreign Operations, and Related Programs Appropriations Act and included funding for U.S. assessed contributions to U.N. conducted peacekeeping operation accounts. CIPA account funding totaled $1,517,000,000, in addition to the $150,500,000 appropriated for FY2009 in P.L. 110-252 . Section 7051, on Peacekeeping Assessment, amended Section 404 (b)(2)(B) of the Foreign Relations Authorization Act, Fiscal Years 1994 and 1995 (22 U.S.C. 287e note), by deleting subsection (v) and replacing it with "(v) For assessments made during each of the calendar years 2005, 2006, 2007, 2008, and 2009, 27.1 percent." The joint explanatory statement directed the Department of State to "provide full funding" for the U.S. assessed contribution to the UN/African Union Hybrid operation in Darfur (UNAMID), ensuring that UNAMID personnel receive training on prevention of and response to violence against women. The State Department was also directed to "support oversight of peacekeeping missions by the UN's OIOS to identify waste, fraud and abuse, including sexual abuse within every UN peacekeeping mission, and submit to the Committees on Appropriations a performance report on the progress of these efforts." Supplemental Appropriations Act, 2009 On April 9, 2009, President Obama submitted a supplemental request, most of which was for military and security efforts in Afghanistan, Pakistan, and Iraq. Under the CIPA account, he requested an additional $836,900,000, to be available through September 30, 2010. He requested that up to $50,000,000 be available for transfer to and merging with the Peacekeeping Operations (PKO) account for peacekeeping in Somalia. It was anticipated that $454,529,000 of the request for the CIPA account would be available for paying shortfalls in U.S. assessed contributions to existing U.N. peacekeeping operations. The supplemental also requested $50,000,000 for the PKO account that normally finances U.S. voluntary support for peacekeeping. On June 24, 2009, the President signed H.R. 2346 , the Supplemental Appropriations Act, 2009 ( P.L. 111-32 ), which provided $721,000,000 for the CIPA account, $115.9 million less than the request. It provided $185,000,000 for the PKO account, including up to 115.9 million that may be used to pay assessed expenses of international peacekeeping activities in Somalia. Fiscal Year 2008 On February 5, 2007, the Bush Administration requested, in its FY2008 budget, $1,107,000,000 to pay U.S. assessed contributions to U.N. peacekeeping operations in the State Department's Contributions to International Peacekeeping Activities (CIPA) account. The CIPA request included $34,181,000 for the two war crimes tribunals (Yugoslavia and Rwanda) that are not peacekeeping operations. Bush also requested $221,200,000 in voluntary contributions for the FY2008 Peacekeeping Operations (PKO) account to finance, inter alia, U.S. contributions to the Multilateral Force and Observers (MFO), a non-U.N. operation, and other U.S. support of regional and international peacekeeping efforts. The MFO implements and monitors the provisions of the Egyptian-Israeli peace treaty of 1979 and its 1981 protocol, in the Sinai. On June 18, 2007, the House Appropriations Committee recommended $1,302,000,000 for the CIPA account and $293,200,000 for the PKO account. It included language setting the peacekeeping assessment cap at 27.1% for calendar year 2008. The committee, in recommending funding for CIPA at $195 million above the Administration's request, expressed "concern" [t]hat the Administration has not adequately planned for funding International Peacekeeping activities. Committee analysis has concluded that the Administration's budget request in fiscal year 2008 for CIPA is a cut of 3 percent below the fiscal year 2007 level and that all missions except UNMIS are taking a reduction in the President's request. The Committee continues to inquire as to the rationale used by the Secretary of State when requesting $28,275,000 below the fiscal year 2007 level in the CIPA account. The Committee is concerned that peacekeeping missions could be adversely affected if the requested fiscal year 2008 funding level is enacted. The Committee notes that in the last year the Administration has voted for: a seven-fold expansion of the UN's peacekeeping mission in Lebanon; the expansion of the UN's peacekeeping mission in Darfur; reauthorization of the UN's peacekeeping mission in Haiti; and a renewed peacekeeping mission in East Timor. The committee noted that some non-governmental organizations and outside experts have estimated that the U.S. debt to U.N. peacekeeping operations might reach $1 billion if funding is not increased and if additional projected peacekeeping operations are created. "The Committee is concerned that these debts are preventing the UN from paying the countries that provide troops for UN peacekeeping missions and will likely significantly impact India, Pakistan, and Bangladesh." The House, in passing H.R. 2764 , Department of State, Foreign Operations, and Related Programs Appropriations Act, 2008, on June 22, 2007, approved the committee's recommendations for funding and for the peacekeeping assessment cap. On July 10, 2007, the Senate Appropriations Committee reported H.R. 2764 , recommending $1,352,000,000 for the CIPA account and $273,200,000 for the PKO account. The committee recommendation for CIPA is $245 million above the President's request but, according to the committee, "still $66,275,000 below projected current requirements for U.S. contributions to peacekeeping." The committee continued, "the request was unrealistic considering the significant contribution to peace and stability provided by U.N. peacekeeping activities, without the participation of U.S. troops.... The Committee does not support the administration's practice of under-funding peacekeeping activities and relying on limited supplemental funds." The committee included language to "adjust the authorized level of U.S. assessments for peacekeeping activities for fiscal year 2008 from 25 percent to 27.1 percent." (Section 113 of the reported bill stipulated for "assessments made during calendar year 2008, 27.1 percent.") On September 6, 2007, the Senate passed H.R. 2764 , providing the committee-recommended funding for the CIPA and PKO accounts and the increased peacekeeping assessment cap for CY2008. On October 22, 2007, President Bush sent to Congress amendments to his FY2008 budget request in a FY2008 Supplemental that included an additional $723,600,000 for the CIPA account to remain available until September 30, 2009. This amount, designated as "emergency requirements," would fund the U.S. share of the start-up, infrastructure, and operating costs of the new U.N. peacekeeping operation in Darfur (UNAMID). On December 19, 2007, Congress passed and sent to President Bush H.R. 2764 , the Consolidated Appropriations Act, 2008, Division J of which provided funding for the Department of State, Foreign Operations, and Related Programs Act, 2008. The President signed the bill on December 26, 2007 ( P.L. 110-161 ). The bill included across-the-board rescissions. The estimated figure after application of the rescission is provided in brackets. The bill provided $1,700,500,000 [$1,690,517,000] for CIPA, of which $468,000,000 was designated emergency, for U.S. contributions to UNAMID. The President had, for FY2008, requested a total of $1,830,600,000 for the CIPA account, $723,600,000 of which was designated an emergency requirement. Congress included, for the PKO account, $263,230,000 [$261,381,000], including not less than $25 million for the U.S. contribution to the MFO in the Sinai. This also included $35 million designated as emergency. The President had requested $221,200,000 in funds for the PKO account for FY2008. Fiscal Year 2007 Supplemental President Bush also requested on February 5, 2007, FY2007 supplemental funding for CIPA and for PKO. The CIPA supplemental request of $200 million was to pay U.S. contributions for "unforeseen" U.N. peacekeeping expenses: $184 million for the expanded force in Lebanon (UNIFIL) and $16 million for the U.N. operation in Timor Leste (UNMIT). The PKO supplemental request of $278 million was to support peacekeeping efforts in Darfur through the African Union Mission in Sudan (AMIS)—$150 million—and support peacekeeping needs in Chad and Somalia—$128 million. The request stipulated that up to $128 million of the total may be transferred to CIPA, for assessed costs of U.N. peacekeeping operations. "The requested transfer authority would provide the flexibility to fund either a United Nations peacekeeping mission to Chad and Somalia or to support the efforts of African regional security organizations such as the African Union." On March 23, 2007, the House passed H.R. 1591 , Making Emergency Supplemental Appropriations for FY2007, which provided $288,000,000 for the CIPA account and $225,000,000 for the PKO account, but without the authority to transfer up to $128 million from the PKO to the CIPA account. On March 22, 2007, the Senate Appropriations Committee reported S. 965 , recommending $200 million for the CIPA account and $323 million for the PKO account and including the authority to transfer up to $128 million to the CIPA account. The PKO section also included a requirement that not less than $45 million shall be made available for assistance for Liberia, for security sector reform. On March 29, 2007, the Senate passed its amendment to H.R. 1591 , with these reported provisions on the CIPA and PKO accounts unchanged. On April 24, 2007, a conference report on H.R. 1591 was filed, providing $288 million for the CIPA account and $230 million for PKO, of which $40 million would be available for Liberia. There was no transfer authority language. H.R. 1591 was cleared for the White House on April 26, 2007, and, on May 1, was vetoed by the President because of Iraq-related language. Action to override the veto failed on May 2, 2007. On May 25, 2007, Congress sent to President Bush H.R. 2206 , a FY2007 emergency supplemental appropriations bill, which the President signed the same day ( P.L. 110-28 ). This bill, cited as the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007, included $283,000,000 for CIPA, to remain available until September 30, 2008; $190,000,000 for PKO, to remain available until September 30, 2008; and $40,000,000 for PKO, to remain available until September 30, 2008, provided that these funds "shall be made available, notwithstanding section 660 of the Foreign Assistance Act of 1961, for assistance for Liberia for security sector reform." H.R. 2206 referred to the joint explanatory statement in the conference report on H.R. 1591 ( H.Rept. 110-107 ) for directives and other information for expenditure of these funds. Thus, for CIPA, the conferees specified $184 million for UNIFIL (Lebanon), $16 million for the U.N. Mission in Timor Leste, and $88 million for a potential operation in Chad. If funds are not obligated for a U.N. mission in Chad by August 15, 2007, the conferees asked the State Department to consult with the appropriations committees "on the funding needs for other priority missions" within CIPA. It should be noted that H.R. 1591 provided $288 million for CIPA, whereas H.R. 2206 provided $283 mission for CIPA. H.R. 2206 provided funds for the PKO account in two separate sections that together totaled the amount provided in H.R. 1591 . Fiscal Year 2007 On February 6, 2006, the Bush Administration had requested, in its FY2007 budget, $1,135,327,000 to pay U.S. assessed contributions to U.N. peacekeeping operations in the State Department's Contributions to International Peacekeeping Activities (CIPA) account. The CIPA request included $44,303,000 for the two war crimes tribunals (Yugoslavia and Rwanda) that are not peacekeeping operations. Bush also requested $200,500,000 in voluntary contributions for the FY2007 Peacekeeping Operations (PKO) account under the Foreign Operations Act. This account would finance the U.S. contribution to the Multilateral Force and Observers in the Sinai (MFO), a non-U.N. peacekeeping operation, and U.S. support of regional and international peacekeeping efforts in Africa, Asia, and Europe. On June 9, 2006, the House, in H.R. 5522 , the Foreign Operations Act, proposed $170 million in the FY2007 PKO account. On June 20, 2006, the House, in the State Department Appropriations Act, 2007 ( H.R. 5672 ), agreed to the requested $1,135,327,000 for the CIPA account. This was $113,052,000 over the amount provided for FY2006, in regular appropriations. On the same day, the Senate Appropriations Committee recommended, in H.R. 5522 , appropriations for the State Department and for Foreign Operations, the amount requested for CIPA and $97,925,000 for the PKO account. The Senate did not act on this bill in the 109 th Congress. On February 15, 2007, President Bush signed H.J.Res. 20 , the Revised Continuing Appropriations Resolution, 2007, which amended the Continuing Appropriations Resolution 2007 ( P.L. 109-289 , division B), as amended by P.L. 109-369 and P.L. 109-283 , to extend through September 30, 2007. P.L. 110-5 included specific figures for the CIPA account ($1,135,275,00) and the PKO account ($223,250,000), of which not less than $50 million should be provided for peacekeeping operations in Sudan. U.N. Peacekeeping: Funding Assessed Contributions—FY2009-FY2011 Table 1 shows FY2009 allocations, FY2010 enacted, and the FY2011 request. ( Table 5 shows FY1988-FY2006 data.) The Peacekeeping Assessment Cap United States U.N. peacekeeping requests were funded during FY1997 through FY2001 at an assessment level of 25%, in accordance with Section 404 (b)(2), P.L. 103-236 , rather than at the level assessed by the United Nations. The scale of assessments for U.N. peacekeeping is based on a modification of the U.N. regular budget scale, with the five permanent U.N. Security Council members assessed at a higher level than they are for the U.N. regular budget. Since 1992, U.S. policy was to seek a U.N. General Assembly reduction of the U.S. peacekeeping assessment to 25%, meaning an increase of other countries' assessments. Since October 1, 1995, based on congressional requirements, U.S. peacekeeping payments had been limited to 25%. This limit, or cap, on U.S. payments added to U.S. arrearages for U.N. peacekeeping accounts. Table 2 and the discussion following it recount changes or amendments to Section 404 (b)(2) that increased the cap from 25%. Since the 25% cap remains for assessments made in CY1996 through CY2000, significant arrearages remain for the United States in its contributions to many closed or ended U.N. peacekeeping operations (see Appendix D ). In December 2000, the U.N. General Assembly reduced the U.S. regular budget assessment level to 22%, effective January 1, 2001, and, in effect, reduced the U.S. assessment for peacekeeping contributions progressively to 25%. Then U.N. Ambassador Richard Holbrooke in testimony in January 2001, stated that "The U.S. rate will continue to progressively decline, and we expect that it will reach 25% by roughly 2006 or 2007." In response, Congress passed S. 248 , which amended the 1999 enacted legislation authorizing payment of U.S. arrears on its contributions to the United Nations, once certain conditions had been met. One of the conditions required Assembly reduction of the U.S. peacekeeping assessment level to 25%. S. 248 ( P.L. 107-46 , signed October 5, 2001) changed that condition figure to 28.15%. In 2002, in Section 402, of P.L. 107-228 , Congress raised the 25% cap for peacekeeping payments that had been set by P.L. 103-236 to a range of 28.15% for Calendar Year (CY) 2001 to 27.4% for CY2003 and CY2004. Table 1 under "Recognized by U.S." reflects these changes. This would enable U.S. peacekeeping assessments to be paid in full. Section 411 of Division B of P.L. 108-447 , signed December 8, 2004, continued the increased cap for assessments made during CY2005 to 27.1%. However, FY2006 legislation did not include a provision on the cap, which returned to 25% for assessments made in CY2006. On March 10, 2005, the Senate Committee on Foreign Relations had reported S. 600 , the Foreign Affairs Authorization Act, Fiscal Years 2006 and 2007. Section 401, Limitation on the United States share of assessments for United Nations peacekeeping operations, would have set a permanent ceiling of 27.1% on U.S. payments to U.N. peacekeeping accounts ( S.Rept. 109-37 , p. 16-17). During Senate floor consideration of S. 600 , Committee chair Senator Richard Lugar proposed an amendment ( S.Amdt. 266 ) to strike this provision from the bill. He maintained that passing a permanent ceiling of 27.1% at that time might reduce U.S. leverage in negotiating toward the U.S. goal of 25% as an assessment rate for its U.N. peacekeeping contributions. Senator Joseph Biden introduced a "second degree amendment" ( S.Amdt. 286 ) that would keep the then current rate of 27.1% for the next two calendar years: "For assessments made during calendar years 2005, 2006, and 2007, 27.1 percent." This amendment, Senator Biden maintained, would put into place the language the President asked for in his FY2006 budget request. On April 6, 2005, the Senate rejected S.Amdt. 286 and agreed to S.Amdt. 266 , dropping section 401, that would have instituted a permanent change to 27.1%. The Senate did not complete action on S. 600 . On December 13, 2005, Senator Biden introduced S. 2095 that would set the cap for assessments made for CY2005 and CY2006 at 27.1%. The President's February 6, 2006 budget request for FY2007 included legislative language that would set the cap at 27.1% for assessments made during CYs 2005, 2006, 2007, and 2008. On June 22, 2006, the Senate passed S. 2766 , the Defense Authorization Act for FY2007, including an amendment by Senator Biden that would set the cap for U.S. contributions at 27.10% for assessments made for U.N. peacekeeping operations for CYs 2005, 2006, and 2007. This provision was dropped during conference consideration of H.R. 5122 , the John Warner National Defense Authorization Act for Fiscal Year 2007, that was presented to the President on October 5, 2006, for his signature. Thus, at the start of the 110 th Congress, the cap on funds available for U.S. assessed contributions to U.N. peacekeeping accounts remained at 25%. On January 25, 2007, Senator Biden introduced S. 392 , "to ensure payment of United States assessments for United Nations peacekeeping operations for the 2005 through 2008 time period." It would amend the Foreign Relations Authorization Act, Fiscal Years 1994 and 1995 ( P.L. 103-236 ) to add "For assessments made during calendar years 2005, 2006, 2007, and 2008, 27.1 percent." President Bush's FY2008 budget request, released February 5, 2007, included identical legislative language. Both provisions were to be added to Section 404 (b)(2)(B) of P.L. 103-236 , as amended. Senator Biden's bill also contained a "conforming amendment" that "Section 411 of the Department of State and Related Agency Appropriations Act, 2005 (title IV of division B of P.L. 108-447 ; 22 U.S.C. 287e note) is repealed." On July 16, 2007, the Senate Committee on Foreign Relations reported S. 392 , without amendment favorably. The committee report noted that the legislation "is designed to allow the United States to fully pay its dues to U.N. peacekeeping operations, pay arrears that have accumulated since January 2006, and ensure that no additional arrears accrue in 2007 and 2008." The Congressional Budget Office, in its cost estimate noted, Based on information from the State Department, CBO estimates that by raising the cap, the bill would allow the department to pay the U.N. an additional $157 million—$65 million for 2006 arrears, $48 million for the 2007 arrears, and $44 million for 2008 arrears (the department's request for 2008, based on the statutory cap of 25 percent, has not yet been appropriated.) CBO estimates that the department would pay the U.N. $126 million in 2008 and $31 million in 2009 under the bill, assuming appropriation of the necessary amounts and that outlays will follow historical spending or receipts. The Senate did not act on S. 392 . The Omnibus Appropriations Act, Division J, included language setting the peacekeeping assessment cap at 27.1% for assessments made in 2008. The President, in his FY2009 budget, requested authority to pay up to 27.1% of the cost of any U.N. peacekeeping operation assessments received from calendar year 2005 through calendar year 2009. This request was supported by the Senate Appropriations Committee in S. 3288 , Department of State, Foreign Operations, and Related Programs Appropriations Bill, 2009, and was included in the enacted Appropriations Act, 2009 ( P.L. 111-8 , Division H), signed March 11, 2009. The Department of State, Foreign Operations, and Related Programs Appropriations Act, 2010 ( P.L. 111-117 , Division F), set the cap on peacekeeping assessments made during calendar year 2010 at 27.3%. The President's FY2011 budget requested authority to pay up to 27.5% for assessments made during calendar year 2011. On July 29, 2010, the Senate Appropriations Committee reported S. 3676 , section 7041 (b) of which set the peacekeeping assessment cap for assessments received by the United States in CY2010 and CY2011 at 27.3%. Notifications to Congress Since 1997, pursuant to a provision in the State Department Appropriations Act, 1997, P.L. 104-208 (Omnibus Consolidated Appropriations Act, 1997), Congress has required the Secretary of State to notify it 15 days before U.S. support of a U.N. Security Council resolution setting up a new or expanding a current peacekeeping operation. The notification is to include "the estimated cost and length of the mission, the vital national interest that will be served, and the planned exit strategy." A reprogramming request, indicating the source of funding for the operation, is also required. Tradition has sometimes resulted in a committee or subcommittee chairman "placing a hold" on the proposed reallocation in the reprogramming request, if it is not acceptable to him or her. In addition, the Committees on Appropriations and other appropriate committees are to be notified that the United Nations has acted to prevent U.N. employees, contractor personnel, and peacekeeping forces serving in any U.N. peacekeeping mission from trafficking in persons, exploiting victims of trafficking, or committing acts of illegal sexual exploitation, and to hold accountable individuals who engage in such acts while participating in the peacekeeping mission. An older notification requirement is that funds shall be available for peacekeeping expenses only upon a certification by the Secretary of State to the appropriate committees that American manufacturers and suppliers are being given opportunities to provide equipment, services, and material for U.N. peacekeeping activities equal to those being given to foreign manufacturers and suppliers. Basic Information United Nations peacekeeping might be defined as the placement of military personnel or forces in a country or countries to perform basically non-military functions in an impartial manner. These functions might include supervision of a cessation of hostilities agreement or truce, observation or presence, interposition between opposing forces as a buffer force, maintenance and patrol of a border, or removal of arms from the area. The U.N. Charter did not specifically provide for "peacekeeping operations." This term was devised in 1956, with the creation of the U.N. Emergency Force as an interposition force between Israel and Egypt. The U.N. Security Council normally establishes peacekeeping operations in keeping with certain basic principles, which include agreement and continuing support by the Security Council; agreement by the parties to the conflict and consent of the host government(s); unrestricted access and freedom of movement by the operation within the countries of operation and within the parameters of its mandate; provision of personnel on a voluntary basis by U.N. members; and noninterference by the operation and its participants in the internal affairs of the host government. The conditions under which armed force may be used to carry out the mandate or for other purposes is set forth in the Council resolution or in Council approval of the rules of engagement or concept of operations. U.N. peacekeeping operations may take the form of either peacekeeping forces, such as the U.N. Force in Cyprus (UNFICYP), the U.N. Operation in the Congo [in the 1960s], or the U.N. Interim Force in Lebanon (UNIFIL), or observer missions, such as the U.N. Iran-Iraq Military Observer Mission (UNIIMOG), the U.N. Observer Group in Central America (ONUCA), or the U.N. Truce Supervision Organization in Palestine (UNTSO). The distinctions between observer missions and peacekeeping forces are found in the mandate or function of the operation, the numbers and types of personnel used, and whether the personnel are armed. Usually, peacekeeping forces are larger in the numbers of personnel, equipment, and cost than observer missions and are lightly armed rather than unarmed, as are observers. When the U.N. Security Council establishes a U.N.-conducted peacekeeping operation, its resolution also specifies how the operation will be funded. In most instances, this is by a special assessed account to be created by the U.N. General Assembly. Under the U.N. Charter, the General Assembly approves the budget and expenses of the organization; this includes U.N. peacekeeping operations. Each operation has a separate budget that is financed from a separate assessed account. In 1994, the Assembly decided that the financial period for each operation would be changed from January through December to July 1 to June 30, effective not later than July 1, 1996. As U.N. peacekeeping operations grew in number and complexity, the Assembly found it required a longer period of time to consider the budgets of each operation and other agenda items associated with United Nations peacekeeping. Since 1948, the United Nations has established 65 peacekeeping operations, 14 of which are currently active. A review of the data in Appendix B , "U.N. Peacekeeping Operations: Numbers Created Annually, 1948-2010," shows a pattern of increase in the creation of operations that escalated during the mid-1990s. This increase placed a strain on the then-not-well-developed capacities of the U.N. Secretariat to support larger numbers of operations and personnel and also led to what some have called "donor fatigue" on the part of actual and potential troop contributing countries. The resulting hesitation or reluctance to rapidly provide personnel for U.N. peacekeeping operations created by the U.N. Security Council continues today. Current United Nations statistics on U.N. peacekeeping often refer to higher numbers of operations and personnel than are provided in the paragraph above. For example, the February 2007 report of the Secretary-General on implementation of recommendations of the Special Committee on Peacekeeping Operations, in referring to a "surge in United Nations peacekeeping," noted that— as 2006 drew to a close, almost 100,000 men and women were deployed in 18 peace operations around the world, of which approximately 82,000 were troops, police, and military observers provided by contributing countries. Those figures are set to increase further in 2007, with the completion of deployments currently under way ... and the prospect of new United Nations peace operations being established, whether United Nations peacekeeping missions or special political missions. In parallel, the Department of Peacekeeping Operations has increased its administrative and logistics support to special political missions managed by the Department of Political Affairs, and is currently supporting 15 such field offices. More recently, it has become increasingly engaged in assisting regional actors to develop their peacekeeping capabilities, in particular providing substantial support to the African Union Mission in the Sudan (AMIS). The use of the term "peace operations" in this context can be tracked back to the Brahimi Panel report (see " Brahimi Panel Report (2000) ," below). Peace operations might be seen and identified within the overall context of the Charter role of the U.N. Security Council in the maintenance of international peace and security (see Article 24 of the Charter), with U.N. peacekeeping being only one element or component of the array of responses the Council might employ. U.N. peace operations, as defined in the Brahimi Report, "entail three principal activities: conflict prevention and peacemaking; peacekeeping; and peace-building." The numbers used when referring to the numbers of personnel involved in peace operations as compared with the numbers of personnel involved in U.N. peacekeeping operations can derive from two different aspects: (1) U.N. peacekeeping operations data generally tracks the numbers of uniformed personnel provided by U.N. member states and does not include the numbers of civilians in those operations, either recruited locally or those internationally recruited. These increasingly larger numbers of civilians are included in data tracking the numbers of personnel in peace operations. (2) As reflected in the data, the number of currently deployed peacekeeping operations, 15, as of December 31, 2010, differs from the number of peace operations, 16, which includes one peace operation—UNAMI, in Iraq. U.S. Provision of Personnel Section 7 of the U.N. Participation Act (UNPA) of 1945, as amended (P.L. 79-264), authorized the President to detail up to 1,000 members of the U.S. armed forces to the United Nations in a noncombatant capacity. Throughout U.N. history, the United States has provided various goods and services, including logistics, and has detailed its military to U.N. peacekeeping tasks, but in small numbers. Before 1990, the major category of forces provided by the United States were the individual military officers participating as observers in the UNTSO. The President has also used the authority in section 628 of the Foreign Assistance Act (FAA) of 1961 to provide U.S. armed forces personnel to U.N. peacekeeping operations. Under this section, such personnel may be detailed or sent to provide "technical, scientific or professional advice or service" to any international organization. For example, as of November 30, 1995, an estimated 3,254 U.S. military personnel served under U.N. control in eight operations. This included participation, under section 7 of the UNPA, of an estimated 748 and participation of an estimated 2,506 under section 628 of the FAA. The breakout of figures under each section for the forces in Macedonia (UNPREDEP) and Haiti (UNMIH) are based on the percentage in strength (the figure in brackets) as of September 6, 1995. See Table 3 . By the end of April 1996, with the U.N. Mission in Haiti (UNMIH) coming to an end, the number of U.S. military personnel serving in U.N. peacekeeping operations had fallen to 712. As of December 31, 2010, an estimated 89 U.S. personnel served under U.N. control in six operations. Other than the civilian police in three operations, these were U.S. military personnel (see Table 4 ). The United States currently contracts with outside firms to provide U.S. civilian police, either active duty on a leave of absence, former, or retired. They are hired for a year at a time and paid by the contractor. These contracts are financed from Foreign Operations Act accounts. As of December 31, 2010, a total of 98,638 uniformed personnel from 115 countries served in 15 U.N. peacekeeping operations. Other Peacekeeping Issues A Peacekeeping Response to International Humanitarian Distress Since 1991, internal instabilities and disasters in the Persian Gulf region and in Africa, and conditions in the former Yugoslavia have prompted demands for the use of U.N. peacekeeping to expedite peaceful settlement of internal conflicts or to ensure the delivery of humanitarian assistance to starving and homeless populations within their countries. Some observers have suggested that the principle of nonintervention, incorporated in Article 2, paragraph 7 of the U.N. Charter, had been modified by Security Council Resolution 688 (1991), in which the Council "insist(ed) that Iraq allow immediate access by international humanitarian organizations to all those in need of assistance in all parts of Iraq." Others cited Council Resolution 687 (1991), the cease-fire resolution, which imposed on Iraq a number of requirements that might be viewed as intervention into the territorial sovereignty and independence of that country. While the U.N. Security Council had, in the past, been reluctant to approve humanitarian assistance as a major or primary function of a peacekeeping operation, it has now moved away from that position. The Council established protection for humanitarian operations in Somalia as part of the major mandate for its operation there (UNOSOM) and added humanitarian protection to an expanded mandate for the operation (UNPROFOR) in Bosnia and Herzegovina. Another variable of U.N. peacekeeping in instances of humanitarian distress has been the extent to which peacekeepers can protect civilians, including those who come to the peacekeepers for protection. Often, such protection had not been part of the mandate approved by the U.N. Security Council and neither the composition of an operation nor its rules of engagement or concept of operations allowed for such action. Two situations have been widely regarded as significant examples of U.N. peacekeeping failures in the protection of civilians. The first was the "1994 genocide in Rwanda" and the second was the "fall of Srebrenica" in July 1995 and the killing of up to 200,000 people. Reports examining these failures have helped focus the attention of U.N. officials and of U.N. member states, especially members of the U.N. Security Council, on the need to prevent and to respond to this sort of situation. The continuing conditions in Darfur, Sudan, however, reveal the difficulty of fashioning and implementing an effective U.N. response in the face of continuing reports of genocide. The Role of U.N. Peacekeeping in Monitoring Elections Some authorities have called on the United Nations to organize, supervise, and/or monitor elections in various countries. In the past, the United Nations had organized and carried out elections and acts of self-determination pursuant to its Charter mandate for decolonization. However, it had not responded affirmatively to many requests for organizing or conducting elections in the peace and security domain. For example, in June 1989, Secretary-General Javier Perez de Cuellar, when considering Nicaragua's request for U.N. participation in its electoral process, characterized U.N. acceptance of election supervision in an independent country as "unprecedented." However, in 1991, the U.N. General Assembly authorized the Electoral Assistance Division in the Department of Political Affairs to serve as a focal point for all U.N. electoral assistance activities. This was in addition to the special peace and security situations when the U.N. Security Council might approve U.N. participation in plebiscites or elections. For example, in the case of Namibia (UNTAG, 1989-1990), Western Sahara (MINURSO, 1991-present), and East Timor (June-September 1999), the election was an act of self-determination, as part of an overall conflict settlement arrangement. These referenda or elections were similar to the traditional U.N. role in the decolonization process. In other instances, the United Nations has conducted elections monitoring in an independent U.N. member state. U.N. conduct of elections in Cambodia (UNTAC, 1992-1994) were part of a political settlement arrangement to bring about an end to the Cambodian conflict. In the cases of Nicaragua and Haiti, the action was authorized and created by the U.N. General Assembly, not by the U.N. Security Council. The U.N. Observer Mission in Nicaragua (ONUVEN) involved U.N. civilian observers monitoring the election process in Nicaragua in 1989-1990 and did not include military or security forces. It was, however, part of the efforts to achieve a peaceful settlement in Central America. The case of election monitoring in Haiti in 1990-1991 did not include a role clearly identified as U.N. peacekeeping, but the United Nations Observer Group for the Verification of the Elections in Haiti (ONUVEH) included a security component that consisted of 64 security observers, 36 of whom were drawn from U.N. peacekeeping operations. U.S. Financing for U.N. Peacekeeping There are three major ways by which Congress may finance U.S. contributions to U.N. peacekeeping operations. First, Congress currently finances U.S. assessed contributions to these operations through the Department of State authorization and appropriation bills (under Contributions to International Peacekeeping Activities (CIPA) in the International Organizations and Conferences account). These are the peacekeeping operations for which the U.N. General Assembly creates a separate assessed account against which every U.N. member state is obligated to pay a specific percent of the expenses of the operation. U.S. arrearages to peacekeeping operations are associated with these assessed accounts. Second, Congress formerly funded one U.N. operation—the U.N. Peacekeeping Force in Cyprus (UNFICYP)—from the foreign operations authorization and appropriation bills (under Peacekeeping Operations (PKO) in the Military Assistance account). The U.S. contribution was funded this way because the Cyprus force was initially financed from voluntary contributions from U.N. member nations. On May 27, 1993, the Security Council changed the basis of funding for the force in Cyprus, from solely voluntary to assessed plus voluntary. Future funding for U.S. contributions to UNFICYP has moved, in the Administration's request, from the Foreign Operations, Military Assistance, PKO account to the State Department, CIPA account. Finally, Congress funds the U.S. contribution to some U.N. observer peacekeeping operations as part of its regular budget payment to the United Nations. There is no separate U.N.-assessed account for these groups. This is currently how the U.N. Truce Supervision Organization (UNTSO) and the U.N. Military Observer Group in India and Pakistan (UNMOGIP) are funded. Because U.N. peacekeeping requirements may arise out of sequence with the U.S. budget planning cycle, the President and Congress have had to devise extraordinary methods for acquiring initial funding for U.S. contributions to the operations. Over the past several years, these included reprogramming from other pieces of the international affairs budget, such as Economic Support Fund money obligated in past years for specific countries but not disbursed. Another approach used was the transfer of funds to the international affairs budget from the Department of Defense for funding U.N. peacekeeping operations. In recent years, the President has requested and the Congress has appropriated funding for U.S. assessed contributions to new or expanded peacekeeping operations through the supplemental appropriations process. In addition, in 1994 and 1995, President Clinton proposed that U.S. assessed contributions for peacekeeping operations, for which Chapter VII of the Charter is specifically cited in the authorizing Security Council resolution, be financed under the Defense Department authorization/appropriations bills. He proposed that the U.S. assessed contribution for any other U.N. peacekeeping operations for which a large U.S. combat contingent is present also be financed from Defense Department money. Congress did not support this proposal. U.N. Proposals for Strengthening Peacekeeping Agenda for Peace (1992) As peacekeeping became an option of choice to resolve conflicts in the post-Cold War world, proposals were made for strengthening the U.N. response to all aspects of this peace and security challenge. On January 31, 1992, the U.N. Security Council, meeting at the heads of state and government level, "invited" U.N. Secretary-General Boutros Boutros-Ghali to prepare "his analysis and recommendations on ways of strengthening and making more efficient within the framework and provisions of the Charter the capacity of the United Nations for preventive diplomacy, for peacemaking and for peace-keeping." The resultant 24-page report, An Agenda for Peace; Preventive Diplomacy, Peacemaking and Peace-Keeping , was presented by the Secretary-General to the Council on June 14, 1992. On peacekeeping, the Secretary-General noted that the basic conditions for success remain unchanged: a clear and practicable mandate; the cooperation of the parties in implementing that mandate; the continuing support of the Security Council; the readiness of Member States to contribute the military, police and civilian personnel, including specialists, required; effective United Nations command at Headquarters and in the field; and adequate financial and logistic support. Among his recommendations on peacekeeping were greater use by member states of the Stand-by Arrangements System; improved programs for training peacekeeping personnel, including civilian, police, or military; and special personnel procedures to permit the "rapid transfer of Secretariat staff members to service with peace-keeping operations." He urged that a "pre-positioned stock of basic peace-keeping equipment ... be established, so that at least some vehicles, communications equipment, generators, etc., would be immediately available at the start of an operation." After its initial positive reaction to the report [Statement by Council President, June 30, 1992], the U.N. Security Council undertook an in-depth examination of the report over the following years, starting on October 29, 1992. Thereafter, each month through May 1993, the Council met and the Council President issued a statement on some aspect of the report and its recommendations. On May 3, 1994, the Council President issued an extensive statement that dealt with criteria for establishing new operations; the need to review ongoing operations; communication with non-members of the Council, including troop contributing nations; stand-by arrangements; civilian personnel; training; command and control; and financial and administrative issues. This statement mirrored the content of the May 1994 U.S. Presidential Decision Directive on Reforming Multilateral Peace Operations (PDD 25). Security Council follow-up related to the Agenda for Peace initiatives continued through 1998, accompanied by debate and recommendations by the U.N. General Assembly and its Special Committee on Peacekeeping Operations and its Informal Open-Ended Working Group on an Agenda for Peace. While the Working Group did not produce final recommendations and stopped meeting in 1996, the more formal Special Committee formally reviewed the report, produced recommendations for action by the Secretary-General and by the General Assembly, and requested further reports from the Secretary-General. Among the resulting changes relating to U.N. peacekeeping were the following: Creation of a 24-hour operations or situation center; Transfer of the Field Operations Division from the Department of Administration and Management to the Department for Peacekeeping Operations (DPKO); Establishment of a Peacekeeping Reserve Fund of $150 million to help with financing for start-up of an operation; Adoption of a Convention on Protection of U.N. personnel; Creation of a military planning cell in DPKO; Improvement of three major departments related to peacekeeping (DPKO, Department of Political Affairs, and Department of Humanitarian Affairs); and Creation of a Task Force on United Nations Operations to coordinate among departments and provide the Secretary-General with options and recommendations on policy issues. Brahimi Panel Report (2000) On August 23, 2000, a special Panel on United Nations Peace Operations, convened by U.N. Secretary-General Kofi Annan, issued a report presenting its recommendations aimed at improving the U.N.'s peace and security capabilities. Annan had asked the Panel to "assess the shortcomings of the existing system and to make frank, specific and realistic recommendations for change." Some of the recommendations have been implemented, both those the Secretary-General may carry out on his own and those requiring General Assembly authorization and/or the provision of additional funds, including increasing staff levels in the Department of Peacekeeping Operations. Other recommendations, however, especially those requiring expeditious Member State commitments of personnel for deployment, have not been fully implemented. Since 2004, reform of U.N. peacekeeping has become part of the overall review of the United Nations, its capabilities and capacities in the 21 st century, and the need to reform and renew the organization. The December 2004 report of a High-Level Panel on Threats, Challenges, and Responses convened by Secretary-General Annan recommended that "Member States should strongly support" efforts of the Department of Peacekeeping Operations, "building on the ... work of the Brahimi Panel on U.N. Peace Operations." The Panel observed that "the demand for personnel for both full-scale peace-enforcement missions and peacekeeping missions remains higher than the ready supply. In the absence of a commensurate increase in available personnel, United Nations peacekeeping risks repeating some of its worst failures of the 1990s." U.N. Secretary-General Annan in his March 2005 reform proposals echoed the call for improved deployment options with strategic reserves that could be rapidly employed. In addition, he stated that the time was ripe for "the establishment of an interlocking system of peacekeeping capacities that will enable the United Nations to work with relevant regional organizations in predictable and reliable partnerships." Annan also noted allegations of misconduct by U.N. administrators and peacekeepers. He asserted that U.N. peacekeepers and peacebuilders have a solemn responsibility to respect international law and fundamental human rights and especially the rights of the people whom it is their mission to protect. Prince Zeid Report (2005) Later, in March 2005, a comprehensive report on sexual exploitation and abuse by U.N. peacekeeping personnel was issued by the Secretary-General and his Special Adviser on this issue. Prince Zeid's report, A Comprehensive Strategy to Eliminate Future Sexual Exploitation and Abuse in United Nations Peacekeeping Operations, recognized that both the United Nations Secretariat and U.N. member states had responsibilities in resolving this problem. Its recommendations were endorsed by the U.N. General Assembly on June 22, 2005, in A/RES/59/300. In September 2005, the 60 th session of the U.N. General Assembly, meeting as a World Summit, approved a 2005 World Summit Outcome, as A/RES/60/1. The Heads of State and Government convened at this meeting urged "further development of proposals for enhanced rapidly deployable capacities to reinforce peacekeeping operations in crises. We endorse the creation of an initial operating capability for a standing police capacity to provide coherent, effective and responsive start-up capability for the policing component of the United Nations peacekeeping missions and to assist existing missions through the provision of advice and expertise." [para. 92] They also "underscore[d] the importance of the recommendations of the Adviser to the Secretary-General on Sexual Exploitation and Abuse by United Nations Peacekeeping Personnel, and urge[d] that those measures adopted in the relevant General Assembly resolutions based upon the recommendations be fully implemented without delay." [para. 96] In November 2005, a Conduct and Discipline Team was set up in the Department of Peacekeeping Operations (DPKO), and by the end of 2006, Conduct and Discipline Teams had been established in seven peacekeeping operations and in U.N. missions in Burundi (BINUB), Sierra Leone (UNIOSIL), and Afghanistan (UNAMA). According to a report reviewing the status of U.N. measures for protection from sexual exploitation and sexual abuse, the Team at DPKO is responsible for developing strategies for "addressing conduct and discipline" throughout DPKO and for providing "oversight on the state of conduct and discipline for all categories of personnel in all missions administered by the Department." The teams in the missions are to act as principal advisers to heads of mission on all conduct and discipline issues involving all categories of personnel and implement measures to prevent misconduct, to enforce United Nations standards of conduct and to ensure remedial action when it is required. The teams also receive and monitor allegations of misconduct, including sexual exploitation and abuse, forward the allegations to the appropriate investigating authorities and provide feedback to victims and host populations on the outcome of investigations. The teams also train U.N. personnel and host populations on the standards set forth in the Secretary-General's bulletin on sexual exploitation and abuse. On May 29, 2007, U.N. Under Secretary-General for Peacekeeping Jean-Marie Guehenno announced the resumption of discussions with U.N. member states on a "proposed memorandum of understanding setting out standards" for peacekeepers. These standards were intended to ensure that all would "have the same understanding of what is acceptable, what is not acceptable, what is criminal, what is not." In addition, he stated that "some countries may not have the same standards or procedures for conducting investigations as the U.N.'s Office of Internal Oversight Services (OIOS)." Mr. Guehenno observed that "some States have indicated they are opposed to the introduction of such standards and he called on those unnamed countries to rethink their positions." On July 24, 2007, the U.N. General Assembly adopted Resolution 61/291, approving the U.N. standards of conduct language to be included in the revised draft model memorandum of understanding (MOU), to be used as the basis for negotiation with all troop-contributing countries. Under this language, it is intended that all U.N. peacekeeping personnel agree to conduct themselves in a professional and disciplined manner at all times; respect local laws, customs and practices; treat host country inhabitants with respect, courtesy and consideration; and act with impartiality, integrity and tact and report all acts involving sexual exploitation and abuse. They also agree to encourage proper conduct among fellow peacekeeping personnel and to properly account for all money and property assigned to them as mission members. During a January 2007 Security Council meeting, U.S. Acting U.N. Representative Alejandro Wolff noted that the United States was "very troubled" by continued reports of sexual exploitation and abuse by personnel participating in some U.N. missions. He noted that the organization had responded to Prince Zeid's report and recommendations, putting into place a number of guidelines and procedures, standards of conduct, and policies of zero tolerance on sexual exploitation and abuse by personnel of U.N. peacekeeping operations. He observed, however, that a fundamental difficulty resulted from the fact that most personnel in U.N. peacekeeping operations are provided by U.N. member states. As such, each member state is responsible for enforcing standards of behavior of its personnel. On December 21, 2007, the U.N. General Assembly adopted a United Nations Comprehensive Strategy on Assistance and Support to Victims of Sexual Exploitation and Abuse by United Nations Staff and Related Personnel. After the decision, U.S. Adviser David Traystman made the following statement: The United States is very gratified to note that the General Assembly has now taken action on this important pillar of the Organization's response to sexual exploitation and abuse. Victims of sexual exploitation and abuse by UN staff and related personnel will now receive the assistance they need.... My delegation is especially pleased to note that in adopting this text, the international community strongly condemns all acts of sexual exploitation and abuse and reiterates its support for the Secretary-General's zero tolerance policy. During a statement before the Fifth Committee of the Assembly in May 2008, Mr. Traystman addressed the work of the Conduct and Discipline Teams: The Teams are charged with the important task of implementing the Organization's rules and regulations concerning conduct and discipline. This includes the Organization's three-pronged strategy aimed at eliminating sexual exploitation and abuse, comprised of measures aimed at prevention of misconduct, enforcement of UN standards of conduct, and remedial action. These important functions are 'core' responsibilities that should be carried out by permanent CDT capacities, both at Headquarters and in the field. Mr. Traystman continued, "We will continue to press for substantive training and disciplinary actions by troop contributors for their national contingents to guarantee that the zero tolerance policy on sexual exploitation and abuse is fully understood, respected and enforced." Secretary of State Condoleezza Rice, in a statement to the U.N. Security Council on June 19, 2008, followed up on this issue, noting, "While the individual perpetrator is ultimately responsible for the abuse, member states are responsible for disciplining and holding their troops accountable." Reorganization and Restructuring (2007) Current discussions on U.N. reform in the peacekeeping area center around the proliferation of U.N. responses to peace and security circumstances. On February 15, 2007, new U.N. Secretary-General Ban Ki-moon announced his proposals for "strengthening the capacity of the Organization to manage and sustain peace and security operations." Ban proposed a reconfiguration of the Department of Peacekeeping Operations into two departments: the Department of Peace Operations and the Department of Field Support. He proposed that the Department of Field Support be responsible for "the administration and management of field personnel, procurement, information and communication technology and finances for United Nations peace operations." [para. 15] This would, he continued, "allow a separate, concentrated Department of Peace Operations to focus on the work it needs to do: strategic as well as day-to-day direction and management of peacekeeping operations; new mission planning; implementation of policies and standards; and fostering partnerships with a broad range of United Nations and non-United Nations actors, including regional organizations." [para. 16] He intended to maintain unity of command and integration of effort at the field level by preserving the existing overall authority of my special representatives and heads of mission over all mission components, including the military, police and administrative components.... The Special Representative ... or Head of Mission will have a single, clear reporting line to the Secretary-General through the Under-Secretary-General for Peace Operations.... To ensure unity of command and integration of effort at the Headquarters level, the Under-Secretary-General of Field Support will report to and receive direction from the Under-Secretary-General for Peace Operations on all issues that fall under the purview of United Nations peacekeeping. [paras. 22-24] He sought to set up, within the Department of Peace Operations, a public affairs unit that would be responsible for "media relations, departmental publicity, external relations and corporate messaging/internal communications." This new unit would also provide advice on budgetary, administrative, staffing and technical matters to public information components in the field. [para. 46] The new Department of Field Support would be responsible for "the management and administration of information management capacity for peacekeeping, as well as for conduct and discipline, and for providing secretariat support to the senior field leadership selection process." [para. 26] This Department would have the "analytical and information-processing capacity required to prepare budget proposals and performance reports" although the Department of Management would "retain the final authority to submit budgets to the Assembly." [para. 37] In addition, Ban intended to "vest authority for field support procurement with the Department of Field Support by delegating procurement authority to that department as well as the authority to appoint procurement officers at Headquarters and in the field.... A common vendor database, a joint vendor review committee, a common procurement manual ... will be maintained." [para. 42] On March 15, 2007, the U.N. General Assembly, in Resolution 61/256, supported the restructuring of the Department of Peacekeeping Operations, including the establishment of the Department of Field Support and the intention to name an Under-Secretary-General to head that Department. The Assembly asked the Secretary-General to "submit a comprehensive report, as soon as possible, elaborating on the restructuring of the Department of Peacekeeping Operations and the establishment of the Department of Field Support, including functions, budgetary discipline and full financial implications...." On June 29, 2007, the U.N. General Assembly approved most of the restructuring plan and established the Department of Field Support. In many instances, not as many new positions were recommended, and the Assembly did not approve moving the field- or mission-related procurement functions from the Department of Management to the Department of Field Support. Most of the added positions were financed from the support account, that is, from the budgets of individual peacekeeping operations, rather than as core function positions from the U.N. regular budget. On March 14, 2008, Secretary-General Ban appointed Susana Malcorra of Argentina to head the Department of Field Support. She took over from Jane Holl Lute, who had been Officer-in-charge since the Department was established in July 2007. The United States and Peacekeeping Proposals The Clinton Administration initially supported collective security through the United Nations as a centerpiece of its foreign policy. Later, President Clinton, in a September 1993 speech to the U.N. General Assembly, called on the Security Council to review closely each proposal for an operation before determining whether to establish it, saying that "the United Nations simply cannot become engaged in every one of the world's conflicts." He supported "creation of a genuine U.N. peacekeeping headquarters with a planning staff, with access to timely intelligence, with a logistics unit that can be deployed on a moment's notice, and a modern operations center with global communications." Clinton urged that U.N. operations be adequately and fairly funded, saying he was "committed to work with the United Nations" in reducing the U.S. assessment for peacekeeping. In May 1994, Clinton signed Presidential Decision Directive 25 on Reforming Peace Operations. The policy recommended 11 steps to strengthen U.N. management of peacekeeping operations and offered U.S. support for strengthening the planning, logistics, information, and command and control capabilities of the United Nations. The policy also supported reducing the U.S. peacekeeping assessment from 31.7% to 25%. In a May 16, 2000 statement to a U.N. General Assembly committee, U.S. Ambassador Richard Holbrooke presented reform proposals aimed at strengthening U.N. capacities for U.N. peacekeeping and at changing the basis for financing U.N. peacekeeping. On August 24, 2000, a statement by the State Department spokesman "commended" the work of the U.N. Panel on Peace Operations [the Brahimi Panel], noting that "the United States has been one of the earliest and most insistent voices calling for improvement in planning, the pace of deployment, and overall effectiveness in peacekeeping." In December 2004, Congress mandated the establishment of a bipartisan Task Force on the United Nations, to be organized by the U.S. Institute of Peace. The Task Force was to report to Congress within six months on how to make the United Nations more effective in realizing the goals of its Charter. It was chaired by Newt Gingrich, former Speaker of the House of Representatives and by George J. Mitchell, former Majority Leader of the Senate. The report, American Interests and U.N. Reform , was issued on March 24, 2005. The Task Force offered a wide variety of comments and recommendations relating to United Nations peacekeeping. They included the following: The key question for the Task Force in the area of UN peacekeeping is whether we are prepared to endorse the current practice of the United States and other members of the Security Council in demanding that peacekeepers regularly engage in a broad range of robust security activities. If so, then the United States and other governments must do much more to enhance capacities if we wish to ensure substantial success. The Task Force believes that the practical alternatives—to consign the United Nations to future failures, or to dramatically reduce the United Nations' role in efforts to manage conflict and build stable societies—are unacceptable. [p. 90-91] Member states "must substantially increase the availability of capable, designated forces, properly trained and equipped, for rapid deployment to peace operations on a voluntary basis. The Secretariat should enhance its capacity to coordinate increases in member state contributions to the Stand-By Arrangements system." [p. 97] The Task Force noted that while "the United States formally participates in the United Nations Stand-By Arrangements system, its participation is of only limited operational value to the United Nations—as it provides only a very general list of U.S. capabilities.... [T]he United States should consider upgrading its participation in this voluntary program" by providing more detailed information about the support it might consider. [p. 97] The United States should support (1) creation of a senior police force management unit to conduct assessments and assist in the establishment of new peace operations; (2) assessed funding for first-year, quick-impact projects in peace operations, as well as the full range of early disarmament, demobilization, and reintegration assistance when those have been identified in premission assessments as critical for success; and (3) the adoption of two-year budgets for support of peacekeeping to ensure greater stability, permit more careful planning, and reduce administrative burdens. [p. 97-98] Concerned over reports of sexual exploitation and abuse by deployed U.N. peacekeepers and drawing on the findings by Prince Zeid, in his Comprehensive Strategy report, the Task Force urged that the United States strongly support implementation of reform measures designed to ensure uniform standards for all civilian and military participants in peace operations; improve training programs relating to sexual exploitation and abuse; increase deployment of women in peacekeeping operations; encourage deployment of established (rather than 'patched together') units to peacekeeping operations; impose accountability of senior managers; support effective data collection and management; provide victims assistance; increase staff to enhance supervision; and organize recreational activities for peacekeepers. Finally, states that prove unwilling or unable to ensure discipline among their troops should not be permitted to provide troops to peacekeeping missions. [p. 96] Congress and United Nations Peacekeeping: 1991-2006 Overview Congress has, over the years, used authorizations and especially appropriations bills to express its views and enhance its oversight of U.S. executive branch actions and uses of United Nations peacekeeping operations. This has ranged from diminishing to increasing U.S. assessed contributions and linking release of U.S. contributions to reports on actions taken to improve U.N. peacekeeping reform or other actions, not related to peacekeeping, by the United Nations. It has requested to be kept informed on a monthly, an ad hoc, and annual basis of U.S. efforts taken in the U.N. Security Council to create or to expand U.N. peacekeeping. It has tried to ensure that U.S. companies engaged in activities that would be useful to the United Nations have equal access to U.N. procurement efforts. Congress provided initial U.S. contributions for the U.N. Iraq-Kuwait Observation Mission in 1991 ( P.L. 102-55 ). Funds for U.S. contributions for U.N. peacekeeping operations and also for the portion of U.S. arrearages to be paid from FY1992 money were authorized and appropriated in 1991 ( P.L. 102-138 ; P.L. 102-140 ) and additional funds were made available in 1992 for the rapidly increasing number of peacekeeping operations ( P.L. 102-266 ; P.L. 102-311 ; P.L. 102-368 ; and P.L. 102-395 ). This funding was important as demands for new U.N. actions worldwide increased. During 1992 , some in Congress focused on finding new sources of funding for U.S. contributions to U.N. peacekeeping obligations while others explored new directions for the United Nations in the area of peace and security. Senator Paul Simon introduced a bill, for example, suggesting that the United States finance its peacekeeping contributions from the defense budget function, as a larger and more reliable source. Proponents of this proposal pointed to the extent to which U.N. peacekeeping advances U.S. national security interests. Section 1342 of the Defense Authorization Act, P.L. 102-484 , authorized the Secretary of Defense to obligate up to $300 million from defense appropriations to, among other things, fund U.S. peacekeeping contributions if the funding is not available from the State Department's CIPA account. Congress, in P.L. 102-484 , asked the President for a report on the proposals made in "An Agenda for Peace." President George Bush sent that report to Congress on January 19, 1993. In 1993 , in contrast, Congress did not provide all the funding requested by the President for financing U.S. contributions to U.N. peacekeeping. Congress appropriated $401.6 million of the $619.7 million requested in the CIPA account in the State Department Appropriations Act, FY1994 ( P.L. 103-121 , October 27, 1993). The Foreign Operations Act included $75,623,000 of the $77,166,000 requested for Peacekeeping Operations under the Military Assistance account ( P.L. 103-87 , September 3, 1993). Finally, Congress did not appropriate the $300 million requested in the Department of Defense budget for DOD peacekeeping support. Further, Congress's concerns in this area were expressed in a series of requirements included in the conference report on State Department appropriations. They included: Recommending that the Administration review thoroughly the current process of committing to peacekeeping operations. Expecting the Administration to notify the United Nations that the United States will not accept an assessment greater than 25% for any new or expanded peacekeeping commitments after the date of enactment of this act. Expecting the State Department in its FY1995 budget submission to include an annual three-year projection of U.S. peacekeeping costs and submit a detailed plan identifying U.S. actions needed to correct policy and structural deficiencies in U.S. involvement with U.N. peacekeeping activities. Expecting the Secretary of State to notify both appropriations committees 15 days in advance, where practicable, of a vote by the U.N. Security Council to establish any new or expanded peacekeeping operation. Expecting the notification to include the total estimated cost, the U.S. share, the mission and objectives, duration and estimated termination date, and the source of funding for the U.S. share. Similar concerns and requirements were placed in statutory language in the Defense Appropriations Act, FY1994 (Section 8153, P.L. 103-139 , November 11, 1993) and the National Defense Authorization Act, FY1994 (Title XI, P.L. 103-160 , November 30, 1993). In 1994 , the State Department appropriations bill ( P.L. 103-317 , August 26, 1994) included the requested $533.3 million in the FY1995 CIPA account and $670 million for the FY1994 CIPA supplemental appropriations. The foreign operations appropriations legislation ( P.L. 103-306 , August 23, 1994) also contained the requested $75 million for peacekeeping and peace support and a provision allowing a transfer of $850,000 to IMET for training of other countries' troops for U.N. peacekeeping duty. The FY1995 National Defense Authorization bill ( H.R. 4301 ) and the FY1995 DOD Appropriations Bill ( H.R. 4650 ) were enacted without the $300 million requested to finance U.S.-assessed contributions to three U.N. operations. Congress, in early 1996, responded to the President's February 1995 request by appropriating $359 million ($445 million requested) for FY1996 CIPA funding ( P.L. 104-134 , April 26, 1996) and $70 million ($100 million requested) for the PKO account ( P.L. 104-107 , February 12, 1996). Congress rejected the President's request for $672 million in FY1995 emergency supplemental funding in the CIPA account. Congress also rejected the Administration's proposal that part ($65 million) of the U.S. assessed contributions to two U.N. peacekeeping operations in which U.S. military personnel participated, Haiti (UNMIH) and Macedonia (UNPREDEP), be funded from Defense Department appropriations. Congress, in 1996 , provided $352.4 million for U.S. assessments to U.N. peacekeeping accounts in the Omnibus Consolidated Appropriations Act, FY1997 ( P.L. 104-208 ). This included $50 million for U.S. peacekeeping arrears accumulated in 1995. Release of the arrears funding depended on an Administration certification that two of three U.N. non-peacekeeping-related actions occur: (1) savings of $100 million in biennial expenses of five U.N. Secretariat divisions; (2) reduction in the number of U.N. staff by December 31, 1997, by at least 10% of the number employed on January 1, 1996; and (3) adoption of a budget outline for 1998-1999 lower than the current budget level of $2.608 billion. In addition, conferees expected that up to $20 million in the account would be available for contingencies related to African crises. Use of these funds was subject to Committee review procedures. Furthermore, Congress stipulated that none of the funds in the CIPA account shall be spent for any new or expanded U.N. peacekeeping mission unless the appropriate committees are notified, at least 15 days before a U.N. Security Council vote. The notification should provide the estimated cost, length of mission, and planned exit strategy. A reprogramming of funds is to be submitted, including the source of funds for the mission and a certification that American manufacturers and suppliers are given opportunities equal to those given to foreign sources to provide equipment, services, and materials for U.N. peacekeeping activities. Congress appropriated $65 million for the PKO account, but stipulated that none of the funds shall be obligated or expended, except as provided through regular notification procedures of the Appropriations committees. In 1997 , Congress appropriated $256 million ($286 million requested) for the FY1998 CIPA (including $46 million for prior year payments/arrears) and $77.5 million ($90 million requested) for the FY1998 PKO account. Release of $46 million for arrears payments was contingent on passage of an authorization package linking arrears payments to specific U.N. reforms. Release of part of the PKO funds, for the Multilateral Force and Observers (MFO), was contingent on the Secretary of State filing a report on the status of efforts to replace the Director-General of the MFO (letter sent to Congress, March 18, 1998). In 1998 , Congress appropriated the requested $231 million for U.S. assessed contributions to U.N. peacekeeping operations (CIPA) and $76.5 million ($83 million requested) for international peacekeeping activities (PKO). Congress, however, did not include funds ($921 million) sought in an FY1998 supplemental to pay U.N. and international organization arrears in FY1999 ($475 million) and FY2000 ($446 million). In 1999 , Congress appropriated $500 million for payment of U.S. assessed contributions to U.N. peacekeeping accounts in the State Department Appropriations Act and $153 million for voluntary contributions to international peacekeeping activities in the Foreign Operations Appropriations Act, both of which were incorporated by reference into the Omnibus Consolidated Appropriations Act, 2000, P.L. 106-113 . Congress also sent the President H.R. 3194 (106 th Congress), the State Department Authorization Act for FY2000-FY2001 ( H.R. 3427 ), which authorized $500 million for the CIPA account for FY2000 and "such sums as may be necessary for FY2001" and contained a number of peacekeeping-related provisions. One provision required an annual report to the United Nations on all U.S. costs ("assessed, voluntary, and incremental") incurred in support of all U.N. Security Council passed peace activities and required the President to request the United Nations to compile and publish a report on the costs incurred by all U.N. members in support of U.N. peacekeeping activities. Another provision amended the U.N. Participation Act requiring the President to obtain timely U.N. reimbursement for U.S. goods and services valued at over $3 million per fiscal year, per operation, provided to the United Nations. Another section codified in the U.N. Participation Act language previously enacted on consultations and reports on United Nations Peacekeeping Operations. Lastly, this legislation provided for U.S. arrears payments of $819 million to the United Nations for regular budget and peacekeeping accounts for FY1998, FY1999, and FY2000. In addition, section 913 provided for the forgiveness of $107 million in amounts owed by the United Nations to the United States in reimbursements for peacekeeping troops. The primary benchmarks relating to peacekeeping included a 25% ceiling on peacekeeping assessments and no funding for or development of a U.N. standing army. In 2000 , Congress appropriated $846 million for the FY2001 CIPA account, in response to the President's request of $738.6 million for FY2001 and an FY2000 supplemental of $107 million. Congress did not approve the supplemental for FY2000. In June 2000, the House Appropriations Committee, in recommending a smaller appropriation, expressed its "gravest concern" over what it called "the Administration's tendency to ... extend moribund missions and to establish and expand missions irrespective of Congressional input or the availability of funding to pay for them." The $134 million requested for the FY2001 PKO account was reduced in the Foreign Operations appropriations bill to $127 million ( P.L. 106-429 ). On October 5, 2001 , President Bush signed legislation amending the Foreign Relations Authorization Act, Fiscal Years 2000-2001 ( P.L. 107-46 ). This bill revised a condition prohibiting the obligation of appropriated funds for payment of U.S. arrearages for assessed contributions to the United Nations until the share of the budget for each assessed U.N. peacekeeping operation does not exceed 28.15% for any single U.N. member. On November 28, 2001, the President signed H.R. 2500 , appropriating funds for the State Department, including the amount requested for the FY2002 CIPA account ( P.L. 107-77 ). The law includes a provision requiring that 15% ($126,620,850) of the $844,139,000 appropriated for CIPA remain available until September 30, 2003. On January 10, 2002, the President signed H.R. 2506 , providing $135 million ($150 million requested) in voluntary contributions for the FY2002 PKO account under the Foreign Operations Act. On March 21, 2002 , President Bush, in his Emergency FY2002 Supplemental Appropriations request (H.Doc. 107-195), included $43 million for the CIPA account, "to meet projected increased costs for U.N. peacekeeping operations. The United States has a clear national interest in resolving multi-state conflicts and encouraging the evolution of stable democracies in countries in which U.N. peacekeeping missions are operational." Congress provided $23,034,000 for "increased assessments" for the U.N. operation in the Congo in H.R. 4775 , which was signed on August 2, 2002 ( P.L. 107-206 ). On September 30, 2002, the President signed the Foreign Relations Authorization Act, Fiscal Years 2002-2003 ( P.L. 107-228 ), in which Congress authorized $844 million for U.S. assessed contributions in CIPA and amended provisions relating to the 25% assessment level condition and cap on payment of U.S. assessed contributions to U.N. peacekeeping operations. On February 20, 2003, the President signed the FY2003 Consolidated Appropriations Resolution ( P.L. 108-7 ), which provided $673,710,000 for the CIPA account ($725.9 million requested) and $120,250,000 for the PKO account ($108.8 million requested). The conferees provided that, as requested by the President, 15% of the amount in the CIPA account (approx. $101 million) be available through September 30, 2004. This was due to "demonstrated unpredictability of the requirements ... from year to year and the nature of multi-year operations" with "mandates overlapping the [U.S.] ... fiscal year." On April 24, 2003 , the Senate Foreign Relations Committee, in recommending S. 925 , authorized, for FY2004, the requested $550.2 million to pay U.S. assessed contributions to U.N. peacekeeping accounts. The Committee set the assessment limit for U.S. peacekeeping contributions beyond CY2004 at 27.4%. The Committee also asked the Secretary of State to assess U.N. implementation of the Brahimi Panel recommendations on U.N. peacekeeping capabilities reform and U.S. support of U.N. progress in this area ( S.Rept. 108-39 ). On July 16, 2003, the House passed H.R. 1950 , authorizing $550.2 million, as requested, for the CIPA account and setting the peacekeeping assessment cap for CY2005 and CY2006 at 27.1%. An authorization bill was not enacted in 2003. On July 23, 2003 , the House passed H.R. 2799 , appropriating for FY2004, the requested $550.2 million for CIPA. The Senate Appropriations Committee, on September 5, 2003, recommended $482,649,000 for the CIPA account ( S. 1585 ). Committee and floor recommendations for the PKO account ranged from $84.9 million ( S. 1426 ) to $85 million ( H.R. 2800 ) to $110 million ( H.R. 1950 ). The FY2004 Consolidated Appropriations bill, signed on January 23, 2004 ( P.L. 108-199 ), Div. B, provided $550,200,000 (including $454,842,000 in new direct appropriations and $95,358,000 in prior year unobligated balances) for the CIPA account and in Div. C, Foreign Operations, $74,900,000 for the PKO account. On November 6, 2003, the President had signed the Emergency Supplemental Appropriations for Defense and for Reconstruction of Iraq and Afghanistan for FY2004 ( P.L. 108-106 ) which added $245 million to the CIPA account for assessed costs of U.N. peacekeeping in Liberia and $50 million to the PKO account to support multilateral peacekeeping needs in Iraq and Afghanistan. On July 1, 2004 , the House Appropriations Committee reported H.R. 4754 , including the State Department Appropriations bill for FY2005, providing $650 million, as requested, for the CIPA account. The bill does not include requested language to make a portion of appropriations under CIPA available for two fiscal years. On July 8, 2004, the House passed this bill, including the requested CIPA funds. On July 15, 2004, the House passed H.R. 4818 , the Foreign Operations Appropriations Act, providing the requested $104 million for the PKO account. On September 15, 2004, the Senate Appropriations Committee reported S. 2809 , including the State Department Appropriations bill, providing $574 million for the CIPA account and on September 16, 2004, the Committee reported S. 2812 , providing the requested amount for the PKO account in Foreign Operations Appropriations. On September 23, 2004, the Senate, after incorporating S. 2812 into H.R. 4818 as an amendment, passed H.R. 4818 , by voice vote. For FY2005, Congress provided $490 million for CIPA and $104 million for PKO (FY2005 Consolidated Appropriations Act, P.L. 108-447 , December 8, 2004). The $490 million was reduced to $483,544,832 by an across-the-board cut of 0.80% and a Division B cut of 0.54%. The $104 million for the PKO account was cut 0.80% to $103,168,000. The peacekeeping assessment cap for CY2005 was set at 27.1% in P.L. 108-447 . In 2005, the President signed H.R. 1268 ( P.L. 109-13 , May 11, 2005), an FY2005 Supplemental that provided $680 million for CIPA for FY2005 ($50 million of this was transferred to the PKO account, leaving $630 million available). On November 22, 2005 , the President signed H.R. 2862 which included, in the State Department Appropriations Act, FY2006, the requested $1,035,500,000 for the CIPA account, of which 15% shall be available until September 30, 2007 ( P.L. 109-108 ). The actual amount available, after a recision, was $1,022,275,000. The Foreign Operations Appropriations Act, FY2006, was enacted, with $175 million for the PKO account ( P.L. 109-102 , November 14, 2005). On February 16, 2006, President Bush had requested, in an FY2006 supplemental, an additional $69.8 million for CIPA and $123 million for PKO, provided that such sums (of the PKO funds) as may be necessary may be transferred to and merged with CIPA for peacekeeping operations in Sudan. On June 15, 2006, Congress sent to the President H.R. 4939 , providing $129.8 million for the CIPA account and $178 million for the PKO account. On December 26, 2007 , the President had signed into law H.R. 2764 , the Consolidated Appropriations Act, 2008, Division J of which was the Department of State, Foreign Operations and Related Programs Appropriations Act, FY2008. This Act provided $1,700,500,000 [$1,690,517,000] for the CIPA account and $263,230,000 [$261,381,000] for the PKO account. This compares with the President's request for FY2008 of $1,107,000,000 for U.S. assessed contributions to U.N. peacekeeping operations, in the CIPA account, and $221,200,000 for the PKO account. In addition, in October, the President had requested, in a FY2008 Supplemental, an additional $723,600,000 for CIPA, as emergency requirements. Thus, the President's CIPA request for FY2008 totaled $1,830,600,000. The Act also included language raising the peacekeeping assessment cap to 27.1% for assessments made in calendar year 2008. Payment of U.S. contributions to U.N. peacekeeping operations had been limited to a level of 25% for assessments made in calendar years 2006 and 2007. Appendix A. U.N. Peacekeeping Operations: A Chronological List Appendix B. U.N. Peacekeeping Operations: Numbers Created Annually, 1948-2010 Appendix C. United Nations Peacekeeping over the Years: Statistical Data for Comparative Analysis, 1978-2010 Appendix D. U.N. Peacekeeping: Status of U.S. Assessed Contributions for Calendar Year 2008 The Outstanding columns do not include $6,090,877 in contributions outstanding for UNAMET (E. Timor) and $144,390 in contributions outstanding for MINUGUA (Guatemala). Both these operations were primarily under the control of the Department of Political Affairs rather than the Department of Peacekeeping Operations. Credits totaling $17,893,368 were available for the United States but not used, as of December 31, 2008, for five operations not included in this table: UNTAG (Namibia): $11,991,064; ONUSAL (El Salvador): $2,677,182; UNMIH (Haiti): $1,448,861; UNOMIL (Liberia): $883,052; and UNMOT (Tajikistan): $893,209. 2008 assessments figure is for bills received during CY2008. Appendix E. U.N. Peacekeeping: Status of U.S. Assessed Contributions for Calendar Year 2007 The Outstanding columns do not include $6,090,877 in contributions outstanding for UNAMET (E. Timor) and $144,390 in contributions outstanding for MINUGUA (Guatemala). Both these operations were primarily under the control of the Department of Political Affairs rather than the Department of Peacekeeping Operations. Credits totaling $17,863,368 were available for the United States but not used, as of December 31, 2007, for five operations not included in this table: UNTAG (Namibia): $11,991,064; ONUSAL (El Salvador): $2,677,182; UNMIH (Haiti): $1,418,861; UNOMIL (Liberia): $883,052; and UNMOT (Tajikistan): $893,209. 2007 assessments figure is for bills received during CY2007. Appendix F. U.N. Peacekeeping: Status of U.S. Assessed Contributions for Calendar Year 2006 The Outstanding columns do not include $6,090,877 in contributions outstanding for UNAMET (E. Timor) and $144,390 in contributions outstanding for MINUGUA (Guatemala). Both these operations were primarily under the control of the Department of Political Affairs rather than the Department of Peacekeeping Operations. Credits totaling $17,893,368 were available for the United States but not used, as of December 31, 2006, for five operations: UNTAG (Namibia): $11,991,064; ONUSAL (El Salvador): $2,677,182; UNMIH (Haiti): $1,448,861; UNOMIL (Liberia): $883,052; and UNMOT (Tajikistan): $893,209. 2006 assessments figure is for bills received during CY2006. Appendix G. U.N. Peacekeeping: Status of U.S. Assessed Contributions for Calendar Year 2005 The Outstanding columns do not include $6,090,877 in contributions outstanding for UNAMET (E. Timor) and $144,390 in contributions outstanding for MINUGUA (Guatemala). Both these operations were primarily under the control of the Department of Political Affairs rather than the Department of Peacekeeping Operations. Credits totaling $17,893,368 were available, as of December 31, 2005, for the United States for five operations: UNTAG (Namibia): $11,991,064; ONUSAL (El Salvador): $2,677,182; UNMIH (Haiti): $1,448,861; UNOMIL (Liberia): $883,052; and UNMOT (Tajikistan): $893,209. 2005 assessments figure is for bills received during CY2005. Appendix H. U.N. Peacekeeping: Status of U.S. Assessed Contributions for Calendar Year 2004 The Outstanding columns do not include $6,090,877 in contributions outstanding for UNAMET (E. Timor) and $144,390 in contributions outstanding for MINUGUA (Guatemala). Both these operations were primarily under the control of the Department of Political Affairs rather than the Department of Peacekeeping Operations. Credits totaling $17,863,368 were available, as of December 31, 2004, for the United States for five operations: UNTAG (Namibia): $11,991,064; ONUSAL (El Salvador): $2,677,182; UNMIH (Haiti): $1,418,861; UNOMIL (Liberia): $883,052; and UNMOT (Tajikistan): $893,209. UNOMIL and UNMOT are listed as credits under Contributions Outstanding, as of 12/31/04, within parenthesis. 2004 assessments figure is for bills received during CY2004.

A major issue facing the United Nations, the United States, and the 111th Congress is the extent to which the United Nations has the capacity to restore or keep the peace in the changing world environment. Associated with this issue is the expressed need for a reliable source of funding and other resources for peacekeeping and improved efficiencies of operation. For the United States, major congressional considerations on U.N. peacekeeping stem from executive branch commitments made in the U.N. Security Council. The concern with these commitments, made through votes in the Council, is the extent to which they bind the United States to fund and to participate in some way in an operation. This includes placing U.S. military personnel under the control of foreign commanders. Peacekeeping has come to constitute more than just the placement of military forces into a cease-fire situation with the consent of all the parties. Military peacekeepers may be disarming or seizing weapons, aggressively protecting humanitarian assistance, and clearing land mines. Peacekeeping operations also now involve more non-military personnel and tasks such as maintaining law and order, election monitoring, and human rights monitoring. Proposals for strengthening U.N. peacekeeping and other aspects of U.N. peace and security capacities have been adopted in the United Nations, by the U.S. executive branch, and by Congress. Some are being implemented. Most authorities have agreed that if the United Nations is to be responsive to 21st century world challenges, both U.N. member states and the appropriate U.N. organs will have to continue to improve U.N. structures and procedures in the peace and security area. This report serves as a tracking report for action by Congress on United Nations peacekeeping.

House Consideration of the Two Bills The House Committee on Rules held a hearing on proposed amendments to both H.R. 1560 and H.R. 1731 on April 21. More than 30 amendments were submitted for H.R. 1731 and more than 20 for H.R. 1560 . The committee reported H.Res. 212 ( H.Rept. 114-88 ) on the two bills on April 21, with a structured rule allowing consideration of five amendments to H.R. 1560 and 11 for H.R. 1731 . For each bill, a manager's amendment would serve as the base bill for floor consideration, with debate on H.R. 1560 held on April 22 and on H.R. 1731 on April 23. The rule further stated that upon passage of both bills, the text of H.R. 1731 would be appended to H.R. 1560 , and H.R. 1731 would be tabled. On April 22, all five amendments to H.R. 1560 were adopted and the bill passed the House by a vote of 307 to 116. The amendments were all agreed to by voice vote except a sunset amendment terminating the bill's provisions seven years after enactment, which passed by recorded vote of 313 to 110. Similarly, on April 23, the 11 amendments to H.R. 1731 were all adopted and the bill was passed by a vote of 355 to 63. A sunset amendment similar to that approved for H.R. 1560 , and all but one other amendment were adopted by voice vote. The exception, requiring a GAO study on privacy and civil liberties impacts, was agreed to by recorded vote, 405 to 8. The engrossed version of H.R. 1560 combined the bills by making the PCNA Title I and the NCPAA Title II. Current Legislative Proposals Five bills on information sharing have been introduced in the 114 th Congress, three in the House and two in the Senate. The White House has also submitted a legislative proposal (WHP) and issued an executive order on the topic. Other proposals include the following: The Cyber Intelligence Sharing and Protection Act (CISPA), which passed the House in the 113 th Congress, has been reintroduced as H.R. 234 . S. 456 is an amended version of the White House proposal. S. 754 , the Cybersecurity Information Sharing Act of 2015 (CISA), from the Senate Intelligence Committee, has many similarities to a bill with the same name introduced in the 113 th Congress and shares many provisions with the PCNA, although there are also significant differences between S. 754 and the PCNA. All the bills would address concerns that are commonly raised about barriers to sharing of information on threats, attacks, vulnerabilities, and other aspects of cybersecurity—both within and across sectors. It is generally recognized that effective sharing of information is an important tool in the protection of information systems and their contents from unauthorized access by cybercriminals and other adversaries. Barriers to sharing have long been considered by many to be a significant hindrance to effective protection of information systems, especially those associated with critical infrastructure. Private-sector entities often claim that they are reluctant to share such information among themselves because of concerns about legal liability, antitrust violations, and protection of intellectual property and other proprietary business information. Institutional and cultural factors have also been cited—traditional approaches to security tend to emphasize secrecy and confidentiality, which would necessarily impede sharing of information. While reduction or removal of such barriers may provide benefits in cybersecurity, concerns have also been raised about potential adverse impacts, especially with respect to privacy and civil liberties, and potential misuse of shared information. The legislative proposals all address many of those concerns, but they vary somewhat in emphasis and method. The NCPAA focuses on the role of the Department of Homeland Security (DHS), and in particular the National Cybersecurity and Communications Integration Center (NCCIC). The PCNA, in contrast, focuses on the role of the intelligence community (IC), including authorization of the recently announced Cyber Threat Intelligence Integration Center (CTIIC). Both CISPA and CISA address roles of both DHS and the IC. The NCPAA, S. 456 , and the WHP address roles of information sharing and analysis organizations (ISAOs). ISAOs were defined in the Homeland Security Act (6 U.S.C. §131(5)) as entities that gather and analyze information relating to the security of critical infrastructure, communicate such information to help with defense against and recovery from incidents, and disseminate such information to any entities that might assist in carrying out those goals. Information Sharing and Analysis Centers (ISACs) are more familiar to most observers. They may also be ISAOs but are not the same, having been originally formed pursuant to a 1998 presidential directive. On February 20, 2015, President Obama signed Executive Order 13691, which requires the Secretary of Homeland Security to encourage and facilitate the formation of ISAOs, and to choose and work with a nongovernmental standards organization to identify standards and guidelines for the ISAOs. It also requires the NCCIC to coordinate with ISAOs on information sharing, and includes some provisions to facilitate sharing of classified cybersecurity information with appropriate entities. On April 21, the White House announced support for passage of both the NCPAA and the PCNA by the House, while calling for a narrowing of sweep for the liability protections and additional safeguards relating to use of defensive measures in both bills. It also called for clarifying provisions in the NCPAA on use of shared information in federal law enforcement and ensuring that provisions in the PCNA do not interfere with privacy and civil liberties protections. All of the proposals have provisions aimed at facilitating sharing of information among private-sector entities and providing protections from liability that might arise from such sharing. They vary somewhat in the kinds of private-sector entities and information covered, but almost all of them address information on both cybersecurity threats and defensive measures, the exception being S. 456 and the WHP, which cover only cyber threat indicators. In general, the proposals limit the use of shared information to purposes of cybersecurity and law enforcement, and they limit government use, especially for regulatory purposes. All address concerns about privacy and civil liberties, although the mechanisms proposed vary to some extent, in particular the roles played by the Attorney General, the DHS Secretary, Chief Privacy Officers, the Privacy and Civil Liberties Oversight Board (PCLOB), and the Inspectors General of DHS and other agencies. All the proposals require reports to Congress on impacts of their provisions. All also include provisions to shield information shared with the federal government from public disclosure, including exemption from disclosure under the Freedom of Information Act (FOIA). H.R. 1735 , the National Defense Authorization Act of 2016, as passed by the House on May 15, would provide liability protections similar to those in H.R. 1560 to "operationally critical" defense contractors who are required to report incidents to DOD (10 U.S.C. 391) and cleared contractors required to report network or system penetrations (10 U.S.C. 2224 note). While most observers appear to believe that legislation on information sharing is either necessary or at least potentially beneficial—provided that appropriate protections are included—two additional factors in particular may be worthy of consideration as the legislative proposals are developed. First, resistance to sharing of information among private-sector entities might not be substantially reduced by the actions contemplated in the legislation. Information received can help an entity prevent or mitigate an attack. However, there is no clear direct benefit associated with providing information, except in the case of providers of cybersecurity services and their clients. More indirect benefits might occur, for example, if a pattern of reciprocity develops among sharing entities, such as through ISACs or ISAOs. While the legislative proposals may reduce the risks to private-sector entities associated with providing information, none include explicit incentives to stimulate such provision. In the absence of mechanisms to balance that asymmetry, the degree to which information sharing will increase under the provisions of the various legislative proposals may be uncertain. The second point is that information sharing is only one of many facets of cybersecurity. Entities must have the resources and processes in place that are necessary for effective cybersecurity risk management. Sharing may be relatively unimportant for many organizations, especially in comparison with other cybersecurity needs. In addition, most information sharing relates to imminent or near-term threats. It is not directly relevant to broader issues in cybersecurity such as education and training, workforce, acquisition, or cybercrime law, or major long-term challenges such as building security into the design of hardware and software, changing the incentive structure for cybersecurity, developing a broad consensus about cybersecurity needs and requirements, and adapting to the rapid evolution of cyberspace. Comparison of the NCPAA and the PCNA The remainder of the report consists of a side-by-side comparison of provisions in H.R. 1560 and H.R. 1731 as passed by the House and combined as separate titles into a single bill, H.R. 1560 . The PCNA became Title I and the NCPAA became Title II. Glossary of Abbreviations in the Table Notes on the Table Entries describing provisions in a bill are summaries or paraphrases, with direct quotes enclosed in double quotation marks. The table uses the following formatting conventions to aid in the comparison: Related provisions in the two titles are adjacent to each other, with the NCPAA serving as the basis for comparison. As a result, many provisions of the PCNA appear out of sequence in the table. Bold formatting denotes that the identified provision is the subject of the subsequent text (e.g., (d) or Sec. 10 2 (a) ). Numbers and names of sections, subsections, and paragraphs (except definitions) added to existing laws by the bills are enclosed in single quotation marks (e.g., 'Sec. 111(a)' ). Underlined text (visible only in the pdf version) is used in selected cases as a visual aid to highlight differences with a corresponding provision in the other bill that might otherwise be difficult to discern. The names of titles, sections, and some paragraphs are stated the first time a provision from them is discussed in the table—for example, Sec. 10 3. Authorizations for Preventing, Detecting, Analyzing, and Mitigating Cybersecurity Threats — but only the number, to the paragraph level or higher, is used thereafter. In cases where a provision of the PCNA is out of sequence from that immediately above it, as much of the provision number is repeated as is needed to make its origin clear. For example, on p. 14 , a provision from Sec. 103 is described immediately after an entry for Sec. 109 and is therefore labelled Sec. 103(c)(3) . That is followed immediately by an entry labelled (a) , which is a subsection of Sec. 103 and therefore is not preceded by the section number. Page numbers cited within the table are hyperlinked to the provisions they reference in the table; the page numbers themselves refer to pages in the pdf version of the report. Explanatory notes on provisions are enclosed in square brackets. Also, the entry "[Similar to NCPAA]" means that the text in that provision in the PCNA is closely similar in text, with no significant difference in meaning, to the corresponding provision in the NCPAA. "[Identical to NCPAA]" means that there are no differences in language in the two provisions. See the " Glossary of Abbreviations in the Table " for meanings of abbreviations used therein.

Effective sharing of information in cybersecurity is generally considered an important tool for protecting information systems and their contents from unauthorized access by cybercriminals and other adversaries. Five bills on such sharing have been introduced in the 114th Congress—H.R. 234, H.R. 1560, H.R. 1731, S. 456, and S. 754. The White House has also submitted a legislative proposal and issued an executive order on the topic. In the House, H.R. 1560, the Protecting Cyber Networks Act (PCNA), was reported out of the Intelligence Committee. H.R. 1731, the National Cybersecurity Protection Advancement Act of 2015 (NCPAA), was reported by the Homeland Security Committee. Both bills passed the House, amended, the week of April 20, and were combined, with the PCNA becoming Title I and the NCPAA Title II of H.R. 1560. The PCNA and the NCPAA have many similarities but also significant differences. Both focus on information sharing among private entities and between them and the federal government. They address the structure of the information-sharing process, issues associated with privacy and civil liberties, and liability risks for private-sector sharing, and both address some other topics in common. The NCPAA would amend portions of the Homeland Security Act of 2002, and the PCNA would amend parts of the National Security Act of 1947. They differ in how they define some terms in common such as cyber threat indicator, the roles they provide for federal agencies (especially, the Department of Homeland Security and the intelligence community), processes for nonfederal entities to share information with the federal government, processes for protecting privacy and civil liberties, uses permitted for shared information, and reporting requirements. S. 754 has been reported by the Senate Intelligence Committee. Presumably, if the Senate passes a bill on information sharing, any inconsistencies between the PCNA and the NCPAA could be reconciled during the process for resolving differences between the House and Senate bills. All of the bills would address commonly raised concerns about barriers to sharing information about threats, attacks, vulnerabilities, and other aspects of cybersecurity—both within and across sectors. Such barriers are considered by many to hinder protection of information systems, especially those associated with critical infrastructure. Private-sector entities often claim that they are reluctant to share such information among themselves because of concerns about legal liability, antitrust violations, and protection of intellectual property and other proprietary business information. Institutional and cultural factors have also been cited—traditional approaches to security tend to emphasize secrecy and confidentiality, which would necessarily impede sharing of information. All the bills have provisions aimed at facilitating information sharing among private-sector entities and providing protections from liability that might arise from such sharing. While reduction or removal of such barriers may provide benefits, concerns have also been raised about potential adverse impacts, especially on privacy and civil liberties, and potential misuse of shared information. The legislative proposals all address many of the concerns. In general, the proposals limit the use of shared information to purposes of cybersecurity and law enforcement, and they limit government use, especially for regulatory purposes. All include provisions to shield information shared with the federal government from public disclosure and to protect privacy and civil liberties with respect to shared information that is not needed for cybersecurity purposes. All the proposals require reports to Congress on impacts of their provisions. Most observers appear to believe that legislation on information sharing is either necessary or at least potentially beneficial—provided that appropriate protections are included—but two additional factors in particular may be worthy of consideration as the various legislative proposals are debated. First, resistance to sharing of information among private-sector entities might not be substantially reduced by the actions contemplated in the legislation. Second, information sharing is only one of many facets of cybersecurity that organizations need to address to secure their systems and information.

Introduction This report summarizes and compares provisions for carbon capture and sequestration (CCS) contained in H.R. 2454 and S. 1733 , the two leading cap-and-trade bills aimed at reducing U.S. emissions of greenhouse gases. CCS receives considerable attention in both bills because of its potential for substantially reducing carbon dioxide (CO 2 ) emissions from stationary sources, such as coal-fired power plants, cement plants, and oil refineries, while allowing those industrial sources to continue to operate even in a carbon-constrained environment. The goal of reduced emissions and continued operations is particularly important for the coal industry: coal-fired power plants generate approximately half of all the electricity in the United States, and are responsible for over 40% of U.S. CO 2 emissions from fossil fuels. Many observers consider CCS to be an integral component of a comprehensive strategy to reduce greenhouse gas emissions without creating a near-term disruption of the U.S. energy sector. Currently, no coal-fired power plants, cement plants, oil refineries, or other large industrial sources of CO 2 in the United States are capturing and sequestering large quantities of CO 2 solely for the purpose of greenhouse gas mitigation. The CCS provisions in H.R. 2454 and S. 1733 are likely intended to spur commercial deployment of CCS at a scale that would greatly surpass the degree of deployment in the absence of additional federal incentives and requirements. Without these incentives, some analyses have projected that low emission allowance prices combined with high costs for installing CCS systems would preclude most additional CCS deployment. Many questions remain, however, about the possible consequences of accelerated CCS development: financial, legal, regulatory, infrastructure, environmental, and public acceptance. Both bills attempt to some degree to address these questions, largely in parallel and similar fashion, albeit with some important differences. Table 1 provides a snapshot comparison of the parallel sections in H.R. 2454 and S. 1733 , and the body of the report summarizes and discusses each section in sequence. Overview of Key Similarities and Differences The CCS provisions in H.R. 2454 and S. 1733 are very similar (some sections are identical), and both bills appear to share the goal of fostering the commercial development and deployment of CCS projects as an important component of mitigating greenhouse gas emissions. S. 1733 even specifies—which H.R. 2454 does not—that Congress finds it is in the public interest to achieve widespread commercial deployment of CCS in the United States and throughout Asia before January 1, 2030. Both bills would require the Environmental Protection Agency (EPA) to regulate geologic sequestration of CO 2 under both the Safe Drinking Water Act and the Clean Air Act, and would also require that the EPA Administrator establish a coordinated certification and permitting process for geological sequestration sites. Recognizing that these statutes do not provide for comprehensive management of geologic sequestration issues (such as long-term liability and pore space ownership), the House and Senate bills would direct the EPA Administrator to establish a task force to examine broadly the federal and state legal framework for geologic sequestration sites and activities, and to report to Congress within 18 months. Both bills would create two separate programs that would provide financial incentives to develop and deploy commercial-scale CCS. The "wires charge" program, which is nearly identical in both bills and very similar to H.R. 1689 , the Carbon Capture and Storage Early Deployment Act introduced by Representative Boucher, would create an annual funding stream of approximately $1 billion to be awarded by a private corporation to eligible projects. The allocation of development and deployment grants and contracts would be largely independent of federal control, once the corporation is established, leaving the program to the discretion of the electricity generating industry for the most part. The second program would distribute emission allowances from the cap-and-trade portions of both bills to qualifying electric generating plants and industrial facilities. Although the programs in the two bills are similar in construct and scale, S. 1733 would award allowances to the first 20 gigawatts (Gw) of electricity generation that employs CCS technology via a formula that provides a significant financial incentive, as much as $106 per ton of CO 2 captured for 90% capture efficiency. In contrast, H.R. 2454 would award only the first 6 Gw via the same formula, and then employ a reverse auction scheme to allocate the rest, up to a total of 72 Gw. Arguably the reverse auction process would provide an allowance price closer to its true market value, and thus reflect how the market values CCS versus other emissions reduction options, such as fuel-switching, offsets, and others. If so, then S. 1733 hedges in favor of CCS as a preferred technology by allocating allowances to a substantially larger proportion of electricity generating capacity in the first phase of the program, at bonus allowance values that could be significantly higher than their average market value. Both the "wires charge" program and the emission allowance scheme focus on the CO 2 capture stage of CCS and generally presume that the technical and regulatory requirements for the transportation and sequestration stages would be in place by the time capture technology is installed and operational. Three nearly identical sections in H.R. 2454 and S. 1733 attempt to address those requirements, through amendments to the Clean Air Act and Safe Drinking Water Act, as well as through studies and reports to construct a national strategy for CCS and identify gaps and barriers that could require additional legislation. Despite these provisions, it is not yet clear whether all of the challenges to transportation and sequestration aspects of CCS can or will be met in concert with the technological and financial challenges of building capture technology that works at large power plants and other industrial sources of CO 2 . The promise of CCS in some part depends on the promulgation of a CCS regulatory structure, a sufficient transportation capacity, resolution of liability concerns about long-term CO 2 storage, and public acceptance of CCS, as well as other requirements prior to or in conjunction with the deployment of capture technology at large commercial facilities. Given these present uncertainties, how well the provisions in H.R. 2454 and S. 1733 would advance widespread deployment of CCS still remains an open question. Summary Comparison of CCS Provisions National Strategy H.R. 2454 Title I, § 111, of H.R. 2454 would require the Administrator of the Environmental Protection Agency (EPA) to submit to Congress, within one year of enactment, a report detailing a unified national strategy for addressing the key legal and regulatory barriers to deployment of commercial-scale carbon capture and sequestration. The report is to identify barriers and gaps that could be addressed using existing federal authority and those that would require new federal legislation, as well as barriers and gaps that would be best addressed at the state, tribal, or regional level. Additionally, the report is to include regulatory, legislative, or other recommendations to address the gaps and barriers. S. 1733 Division A, subsections 121(a) and (b) contain the same provisions as § 111 of H.R. 2454 , calling for development of a national strategy and related report to Congress. The Senate bill includes an additional provision, subsection 121(c), which states that Congress finds that it is in the public interest that commercial-scale CCS achieve wide deployment in the United States and throughout Asia before 2030. Regulations for Geologic Sequestration Sites H.R. 2454 Section 112 of the House bill would require the EPA Administrator to promulgate regulations to manage the geologic sequestration of CO 2 under both the Clean Air Act (CAA) and the Safe Drinking Water Act (SDWA). Section 112(a) would amend Title VIII of CAA, adding a new § 813 to require the EPA Administrator to establish a coordinated certification and permitting process for geologic sequestration sites, taking into account all relevant statutory authorities. This provision would direct the Administrator to reduce redundancy with SDWA requirements (including the current rulemaking for geologic sequestration wells) and, to the extent practical, reduce the regulatory burden imposed on certified sequestration entities and implementing authorities. Within two years of enactment, the Administrator would be required to promulgate CAA regulations to protect human health and the environment by minimizing the risk of atmospheric release of carbon dioxide injected for geologic sequestration. The scope of the regulations would include enhanced oil and gas recovery combined with geologic sequestration. The regulations would have to include a process to obtain certification for geologic sequestration; requirements for monitoring, record keeping, and reporting for injected and escaped emissions (taking into account any requirements under § 713 regarding a greenhouse gas registry); and requirements for public participation. Section 112(a) further would require that, within two years of promulgation of the regulations and every three years thereafter, the EPA Administrator report to the House Committee on Energy and Commerce and the Senate Committee on Environment and Public Works on geologic sequestration in the United States and elsewhere in North America. The report would include data on injection and any emissions to the atmosphere, an evaluation of active and closed sequestration sites, and an evaluation of the performance of federal environmental regulations and programs for sequestration as well as recommendations for their improvement. This provision broadens the scope of geologic sequestration regulatory authority beyond protecting ground water under SDWA, to protecting against atmospheric releases of CO 2 under the CAA. Currently, EPA's proposed geologic sequestration rulemaking is limited to establishing requirements related to the protection of underground sources of drinking water under SDWA's underground injection control provisions (42 U.S.C. 300h et seq. ). H.R. 2454 , § 112(b), would amend SDWA by adding a new § 1421(e) to require regulation of geologic sequestration wells. This subsection would direct the EPA Administrator to promulgate, within one year of enactment, regulations for the development, operation, and closure of CO 2 sequestration wells. The regulations would include financial responsibility requirements for emergency and remedial response, well plugging, site closure, and post-injection care. The Safe Drinking Water Act currently does not include explicit financial responsibility provisions, thus limiting EPA's ability to address this issue in its proposed rule. The section of SDWA that the bill would amend, § 1421, directs the EPA Administrator to promulgate regulations for state underground injection control programs. Thus, H.R. 2454 envisions that EPA would delegate primary oversight and enforcement authority for geologic sequestration wells to interested and qualified states. S. 1733 Division A, §122, contains the same provisions. Studies and Reports H.R. 2454 Section 113(a) would direct the EPA Administrator to establish, within six months, a task force to conduct a study examining the legal framework for geologic sequestration sites. The bill specifies a range of experts, public and private sector representatives, and other participants to be included on the task force. The study would evaluate (1) existing federal environmental statutes, state environmental statutes, and state common law that would apply to CO 2 storage sites; (2) existing state and federal laws that apply to harm and damage to public health or the environment at closed sites where CO 2 injection has been used for enhanced oil and gas recovery; (3) the statutory framework, implementation issues, and financial implications for various liability models regarding closed sequestration sites; (4) private sector mechanisms that may be available to manage risks from closed sites; and (5) subsurface mineral rights, water rights, and property rights issues associated with geologic sequestration. EPA would be required to report to Congress within 18 months of enactment. Section 113(b) would direct the EPA Administrator to establish a task force to conduct a study examining how, and under what circumstances, the environmental statutes for which EPA has responsibility would apply to CO 2 injection and geologic sequestration activities. EPA would be required to report to Congress within 12 months of enactment. S. 1733 Division A, § 123, contains the same provisions for studies and reports. Summary of Regulatory and Reporting Requirements Table 2 identifies the schedules for completing reports and regulations required in the above provisions. Carbon Capture and Sequestration Demonstration and Early Deployment Program H.R. 2454 Section 114 of H.R. 2454 allows for the creation of a Carbon Storage Research Corporation that would establish and administer a program to accelerate the commercial availability of CO 2 capture and storage technologies and methods by awarding grants, contracts, and financial assistance to electric utilities, academic institutions, and other eligible entities. The section would establish the corporation by a referendum among "qualified industry organizations," which would include the Edison Electric Institute, the American Public Power Association, the National Rural Electric Cooperative Association, their successors, or a group of owners or operators of distribution utilities delivering fossil fuel-based electricity who collectively represent at least 20% of the volume of all fossil fuel-based electricity delivered by distribution utilities to U.S. consumers. Voting rights would be based on the quantity of fossil fuel-based electricity delivered to the consumer in the previous year or other representative period. The corporation would be established if persons representing two-thirds of the total quantity of fuel-based electricity delivered to retail consumers vote for approval. However, if 40% or more of state regulatory authorities submit written notices of opposition to the creation of the corporation, it would not be established. If established, the corporation would award grants, contracts, and assistance to support commercial-scale demonstration of carbon capture or storage technology projects that encompass coal and other fossil fuels, and are suitable for either new or retrofitted plants. The corporation would seek to support at least five commercial-scale demonstration projects over the lifetime of the corporation. Pilot-scale and other small-scale projects would not be eligible under the program. Under § 114, several entities would be eligible to receive grants, contracts, or assistance from the corporation: distribution utilities, electric utilities and other private entities, academic institutions, national laboratories, federal research agencies, state and tribal research agencies, nonprofit organizations, or a consortium of two or more eligible entities. In addition, § 114 would favor "early movers" by providing, in the form of grants, 50% of the funds raised to electric utilities that had already committed resources to deploy large-scale electricity generation units integrated with CCS. The section would provide grant funds to defray costs already incurred for at least five "early movers." The corporation would raise funding for its program by collecting an assessment on distribution utilities for all fossil fuel-based electricity delivered to retail customers. The assessments would reflect the relative CO 2 emission rates of different fossil fuels used to generate electricity, as shown in Table 3 . The corporation would be authorized to adjust the assessments so that they generate not less than $1.0 billion and not more than $1.1 billion per year. The authority to collect assessments would be authorized for a 10-year period, beginning six months after enactment. The corporation would dissolve 15 years after enactment unless extended by Congress. If assessments are collected as specified in the legislation, the corporation would accumulate approximately $10 billion to be awarded over 15 years. Section 114 allows for cost recovery. The legislation would allow a distribution utility whose transmission, delivery, or sale of electric energy are subject to any form of rate regulation the opportunity to recover the full amount of "the prudently incurred costs" associated with complying with § 114, consistent with state or federal laws. Section 114 also allows for ratepayer rebates. If the corporation does not disburse or dedicate at least 75% of the funds in a calendar year due to absence of qualified projects or similar circumstances, then the corporation must reimburse the balance to the distribution utilities. In this case, the regulatory authority that gave its approval for cost recovery could also order rebates to ratepayers from the reimbursed pool of funds. Section 114 also provides specific provisions for the Electric Reliability Council of Texas (ERCOT), so that the program can work for ERCOT as well as for other regions of the country. Within five years, the Comptroller General of the United States must prepare an analysis and report to Congress assessing the corporation's activities, including project selection and methods of disbursement of assessed fees, impacts on the prospects for commercialization of carbon capture and storage technologies, and adequacy of funding. S. 1733 Division A, § 125, of S. 1733 is very similar to § 114 of H.R. 2454 with a few exceptions. Under both bills, the corporation to be established would operate as a division or affiliate of the Electric Power Research Institute (EPRI), and be managed by a board consisting of no more than 15 members drawn from the following groups: investor-owned utilities; utilities owned by a state agency, municipality, or Indian tribe; rural electric cooperatives; fossil fuel producers; nonprofit environmental organizations; independent generators or wholesale power providers; and consumer groups. S. 1733 adds two additional groups to the board that were not included in H.R. 2454 : (1) the National Energy Technology Laboratory of the Department of Energy, and (2) the Environmental Protection Agency. The entities eligible to receive grants, contracts, or assistance under the program are identical for both bills; however, S. 1733 also requires that projects shall meet the eligibility requirements of § 780(b) of the Clean Air Act. Section 780 would be an amendment to Title VII of the Clean Air Act, added under S. 1733 , and would provide for the commercial deployment of carbon capture and sequestration technologies. Apart from these relatively minor differences, this "wires charge" program created under S. 1733 and H.R. 2454 would be nearly identical. One possible advantage of the program, if enacted, would be the creation of a consistent funding stream—exempt from the annual appropriations process—for development of CCS technology over 10 years. In contrast, funding for CCS technology from DOE, which is subject to appropriations, has changed significantly over the past decade or more. It has increased from approximately $1 million in FY1997 to $581 million in FY2009. Further, the American Recovery and Reinvestment Act (ARRA, P.L. 111-5 ) allocated $3.4 billion to CCS to be committed by the end of FY2010, a dramatic increase over current funding levels. Concerns could be raised over the relative effectiveness of a sharp but short-lived increase in funding—provided by ARRA, for example—versus a consistent stream of funding over a longer time period, for the purposes of technology development. Performance Standards for Coal-Fueled Power Plants H.R. 2454 Title I, §116, of H.R. 2454 would amend Title VIII of the Clean Air Act by adding performance standards for CO 2 removal for new coal-fired power plants. Plants covered by this section include those that have a permit issued under CAA Title V to derive at least 30% of their annual heat input from coal, petroleum coke, or any combination of these fuels. The performance standards are as follows: A covered unit that is "initially permitted" on or after January 1, 2020, shall reduce carbon dioxide emissions by 65%. The 65% reduction would result in a level of emissions roughly equivalent to the CO 2 released by a natural gas-fired plant of modern design (a "combined cycle" plant) using no carbon controls. However, to achieve a 65% reduction (or the 50% reduction for older plants; see immediately below) a coal plant would have to install carbon removal technology. A covered unit that is initially permitted after January 1, 2009, and before January 1, 2020, must achieve a 50% reduction in CO 2 emissions by a compliance date that will be determined by future developments. Specifically, the compliance date will be the earliest of (1) four years after the date in which the equivalent of 4 gigawatts (Gw) of generating capacity with commercial CCS technology are operating in the United States and sequestering at least 12 million tons of CO 2 annually (equivalent to roughly eight medium-sized coal plants); or (2) January 1, 2025 (which can be extended by the EPA Administrator by up to 18 months on a case-by-case basis). Not later than 2025 and at five-year intervals thereafter, the Administrator is to review the standards for new covered units under this section and shall reduce the maximum CO 2 emission rate for new covered units to a rate that reflects the degree of emission limitation achievable through the application of the best system of emission reduction that the Administrator determines has been adequately demonstrated. The Administrator is also to publish biennial reports on the amount of capacity with commercial CCS technology in the United States. The use of the term "initially permitted" is important in the implementation of this section. A new power plant that has received a permit that is still subject to administrative or legal review is considered to be "initially permitted." If a proposed new coal plant has been "initially permitted" prior to January 1, 2009, it will not fall under the requirements of this section to eventually install carbon controls. S. 1733 Division A, Section 124, of S. 1733 contains a nearly identical provision. Probably the most important change relates to units that are initially permitted after January 1, 2009, and before January 1, 2020. In H.R. 2454 , this class of plants must achieve a 50% reduction in carbon dioxide emissions by a compliance date that can be triggered by market developments, but normally is no later than January 1, 2025. In S. 1733 this date is January 1, 2020. As noted above, the compliance deadline date can be earlier than 2020 if certain market developments occur. In H.R. 2454 these criteria include installation of the equivalent of at least 4 Gw of generating capacity with carbon capture and sequestration equipment. In the chairman's mark of S. 1733 this is put at 10 Gw, but the breakdown of the target between power plants and industrial plants still adds to 4 Gw. The chairman's mark also clarifies that in determining whether the target has been met, only the treated capacity of retrofitted power plants should be counted toward the target. Commercial Deployment of Carbon Capture and Sequestration Technologies H.R. 2454 Section 115 of H.R. 2454 would amend Title VII of the Clean Air Act (and create § 786) to require that not later than two years after the date of enactment, the EPA Administrator is to promulgate regulations providing for the distribution of emission allowances to support the commercial deployment of carbon capture and sequestration technologies in both electric power generation and industrial operations. Eligibility for emission allowances requires an owner or operator to implement carbon capture and sequestration technology at: an electric generating unit that has a nameplate capacity of 200 megawatts or more, and derives at least 50% of its annual fuel input from coal, petroleum coke, or any combination of these two fuels, and which will achieve at least a 50% reduction in carbon dioxide emissions annually produced by the unit; and an industrial source that, absent carbon capture and sequestration, would emit more than 50,000 tons per year of CO 2 , and upon implementation will achieve at least a 50% reduction in annual CO 2 emissions from an emission point. Eligibility for emission allowances requires that the owner or operator geologically sequester captured CO 2 or convert it to a stable form that can be safely and permanently sequestered. Section 115 would distribute emission allowances to electric generating units in two phases. Phase I applies to the first 6 Gw of electric generating units, measured in cumulative generating capacity of such units. Under Phase I, eligible projects would receive allowances equal to the number of tons of carbon dioxide captured and sequestered, multiplied by a bonus allowance value, divided by the average fair market value of an emission allowance in the prior year. The Administrator would establish a bonus allowance value for each rate of carbon capture and sequestration—compared to how much would otherwise be emitted—from a minimum of $50 per ton for a 50% rate to a maximum of $90 per ton for an 85% rate. This section provides an incentive for "early movers." Under Phase I distribution to electric generating units, the bonus allowance value is increased by $10—of the otherwise applicable bonus value—if the generating unit achieves a 50% capture rate before January 1, 2017. Allowances would be distributed under Phase II after the 6 Gw threshold is achieved. Phase II would distribute emission allowances by reverse auction. At each reverse auction, the EPA Administrator would select bids from eligible projects—each bid submitted would include the total quantity of CO 2 to be sequestered over 10 years and the desired CO 2 sequestration incentive per ton—and begin with the project proposing the lowest level of CO 2 incentive per ton. If the Administrator determines that reverse auctions are not efficient or cost-effective for deploying commercial-scale capture and sequestration technologies, the Administrator may prescribe an alternative distribution method. In an alternative distribution method, the Administrator would divide emission allowances into multiple "tranches," each supporting the deployment of a specified quantity of cumulative electric generating capacity utilizing CCS technology. Each tranche would support no more than 6 Gw of electric generating capacity, and would be distributed on a first-come, first-serve basis. For each tranche, the Administrator would establish a sliding scale that would provide higher bonus allowance values for projects achieving higher rates of capture and sequestration. For each successive tranche, the Administrator would establish a bonus allowance value that is lower than the rate established for the previous tranche. Limitations Under both Phase I and Phase II, the EPA Administrator would reduce or adjust the bonus allowance values for projects that sequester CO 2 in geological formations for the purposes of enhanced hydrocarbon recovery. By reducing the bonus allowance value for these projects, the Administrator would take into account the lower net costs for an enhanced hydrocarbon recovery project. The lower net costs would presumably result from income to the project provided via sale of the recovered hydrocarbons. Section 115 of H.R. 2454 also contains several provisions that limit the number of allowances and the total cumulative electric generating capacity eligible for allowances. Under § 115, no more than 72 Gw of total cumulative generating capacity may receive allowances, including industrial applications measured under an equivalent metric determined by the EPA Administrator. In addition, a qualifying project, either an electricity generating plant or industrial facility, would be eligible to receive allowances only for the first 10 years of operation. H.R. 2454 also limits the total percentage of emission allowances made available under the bill for CCS to 1.75% for years 2014 through 2017, 4.75% for years 2018 through 2019, and 5% for years 2020 through 2050. These annual allocation percentages are established in § 782(f) of the Clean Air Act, as amended by H.R. 2454 . Section 115 would allocate the bulk of emission allowances to electricity generating units and limit the amount of emission allowances available to industrial sources. The Administrator would not distribute more than 15% of the allocated allowances under § 782(f) to eligible industrial sources. The allowances may be distributed to eligible industrial sources using a reverse auction method or an incentive schedule, similar to the Phase II methods described for electric generating units. Industrial facilities are specifically excluded if they produce a liquid transportation fuel from a solid fossil-based feedstock, such as coal. S. 1733 Under Subtitle B of Division B of S. 1733 , § 111 allows for the disposition of emission allowances for the global warming pollution reduction program. Similar to § 115 of H.R. 2454 , this section of S. 1733 would amend Title VII of the Clean Air Act and add § 780 (equivalent to § 786 created in H.R. 2454 ), which would distribute emission allowances to electricity generating plants and industrial facilities to foster the deployment of CCS technologies. The goal, scope, and structure of the program in Division B, § 111, of S. 1733 are very similar to those of the program created under § 115 of H.R. 2454 , with several important distinctions. As with H.R. 2454 , S. 1733 would distribute allowances for the first 72 Gw of total cumulative generating capacity to employ CCS, including industrial applications, and would distribute them as a similar percentage of the total pool of available allowances: 1.75% for years 2014 through 2017, 4.75% for years 2018 through 2019, and 5% for years 2020 through 2050. S. 1733 would also distribute allowances in two phases; however, it would distribute allowances to the first 20 Gw of generating capacity in Phase I, instead of 6 Gw as proposed in Phase I of H.R. 2454 . Phase I of S. 1733 would distribute allowances in two 10-Gw tranches according to the same formula described in H.R. 2454 : First tranche—10 Gw for eligible projects achieving 50% or more reduction in CO 2 emissions through the use of CCS technology, with bonus allowance values ranging from $50 per ton for 50% capture to $96 per ton for 90% capture (versus $90 per ton for 85% capture in H.R. 2454 ). Second tranche—10 Gw for eligible projects achieving 50% or more reduction in CO 2 emissions with a maximum bonus allowance value of $85 per ton for 90% capture. Similar to H.R. 2454 , "early mover" projects would receive an additional $10 per ton if they commenced operations by January 1, 2017, which would apply to all 20 Gw of Phase I in S. 1733 . In contrast, the "early mover" bonus would apply to only 6 Gw in H.R. 2454 . As in H.R. 2454 , allowances would be distributed under Phase II by reverse auction. In S. 1733 , similar to H.R. 2454 , the EPA Administrator may establish reverse auctions for no more than five different project categories, defined based on (1) coal type, (2) capture technology, (3) geological formation type, (4) new versus retrofit, and (5) other factors or any combination of categories 1-4. In S. 1733 , the Administrator would establish a separate reverse auction, to be held annually, for projects at industrial sources. Industrial sources would not be allowed to participate in other auctions. A requirement to segregate industrial sources from electricity generating sources is not specified in H.R. 2454 . In parallel to H.R. 2454 , the Administrator may prescribe an alternative distribution method under S. 1733 if it is determined that reverse auctions are not efficient or cost-effective. Under both H.R. 2454 and S. 1733 , the Administrator would divide the emission allowances into a series of multiple tranches, each supporting the deployment of a specific quantity of cumulative electricity generating capacity. Under S. 1733 , each tranche would support 10 Gw of generation capacity. In contrast, under H.R. 2454 each tranche would support 6 Gw. Limitations As with H.R. 2454 , no more than 15% of the total emission allowances allocated for CCS in S. 1733 would be distributed to eligible industrial sources in any vintage year. In addition, S. 1733 prohibits the distribution of allowances to industrial sources under the first tranche of Phase 1 (i.e., the first 10 gigawatts of generating capacity), but does allow industrial projects to receive allowances under the second tranche of Phase I and thereafter. Under H.R. 2454 , projects at industrial sources would be eligible to receive allowances in Phase II, after the allowances for the first 6 gigawatts of generating capacity have been distributed. S. 1733 also contains a provision for certification of qualifying projects that is not included in H.R. 2454 . Under S. 1733 , qualifying projects that are eligible to receive allowances under either Phase I (the first 20 Gw) or the alternative distribution method of Phase II may request a certification from the EPA Administrator that the project is eligible to receive emission allowances. A project that successfully bids under the reverse auction method of Phase II does not have an option; it would be required to request a certification from the Administrator. The process of obtaining a certification is apparently a more formal requirement for eligibility that leads to a reservation of a portion of emission allowances allocated for the deployment of CCS technology. In addition to applying for a certification, a qualifying project would need to document several items in order for the Administrator to make a determination of eligibility: technical information regarding CCS technology to be used, coal type, geological formation type, and other relevant design criteria; the annual CO 2 reductions projected for the first 10 years of commercial operation; and a demonstration by the owner and operator that they are committed to constructing and operating the project along a timeline of reasonable capture and sequestration milestones. In addition to documenting this information, the qualifying project must demonstrate its commitment to the project by taking at least one of three qualifying actions : execution of a commitment by lenders or other appropriate entities to finance the project; commitment of the owner or operator to execute a surety bond; or an authorization by a state regulatory authority to allow cost recovery from the retail customers for the costs of the project. For projects that elect not to request certification (Phase I or alternative distribution projects under Phase II are not required to, although they may), the Administrator would make a separate determination of whether the project satisfies eligibility requirements. That determination would occur at a time when the emission allowances are actually distributed. As with H.R. 2454 , emission allowances under S. 1733 would be distributed on an annual basis, based on the total tons of CO 2 the project actually captures and sequesters in each of the first 10 years of operation. Although emission allowances may be reserved in advance, based on the issuance of a certification or other determination of eligibility, they would not be actually distributed until after the CO 2 has been already captured and sequestered. Chairman's Mark On October 23, 2009, Senator Boxer released the chairman's mark to S. 1733 , which contained a new provision to the emission allowance distribution program for CCS. The new provision would allow for advanced distribution of allowances under Phase I of the program, thus providing an opportunity for fossil fuel fired electricity plants and industrial facilities to receive allowances before the plants have actually captured and sequestered any CO 2 . This approach differs from the allowance distribution scheme in H.R. 2454 and S. 1733 (as introduced), which would distribute emission allowances based on the total tons of CO 2 actually captured and sequestered. Similar to H.R. 2454 and S. 1733 (as introduced), the chairman's mark would require that plants have at least a 50% capture rate before they would qualify for allowances. Under the new provision, 70% of the number of emission allowances reserved under the first tranche of Phase I would be eligible for advanced distribution, and 50% of the second tranche would also be eligible. The amount of allowances eligible for advanced distribution would total 12 Gw of the 20 Gw of generating capacity, or 60% of the total, available under Phase I of S. 1733 . By comparison, H.R. 2454 would provide only half that amount (6 Gw) in total for Phase I, and would require that the plants have commenced operations and actually be capturing CO 2 before receiving any allowances. The provision in the chairman's mark of S. 1733 could be seen as an additional incentive to "early movers" to build CCS-ready facilities or retrofit existing plants. The requirements for when to provide the advanced distribution are somewhat vague, however, allowing the EPA Administrator discretion to pick a time prior to the plant's operational phase that would "ensure expeditious deployment" of CCS technology. Some may view the new provision as providing access to emission allowances before the plant owner or operator has made an iron-clad commitment to building and operating a CCS unit. In part, the chairman's mark addresses that concern by specifying that advanced allowances would be limited to only cover costs for retrofitting an existing plant for CCS and to cover the difference in costs between building a new electric generating unit with CCS versus a new plant without CCS. The bill assigns responsibility for the necessary cost estimates—for both the retrofit and the new plant costs—to the organization requesting the advanced appropriations. The advanced allowances would be distributed using the cost estimates provided by the requesting organization. In addition, certification would be required for a plant to receive advanced allowances. As one of the criteria for obtaining certification, the chairman's mark adds an additional qualifying action to the list of qualifying actions in S. 1733 that would demonstrate a commitment to construct and operate a CCS project: an authorization from a state legislature to allow cost recovery for the CCS project. Thus, a project could receive authorization either from a state regulatory authority for cost recovery, or from a state legislature, as one necessary step to obtaining certification. The advanced allowance scheme provides a new incentive for power plants and industrial facilities to make a commitment to building CCS that is not present in H.R. 2454 or in S. 1733 (as introduced). It is likely to accelerate early deployment of CCS by making up to 12 Gw eligible for advanced allowances, compared to H.R. 2454 , which provides for only 6 Gw in Phase I. How much more electricity generating capacity will employ CCS as a result of the advanced allowance provision is difficult to predict, and would depend, in part, on other factors such as the ratio of the value of bonus allowances established in legislation versus the market price of allowances. The long-term deployment of CCS would also depend on how well the hoped-for "learning-by-doing" gains in efficiency and knowledge accrue from demonstration projects and the experience gained through early deployment at a commercial scale.

The carbon capture and sequestration (CCS) provisions in H.R. 2454 and S. 1733 are similar (some sections are identical), and both bills appear to share the goal of fostering the commercial development and deployment of CCS projects as an important component of mitigating greenhouse gas emissions. The bills call for a unified national strategy for addressing the key legal and regulatory barriers to deployment of commercial-scale CCS. A required report detailing a national strategy would identify barriers and gaps that could be addressed using existing federal authority and those that would require legislation, as well as those that would be best addressed at the state, tribal, or regional level. Both bills would also amend the Clean Air Act (CAA) and Safe Drinking Water Act (SDWA) to require that the EPA Administrator establish a coordinated certification and permitting process for geologic sequestration sites, taking into account all relevant statutory authorities. The amended law would require regulation of geologic sequestration wells, and promulgation of regulations to protect human health and the environment by minimizing the risk of atmospheric release of carbon dioxide injected for geologic sequestration. Both bills contain identical provisions establishing performance standards for CO2 removal for new coal-fired power plants. Plants covered by this section include those that have a permit issued under the CAA, Title V, to derive at least 30% of their annual heat input from coal, petroleum coke, or any combination of these fuels. Both bills contain similar provisions that would create a program to accelerate the commercial availability of CO2 capture and storage technologies and methods by awarding grants, contracts, and financial assistance to electric utilities, academic institutions, and other eligible entities. The bills would allow the establishment of a corporation, by referendum among power industry organizations, that would derive revenue of approximately $1 billion per year via a "wires charge" on electricity delivered from the combustion of fossil fuels. One possible advantage of the program, if enacted, would be the creation of a consistent funding stream—exempt from the annual appropriations process—for development of CCS technology over 10 years. Both bills would also create a second program that would distribute emission allowances from the cap-and-trade provisions to qualifying electric generating plants and industrial facilities. Although the programs in the two bills are similar in construct and scale, S. 1733 would award allowances to the first 20 gigawatts (Gw) of electricity generation that employs CCS technology via a formula that provides a significant financial incentive, as much as $106 per ton of CO2 captured for 90% capture efficiency. In contrast, H.R. 2454 would award only the first 6 Gw via the same formula, and then employ a reverse auction scheme to allocate the rest, up to a total of 72 Gw. Thus, S. 1733 allocates allowances to a substantially larger proportion of electricity generating capacity in the first phase of the program, compared to H.R. 2454, at bonus allowance values that could be significantly higher than their average market value. A chairman's mark to S. 1733, introduced on October 23, 2009, would add an additional incentive for early deployment of CCS by allowing advanced distribution of emission allowances for CCS. In contrast to H.R. 2454 and S. 1733 (as introduced), the chairman's mark would award allowances before the plant has actually captured any CO2. In contrast, H.R. 2454 and S. 1733 (as introduced) would only distribute emission allowances based on the total tons of CO2 already captured and sequestered.

National Trends in Violent Crime and Homicide The most recent crime data published by the Federal Bureau of Investigation (FBI) from its Uniform Crime Reporting (UCR) program indicate that after many years of nearly uninterrupted declines, the national rates for violent crime and homicide increased from 2014 to 2016. The violent crime rate increased from 361.6 per 100,000 people in 2014 to 373.7 per 100,000 in 2015, and increased again to 386.3 per 100,000 in 2016 (see Figure 1 and Appendix B ). Likewise, the homicide rate increased from 4.4 per 100,000 in 2014 to 4.9 per 100,000 in 2015, and to 5.3 per 100,000 in 2016 (see Figure 2 and Appendix B ). The increases in both the violent crime and homicide rates from 2014 to 2016 are in contrast to long-term general declines in these rates since the early 1990s, but it was the large percentage increase in the homicide rate during this time that stands out. From both 2014 to 2015 and 2015 to 2016, the violent crime rate increased by approximately 3% (see Figure 3 ). While this is not historically unprecedented—the violent crime rate had larger year-to-year percentage increases in the 1960s, 1970s, and 1980s—it does break with recent trends that saw violent crime rates decrease for most of the 1990s and 2000s. In contrast, the homicide rate increased 11% from 2014 to 2015 and 8% from 2015 to 2016. The 11% increase in the homicide rate in 2015 was the largest year-to-year percentage increase since 1968 (see Figure 4 ). While short-term increases in crime grab headlines, these changes should generally be viewed in the context of longer time periods to determine whether the changes reveal short-term change or long-term trends. Evaluating crime data in short intervals can amplify the "noise" in the data and make it harder to distinguish the underlying trend. Violent crime and homicide rates have generally trended downward since the early 1990s. Even though the violent crime and homicide rates increased from 2014 to 2015 and again from 2015 to 2016, both rates remained at levels not seen since the mid-1960s. The 2016 violent crime and homicide rates are approximately half their post-1960 highs of 758.2 per 100,000 and 10.2 per 100,000. Even though violent crime and homicide rates have generally declined since the early 1990s, there were years when either one or both increased, before resuming the long-term decline in subsequent years. For example, the national violent crime rate increased from 2004 to 2005 and again from 2005 to 2006 before declining nearly every year thereafter. Similarly, the national homicide rate increased in four of the six years from 2000 to 2006, though the year-to-year increases in the rate during this span (usually 0.1 homicides per 100,000) was not as substantial as the increase from 2014 to 2015 (0.5 homicides per 100,000) or from 2015 to 2016 (0.4 homicides per 100,000). Local Trends in Violent Crime and Homicide An analysis of violent crime and homicide data at a local level can provide insight into whether trends observed in national data are widespread or the result of changes in jurisdictions of a certain size, or even a handful of cities. Trends by the Size of the Jurisdiction Violent crime trends in U.S. cities generally drive national trends, but there were some exceptions. From 2014 to 2015, violent crime rates increased 4% in cities of 1 million or more people, which was similar to but slightly greater than the increase in the national violent crime rate (3%); decreased (-4% and -1%, respectively) in cities of 500,000-999,999 people and 250,000-499,999 people; increased in some smaller cities, but at a rate that was slightly less than the national rate (2% for cities of 100,000-249,999 people and 1% for cities of 50,000-99,999 people); and increased by 5% in cities of fewer than 50,000 people, which was greater than the increase in the national crime rate. From 2015 to 2016, the violent crime rates increased for cities of all sizes. Specifically, the violent crime rates increased 6% in cities of 1 million or more people, which was double the increase in the national violent crime rate (3%); increased 3% in cities of 500,000-999,999 people; increased 5% in cities of 250,000-499,999 people; increased 3% in cities of 100,000-249,999 people; increased by 1% in cities of 50,000-99,999 people; and increased by 3% in cities of fewer than 50,000 people. Figure 5 presents data on violent crime rates from 1990 to 2016 by city size. Homicide trends in U.S. cities also generally drive the national trend. Homicide rates increased in cities of all sizes from 2014 to 2015. Specifically, homicide rates increased 9% in cities of 1 million or more people, which was slightly below the increase in the national homicide rate (11%); increased 11% in cities of 500,000-999,999 people; increased 3% in cities of 250,000-499,999 people; increased 9% in cities of 100,000-249,999 people; increased 12% in cities of 50,000-99,999 people; and increased 11% in cities of fewer than 50,000 people. From 2015 to 2016, homicide rates increased in cities with populations of less than 50,000 and 100,000 or more . Specifically, the homicide rates increased 20% in cities of 1 million or more people (20%), which was greater than the increase in the national homicide rate (8%); increased 3% in cities of 500,000-999,999 people; increased 13% in cities of 250,000-499,999 people; increased 5% in cities of 100,000-249,999 people; decreased 3% in cities of 50,000-99,999 people; and increased 7% in cities of fewer than 50,000 people. Figure 6 presents data on homicide rates from 1990 to 2016 by the size of the city. Trends in Large Cities in the United States Much of the increase in violent crime in the largest cities in the United States from 2014 to 2016 was driven by increases in a handful of cities. From 2014 to 2015, there was a net increase of 14,464 violent crimes in the 48 largest cities in the United States for which violent crime and homicide data were available; three cities (Los Angeles, Las Vegas, and Baltimore) accounted for 60% of the net increase. The 10 cities with the largest increases in the number of violent crimes from 2014 to 2015 (Los Angeles, Las Vegas, Baltimore, Wichita, Charlotte, San Antonio, Kansas City, Milwaukee, Sacramento, and Denver) accounted for 97% of the net increase in the number of violent crimes among the 48 cities. From 2015 to 2016, there was a net increase of 24,218 violent crimes in these cities. Increases in violent crime in Chicago, Los Angeles, San Antonio, and Houston accounted for 55% of the net increase, while the 10 cities with the largest increases in violent crime from 2015 to 2016 (Chicago, Los Angeles, San Antonio, Houston, Detroit, Baltimore, Phoenix, Kansas City, Dallas, and Albuquerque) accounted for 87% of the net increase. Similar results were found in year-to-year changes in homicide in these same 48 cities. From 2014 to 2015, there was a net increase of 685 homicides in the 48 largest cities for which data were available. The increase in the number of homicides in Baltimore alone during this time accounted for 19% of the net increase, while the increase in the number of homicides in Baltimore, Chicago, Houston, Washington, DC, and Milwaukee together accounted for 54% of the net increase. The 10 cities with the largest increase in the number of homicides from 2014 to 2015 (Baltimore, Chicago, Houston, Washington, Milwaukee, Philadelphia, Kansas City, Nashville, Oklahoma City, and Louisville) accounted for 76% of the net increase. From 2015 to 2016, there was a net increase of 632 homicides in these same cities. The increase in the number of homicides in Chicago during this time accounted for 45% of the net increase. The 10 cities with the largest increase in the number of homicides from 2015 to 2016 (Chicago, Memphis, San Antonio, Louisville, Dallas, Phoenix, Las Vegas, Kansas City, Albuquerque, and San Jose) accounted for 94% of the net increase during that time. In nearly half of the 48 largest cities in the United States for which violent crime and homicide data were available, violent crime rates increased from 2014 to 2015 or from 2015 to 2016 (see Figure 7 ). Data going back to 1997 reveal it is common for city-level violent crime rates to fluctuate from year-to-year. The charts in Figure 8 are illustrative of this point. The cities included in Figure 8 were selected because their violent crime rates increased in both 2015 and 2016 and the percentage increase from 2014 to 2015 or from 2015 to 2016 was large relative to other cities. Data indicate that the year-to-year increases in violent crime rates, similar to those which recently occurred in many large cities, are not unusual and do not always portend continued increases. For example, the violent crime rate in Kansas City increased 30% from 2006 to 2007, followed by a 36% decrease from 2008 to 2011. For other cities, recent increases in violent crime rates broke with long-term historical trends. For example, the violent crime rate in Los Angeles increased by 13% or more in each of the past three years. Prior to that, the violent crime rate had decreased in 14 of the 16 years since 1997—and when it did increase, it was a much smaller percentage increase (6% in 2000 and 2% in 2001) than more recent increases. For many cities, even though violent crime rates increased from 2014 to 2015 and/or from 2015 to 2016, the 2016 rates were still lower than their peak violent crime rates during the last 20 years. There were two cities—Milwaukee and Wichita—where increases in violent crime rates from 2014 to 2015 and/or from 2015 to 2016 resulted in these cities experiencing their highest violent crime rates since before 1997. Of the 48 largest cities in the United States for which the data are available, UCR data show that from 2014 to 2016 more cities experienced an increase in their homicide rate than experienced an increase in their violent crime rates. Scale bears upon evaluation of percentage changes in homicide rates. Because there are far fewer homicides per 100,000 relative to violent crimes overall, small numerical changes in homicide rates can result in large percentage changes. The largest year-to-year percentage increase in the violent crime rate in any of the 48 largest cities with available data was an approximately 30% increase from 2014 to 2015 in Los Angeles and Wichita. In comparison, 13 cities saw their homicide rates increase by 50% or more during this same time, with the homicide rate in Arlington, TX, increasing by approximately 150% from 2015 to 2016 ( Figure 9 ). However, Arlington's homicide rate increased from 2.1 per 100,000 in 2015 to 5.3 per 100,000 in 2016 because of an increase from 8 homicides in 2015 to 21 in 2016. Even with the increase, Arlington still had one of the lowest homicide rates amongst major U.S. cities. In comparison, Atlanta experienced a similar increase in the rate of homicides per 100,000 people (from 20.2 in 2015 in 2015 to 23.5 per 100,000 in 2016), which only resulted in a 16% increase in Atlanta's homicide rate. An examination of trends going back to 1997 shows that, like violent crime rates, it is common for homicide rates to fluctuate from year-to-year and that recent increases experienced by some cities run counter to long-term trends. Data on homicide trends in eight cities presented in Figure 10 illustrate these points. The cities included in Figure 10 were selected because their homicide rates increased from 2014 to 2015 and from 2015 to 2016, and the percentage increase in one or both years was large relative to increases in other cities. Homicide rates in Albuquerque and Kansas City, for example, increased by approximately 40% from either 2014 to 2015 or 2015 to 2016, but both cities had experienced comparable increases in the past that were followed by decreases in the city's homicide rate. On the other hand, increases in homicide rates in some cities broke with longer-term trends. For example, the homicide rates in Nashville and Louisville increased three years in a row from 2014 to 2016, something that has not happened since before 1997, but both of these cities also had several years of decreases in their homicide rates that resulted in their 2016 homicide rates to still be less than they were in 1997. As with violent crime rates, even though the homicide rates for many of the 48 largest cities for which data were available increased from 2014 to 2015 and/or from 2015 to 2016, their homicide rates remained lower than they were at any time since 1997. However, six cities—Chicago, Baltimore, Omaha, Memphis, San Antonio, and Milwaukee—reached a 20-year high for their homicide rates in either 2015 or 2016. In summary, data on violent crime and homicide rates, with a focus on the 48 largest U.S. cities for which data were available, suggest that while recent increases in violent crime and homicide rates are cause for concern in many large cities, the country as a whole is not in the midst of a sweeping national violent crime wave. It is common for violent crime and homicide rates to fluctuate from year-to-year, and crime rates are generally higher in large cities than in the rest of the United States. There were some cities that experienced increases in violent crime and homicide from 2014 to 2015 and again from 2015 to 2016, but in many other large cities, violent crime and/or homicide rates only increased in one of those years, or they decreased in both. Is There a "Ferguson Effect"? There are many theories about why crime increases or decreases, but recently, the discussion of a "Ferguson effect" has grabbed the attention of scholars and policymakers alike. The Ferguson effect is one of the more widely discussed and controversial explanations for the recent increases in violent crime in some cities. There are two explanations for how the events that occurred in Ferguson, MO, might be associated with an increase in violent crime. The first is "de-policing," whereby law enforcement, in light of negative publicity and public protest over allegations of overly aggressive and discriminatory police practices, withdraw from engaging in proactive policing efforts due to concerns about public criticism of officers' behavior and associated lawsuits. The second is that high-profile incidents, such as the shooting of Michael Brown by police in Ferguson, may be interpreted by the public to mean that justice is not being administered fairly, which empowers some individuals to engage in behaviors that directly challenge the legitimacy of law enforcement and others not to turn to law enforcement for help when crime occurs. There is a small but growing body of research on whether the Ferguson effect has contributed to increasing violent crime rates. A study sponsored by the National Institute of Justice finds mixed evidence of a Ferguson effect. The study cites data from the Pew Research Center that suggests that police officers have altered their behavior in response to high-profile use of force incidents in a manner consistent with de-policing. However, the Pew data had significant limitations (e.g., the Pew survey asked officers to report on other officers' behavior; only officers from agencies with at least 100 officers were surveyed ; the survey asked about "high profile incidents involving blacks and the police" rather than the specific events in Ferguson, MO; and data were not collected pre-and post-Ferguson that would have allowed for a causal inference to be made), which make it hard to determine how much, if at all, police officers' behaviors have changed in response to Ferguson or other similar incidents. The study also notes that the ratio of arrests to reported offenses (i.e., the clearance rate ) decreased modestly from 2014 to 2015 in cities with populations over 100,000, which coincided with an increase in homicides in many of these same cities. Declining clearance rates are consistent with decreases in proactive policing; however, the clearance rate was decreasing prior to 2014, before the events in Ferguson, MO, and at a time when homicide rates were declining. A similar pattern emerged when looking at clearance rates for serious and minor offenses separately: the clearance rates for serious and minor offenses have been decreasing for several years prior to 2015 when violent crime and homicide rates were also decreasing. The study found some evidence that increases in homicides could be tied to decreasing police legitimacy, and increasing distrust of the police resulting from high-profile use of force cases. For example, the study notes that calls to the police in Milwaukee decreased significantly after the police beat and badly injured a black man, and the decline was more pronounced in predominately black neighborhoods. However, it is not clear whether other cities saw decreases in calls for police service post-Ferguson, nor is it clear to what degree decreased reliance on the police contributed to increases in violent crime. Two additional studies provide further insight into the Ferguson effect. The first examined changes in violent and property crime rates for 81 cities with populations greater than 200,000 for evidence of a post-Ferguson crime increase. The researchers concluded that there was no systematic change (i.e., across all cities) in the total, violent, and property crime rates post-Ferguson. But, when they disaggregated violent and property crime rates into individual offense rates, they found evidence of increases in robbery rates after Ferguson, but no statistically significant increase in crime rates for any other property or violent offense. The authors noted that their analysis could not discern the extent to which de-policing or a crisis in police legitimacy occurred after Ferguson, and what effect it might have had on crime rates, but "[w]hat we do know, however, is that if de-policing or a legitimacy crisis are occurring, neither is impacting crime rates systematically across large U.S. cities." The second study attempted to address some of the shortcomings of the first by using traffic stop and crime data for jurisdictions in Missouri to evaluate the link between de-policing and crime rates. Their analysis found that police made about 67,000 fewer stops in 2015 compared to 2014, but the reduction in the number of stops did not correspond with a decrease in the number of searches or arrests. However, police did increase their hit rates (i.e., searches that resulted in the discovery of contraband) in 2015, which suggests that they were making "better stops and conducting searches that more consistently yielded contraband." They also found that, in jurisdictions with a higher proportion of African-Americans, police made fewer stops, searches, and arrests in 2015 compared to 2014, which suggests that the racial composition of cities can shape de-policing behavior. Finally, their analysis did not uncover a link between reduced stops and crime rates. Researchers at Johns Hopkins University also tested for a Ferguson effect by examining changes in crime rates and arrests in Baltimore after the events in Ferguson, and after the unrest stemming from the death of Freddie Gray while he was in the custody of the Baltimore Police Department. The researchers conclude that, after adjusting for seasonal variation in crime rates, there was little evidence of a Ferguson effect during the period after the events in Ferguson but before Freddie Gray's death. They did find evidence of a spike in crime after Freddie Gray's death, which only partly abated after the appointment of a new police commissioner. However, the researchers concluded that it is not clear the post-Freddie Gray crime spike is evidence of a Ferguson effect. After the arrest of Freddie Gray, evaluation of the Ferguson effect is challenging.... [T]he Gray effect is fundamentally entangled with the Ferguson effect narrative, and it is not surprising therefore that the debate on the Ferguson effect picked up momentum shortly after the unrest in Baltimore. One reasonable interpretation of these entangled effects is that the crime spike in the Gray period could be a Ferguson effect that would have remained dormant had it not been ignited by a localized Gray effect. However, the size and duration of the crime spike is almost certainly attributable to particular features of the unrest, possibly including an increase in gang-related conflict over drug distribution as well as a police pullback in protest of the city's leadership. These accelerants have little or no connection to the core narrative of the conjectured Ferguson effect, and as a result at least some portion of the crime spike is probably a genuine Gray effect that cannot be attributed to the Ferguson effect narrative championed by some commentators. The Johns Hopkins study did find some evidence of a potential Ferguson effect in the arrest data. Arrests declined after Ferguson, and they continued to decrease after Freddie Gray's death before increasing after the appointment of a new police commissioner. The researchers noted that arrests decreased for lower-level crimes where police have some discretion about whether to arrest a suspect; arrests for violent crimes, such as homicide and robbery, remained steady. The analysis does not attempt to draw a link between declining arrests and increased crime. However, the researchers offer a conclusion, which they note "entail[s] reasoning that is beyond the empirical analysis that we can offer," that "the composition of the crime spike that began [after Freddie Gray's death] is more likely attributable to the particular features of the unrest and how it was handled than by the decline in discretionary arrests that proceeded it." In conclusion, there is some evidence that police in Baltimore made fewer arrests post-Ferguson at the same time that there was an increase in violent crime. However, there is little evidence of a link between de-policing and increases in violent crime. There are only a handful of studies that have evaluated this phenomenon, and two of the studies, which were more methodologically rigorous in evaluating the link between de-policing and crime, use state- and city-level data and are not generalizable to all states and cities. In addition, a post-Ferguson decrease in arrests might not be a detriment to Baltimore communities if the decrease did not result in an increase in crime and the reduction was in arrests that generate tensions between minority communities and the police. As the authors of the study in Baltimore noted: The decline in arrests that is interpretable as a Ferguson effect in the period of time before the arrest of Freddie Gray can be considered a positive development for the Baltimore community. This conclusion would follow from the position that a decline in discretionary arrests is a desired goal, following a period in Baltimore during which many residents and their local leaders concluded that the robust policing of struggling communities is not helpful for their redevelopment. Select Policy Options While available data suggest that the country is not in the grip of national violent crime wave, there is evidence that some U.S. cities are experiencing substantial increases in violent crime, particularly homicides. Policymakers may consider congressional action to support efforts to reduce violent crime in some of the most affected cities. Additional Grant Funding Most federal efforts to reduce violent crime involve providing grant funds to state and local governments to support crime-reduction efforts. Along these lines, policymakers could consider providing more funding to the Edward Byrne Memorial Justice Assistance Grant (JAG) program. Because of the breadth of the program, local governments could use their grant funds for a variety of crime-prevention efforts, including programs that address issues that might be giving rise to increases in violent crime. However, because JAG is a formula grant program, additional funding would not be limited to only the cities that have experienced recent increases in rates of violent crime and homicides. Should Congress increase appropriations for the JAG program, the additional funds would be distributed to all eligible state and local governments per the statutorily defined formula. Also, local governments would not be required to use any additional funding they might receive for violent crime-prevention programs. Thus, Congress might also consider amending 34 U.S.C. §10157(b) so that the Department of Justice (DOJ) would be required to set aside a proportion of the annual JAG appropriation to help local governments "combat, address, or otherwise respond to precipitous or extraordinary increases in crime, or in a type or types of crime." Policymakers could also consider providing additional funding to discretionary grant programs such as the Community Oriented Policing Services' (COPS) hiring program, the Byrne Criminal Justice Innovation program, or Project Safe Neighborhoods. In addition, Congress could consider authorizing and appropriating funding for a new grant program that supports investment in evidence-based policing strategies or crime prevention program, such as "hot-spots" policing." However, while discretionary grant programs can be more targeted than formula grant programs, the Administration ultimately makes the decision about which entities will receive funding. Congress could influence grant awards by placing conditions on appropriated funding. For example, Congress could direct DOJ to award grants to cities with violent crime rates above the national violent crime rate or to cities that have had a certain minimum percentage increase in homicide rate from one year to the next. The National Public Safety Partnership Congress might also consider providing resources to help DOJ expand the National Public Safety Partnership (PSP). DOJ established PSP in response to an Executive Order issued by President Trump on February 9, 2017, that required DOJ to take the lead on promoting public safety by coordinating with state, local, and tribal law enforcement agencies. PSP builds upon lessons learned from a similar DOJ initiative, the Violence Reduction Network (VRN). PSP is an initiative whereby DOJ assists state, local, and tribal law enforcement with developing programs to investigate, prosecute, and deter violent crime, especially violent crime related to gangs, gun violence, and drug trafficking. Sites that participate in PSP develop their own violence reduction strategies and DOJ provides them with specialized training and technical assistance to help them implement their strategies. PSP has faced criticism. It is argued that the most recent round of cities that DOJ chose to participate in PSP were not the cities with the greatest need for assistance. Cities such as Baltimore, Chicago, Detroit, Nashville, and Washington, DC—which have struggled with increasing rates of violent crime over the past couple years or which have relatively high violent crime rates—were not chosen to participate in PSP. Also, while DOJ provides training and technical assistance through PSP, cities selected to participate in the program do not receive additional funding to help implement their violence reduction strategies. Currently, PSP is a DOJ-initiated program with no authorizing legislation dictating its parameters. Authorizing legislation could provide an opportunity for policymakers to set criteria for how cities are chosen for participation in the program. Congress could also choose to authorize funding for the program so DOJ could provide financial assistance to selected cities to help them implement their violence reduction strategies. Appendix A. Uniform Crime Reporting (UCR) Program The FBI UCR program is comprised of four subprograms: the Summary Reporting System (SRS), the National Incident Based Reporting System (NIBRS), the Law Enforcement Officers Killed and Assaulted Program, and the Hate Crime Statistics Program. The FBI, through the SRS, collects data on the number of offenses known to police, the number and characteristics of persons arrested, and the number of "clearances" for eight different offenses collectively referred to as Part I offenses. Part I offenses include four "violent" offenses (murder and non-negligent manslaughter, forcible rape, robbery, and aggravated assault) and four "property" offenses (burglary, larceny-theft, motor vehicle theft, and arson). The FBI collects data on the number of arrests made for the eight Part I offenses and 21 other offenses, known as Part II offenses. The UCR, with the exception of NIBRS, is a summary system, meaning that offense data submitted to the FBI by local law enforcement agencies show the total number of known Part I offenses. Likewise, UCR arrest data show the total number of persons arrested by reporting law enforcement agencies. Law enforcement agencies voluntarily submit crime data to the FBI for inclusion in the UCR. Such data are submitted monthly either directly to the FBI or via a state UCR program, which in turn submits data to the FBI. Even though participation is voluntary, most law enforcement agencies participate. In 2016, approximately 18,400 law enforcement agencies reported data to the UCR. These agencies' jurisdictions contain about 323.4 million people, meaning that over 99% of the country's population was served by a law enforcement agency that reported crime data to the FBI. While UCR crime data published by the FBI is usually considered to be the official measure of crime in the United States, these data have limitations that should be considered when using them to evaluate crime trends. Limited Offense Data. The UCR SRS collects offense data on a limited number of crimes (i.e., Part I crimes only). Known offense data are not available for Part II crimes, which tend to be committed at a greater frequency than Part I crimes. Currently, the UCR SRS does not collect known offense data on crimes commonly covered by the media, such as kidnapping, bribery, or child pornography. Unreported Crimes. The UCR collects data on the number of offenses known to law enforcement. However, not all crimes that occur are known to the police. For example, in 2016 only 42% of violent victimizations were reported to the police. In some cases, the victim(s) or witness(es) to a crime might not report the incident to the police because of fear of reprisal, the belief that the police would not or could not do anything to help, or a belief that the crime was a personal issue or too trivial to report. The Reporting Practices of Law Enforcement. UCR data can be affected by the reporting practices of local law enforcement. In some instances, the number of reported offenses might be a product of how assiduously local law enforcement follow the FBI's definitions for crimes under the UCR. For example, if a local law enforcement agency does not closely follow UCR definitions, the agency might, for example, classify an assault against a woman as an attempted rape, or a trespass as a burglary. The Organizational Practices of Law Enforcement Agencies. The number of reported offenses might increase as local law enforcement agencies become more effective. If a law enforcement agency puts more officers on patrol, there is a greater chance for offenses, which might have gone undetected with fewer officers, to come to the attention of law enforcement. If law enforcement agencies work to develop a better relationship with the citizens they serve, the reported number of offenses could increase because citizens might report more crimes. The number of reported offenses might also increase as law enforcement agencies develop better record-keeping systems and as they assign more employees to do dispatching, record keeping, and criminal incident reporting. The Hierarchy Rule. Per the FBI's requirements, law enforcement agencies must employ the hierarchy rule when classifying and recording summary data submitted to the UCR program. The hierarchy rule states that when multiple Part I offenses occur in a single criminal incident, only the most serious offense is scored and reported to the FBI. For example, if an offender raped and then murdered a victim, the reporting law enforcement agency would submit only the murder to the UCR. Therefore, for some incidents the hierarchy rule reduces the number of offenses reported by law enforcement. However, the FBI reports that approximately 85% of criminal incidents involve only one offense. Imputing Missing Data. If a law enforcement agency does not report UCR data to the FBI for the entire year, the FBI uses imputation techniques to estimate the law enforcement agency's missing data. The methodology differs depending on the number of months for which crime data were reported. If the law enforcement agency has submitted three to 11 months of data, the FBI estimates the total annual number of crimes for the jurisdiction by calculating the mean for the months of acceptable data an applying this mean to the missing months. Agencies that submit one or two months of data are treated as "non-reporters" and their data are imputed as follows: 1. Each reporting agency is grouped in strata defined by its metropolitan status (i.e., metropolitan statistical area, other cities, rural counties) and its population. 2. Only agencies that submitted 12 months of data are used as a basis for imputation. 3. The estimated crime volume for each stratum is calculated based on data submitted by agencies that reported for all 12 months. 4. The annual crime rate for the stratum is then applied to non-reporting agencies population to obtain the imputed number of offenses. 5. If no comparable agencies are available, the previous year's data non-reporting agencies are used as an estimate. In addition, the missing data from agencies with no associated population figures such as state police agencies or park police are not imputed. Imputation methods used by the FBI to estimate crime in jurisdictions that have not reported for the full year or non-reporting jurisdictions make assumptions that might not be valid. The imputation method used by the FBI to estimate a full year's worth of data for jurisdictions that report three to 11 months of data implicitly assumes that the crime rate for non-reported months is the same as the average crime rate for reported months. If the crime rates in the months for which data were not reported differ from the rates in the months for which data were reported, then the imputation procedure could either overestimate or underestimate the jurisdiction's annual crime rate. The imputation procedure used to estimate the crime rate for non-reporting jurisdictions assumes that cities and towns with similar sized populations are also similar in other factors that might affect the city or town's crime rate, such as income distribution, unemployment rates, population density, and racial composition. Appendix B. Violent Crime and Homicide Data

Media accounts of increasing violent crime rates, especially homicides, in some cities raise broad concerns about decreasing levels of public safety. This report provides an analysis of changes in violent crime since 1960, with a focus on changes from 2014 to 2016 in violent crime and homicide rates in the 48 largest cities in the United States for which violent crime and homicide data were submitted to the Federal Bureau of Investigation's Uniform Crime Reporting Program. The results of the analysis suggest the following: At the national level, violent crime and homicide rates increased from 2014 to 2015 and again from 2015 to 2016, but both rates remain near historical lows. Violent crime and homicide rates for the 48 largest cities in the United States with available data generally followed national-level trends, with some exceptions. For example, violent crime rates in cities of 500,000-999,999 people and 250,000-499,999 people decreased from 2014 to 2015, and the homicide rate in small cities of 50,000-99,999 people decreased from 2015 to 2016. Some of the largest cities in the United States saw increases in violent crime rates, homicide rates, or both from 2014 to 2015 and/or 2015 to 2016. For some of these cities, violent crime or homicide rates were the highest they have been in the past 20 years. Recent increases in violent crime and homicide in large cities have received a great deal of attention, but in smaller communities violent crime and homicide rates also increased from 2014 to 2015 and again from 2015 to 2016, although not as much as in the largest cities. The "Ferguson effect" is one of the more widely discussed, and controversial, explanations for the recent increases in violent crime. It refers to the assertion that crime has increased recently because police are avoiding proactive policing tactics out of fear of repercussions for the use of aggressive tactics. There is a small but growing body of literature on the Ferguson effect, and the evidence is mixed. For example, recent research conducted by a Johns Hopkins University sociologist found some evidence of a post-Ferguson decrease in arrests and a post-Ferguson increase in crime in Baltimore. However, the research did not reveal a causal link between the decreasing arrests and increasing crime. Additionally, studies of the Ferguson effect have generally focused on a single state or specific cities, which make the results of these studies non-generalizable to other jurisdictions. Policymakers might consider various options to assist cities that have seen an increase in violent crime and homicide rates. These include providing additional assistance to local governments through existing grant programs such as the Edward Byrne Memorial Justice Assistance Grant, Byrne Criminal Justice Innovation, and Community Oriented Policing Services' hiring programs; authorizing and appropriating funding for a new grant program that would provide assistance to local governments to implement evidence-based violent crime prevention programs; or providing additional resources to allow the Department of Justice to expand its National Public Safety Partnership.

Background The number of foreign-born people residing in the United States (an estimated 40 million) is at the highest level in our history and, as a portion of the U.S. population, has reached a percentage (12.9%) not seen since the early 20 th century. The actual number of unauthorized aliens in the United States is unknown. The three main components of the unauthorized resident alien population are (1) aliens who overstay their nonimmigrant visas, (2) aliens who enter the country surreptitiously without inspection, and (3) aliens who are admitted on the basis of fraudulent documents. In all three instances, the aliens are in violation of the Immigration and Nationality Act (INA) and subject to removal. The last major law that allowed unauthorized aliens living in the United States to legalize their status was the Immigration Reform and Control Act (IRCA) of 1986 ( P.L. 99-603 ). Generally, legislation such as IRCA is referred to as an "amnesty" or a legalization program because it provides LPR status to aliens who are otherwise residing illegally in the United States. Among IRCA's main provisions was a time-limited legalization program, codified at Section 245A of the Immigration and Nationality Act, that enabled certain illegal aliens who entered the United States before January 1, 1982, to become LPRs. It also had a provision that permitted aliens working illegally as "special agricultural workers" to become LPRs. Nearly 2.7 million aliens established legal status through the provisions of IRCA. How to address the estimated 11.7 million unauthorized aliens residing in the United States is perhaps the most controversial issue in the comprehensive immigration reform (CIR) debate. Reducing the population of unauthorized aliens living in the United States is a common goal, but disagreement about how to do so remains. Some proponents of CIR favor large-scale legalization proposals that would enable most unauthorized residents to become LPRs, if they meet specified conditions and terms as well as pay penalty fees. Some proposals to provide immigration relief to unauthorized aliens would target only particular subsets of this population, such as those with pathways to LPR status under current law (e.g., those with U.S. citizen or LPR family members or employers who have petitioned for them), or unauthorized aliens who were brought to the United States as children. Others counter that Congress should not consider immigration relief or legalization until current laws are more reliably enforced. They also maintain that it would be unfair to reward unauthorized migrants at the expense of potential immigrants who are waiting to come legally and that legalization would serve as a magnet for future unauthorized migrant flows. This CRS report presents data estimating since 1986 the number of unauthorized aliens who have been living in the United States. There have been a variety of estimates of the unauthorized resident alien population over this period, sometimes with substantially different results. This report is limited to analyses of the Current Population Survey (CPS) conducted by the U.S. Census Bureau and the Bureau of Labor Statistics and of the American Community Survey (ACS) conducted by the U.S. Census Bureau so that there are basic standards of comparison over time. Because the CPS and the ACS are both sample surveys of the U.S. population, the results are estimates. Additionally, while the data distinguish between the foreign born who have naturalized and those who have not, they do not identify immigration status (e.g., legal permanent resident, refugee, temporary foreign worker, foreign student, unauthorized alien). Summaries of the detailed analyses of the March CPS, the ACS, and the monthly CPS are presented separately because each of these surveys is based on different questions and sample sizes. Trends in Estimates Since 1986 The most recent estimate (published in 2013) is that 11.7 million foreign nationals resided in the United States without authorization in 2012. For a basis of comparison, Figure 1 presents the estimate of 3.2 million unauthorized resident aliens in 1986 calculated by demographers Karen Woodrow and Jeffrey Passel, who worked for the U.S. Census Bureau at that time. As expected after the passage of IRCA, the estimate for 1988 dropped to 1.9 million. During the first decade after IRCA, researchers projected that the net growth in unauthorized aliens had averaged about 500,000 annually; analyses done during the early 2000s estimated the average growth at 700,000 to 800,000 unauthorized alien residents annually. By 2002, the estimated number of unauthorized resident aliens had risen to 9.3 million. Appendix B provides further discussion. The estimated number of unauthorized alien residents peaked in 2007, when Passel estimated that there were 12.4 million unauthorized alien residents in the United States ( Figure 1 ). The confidence intervals around the 12.4 million estimate ranged from a low of 11.9 million to a high of 12.9 million. "Thus, average annual growth over the 5-year period since 2000 was more than 500,000 per year. This number reflects the number of new unauthorized migrants arriving minus those who either die, return to their country of origin, or gain legal status." Michael Hoefer, Nancy Rytina, and Bryan C. Baker of the Department of Homeland Security's (DHS's) Office of Immigration Statistics (OIS) published their 2007 estimates of the unauthorized resident alien population from the American Community Survey (ACS) of the U.S. Census Bureau and yielded results consistent with Passel's estimates. An estimated 11.8 million unauthorized immigrants were living in the United States in January 2007 compared to 8.5 million in 2000 (Hoefer, Rytina, and Campbell, 2006). Between 2000 and 2007, the unauthorized population increased 3.3 million; the annual average increase during this period was 470,000. Nearly 4.2 million (35 percent) of the total 11.8 million unauthorized residents in 2007 had entered in 2000 or later. An estimated 7.0 million (59 percent) were from Mexico. The OIS reported an estimated 11.6 million unauthorized alien residents as of January 2008. This estimate marked the first decrease since the OIS began producing annual estimates in 2005. "The decrease in the size of the unauthorized population between 2007 and 2008," the OIS demographers pointed out, "may be due to sampling error in the estimate of the foreign-born population in the 2007 ACS." They estimated that the unauthorized alien population in the United States increased by 37% over the previous eight years. Drawing on a different release of the CPS and a slightly different methodology, Steven Camarota and Karen Jensenius of the Center for Immigration Studies estimated that the unauthorized resident alien population fell to 10.8 million in February 2009. They used tabulations from the monthly CPS data rather than the March supplement to calculate a decrease of 1.7 million (13.7%) in 2009 from their high of 12.5 million unauthorized resident aliens in 2007. Despite the differences in methodology and data, these conclusions were comparable to Hoefer, Rytina, and Baker and to Passel and D'Vera Cohn. Subsequently, Camarota used a combined two-year sample of the CPS (March 2010 and 2011) to estimate 10.5 million unauthorized resident aliens. He pointed out: It must also be remembered that these figures are only for those in the CPS, not those missed by the survey. Estimates prepared by other researchers often adjust for undercount in Census Bureau data. While there is debate about the number missed, most research indicates that roughly 10 percent of illegals are not counted in Census Bureau surveys such as the CPS. Thus, the true size of the illegal population could be 11.5 million. By 2010, most published estimates showed a continued decline in the number of the unauthorized alien residents. Analyses of both the CPS and the ACS data indicated that the estimated number dropped in 2008 and in 2009 before leveling off in 2010. According to Passel and Cohn, "The decline in the population of unauthorized immigrants from its peak in 2007 appears due mainly to a decrease in the number from Mexico, which went down to 6.5 million in 2010 from 7 million in 2007." Updated Estimates Based Upon 2010 Census In 2012, OIS updated their initial 2010 unauthorized estimates, which used Census 2000 population weights updated for births, deaths, and internal and international migration, from 10.8 million to 11.6 million. The revised 2010 estimates are only for the total unauthorized population. OIS indicated that they made other changes, most notably improving the 2011 estimates of the legally resident foreign-born population with the addition of approximately 100,000 LPRs who were not originally included in the annual LPR flow data between 2001 and 2010 because of late or delayed record keying. Hoefer, Rytina, and Baker wrote, "(C)onsidering that the revised 2010 estimate—which is based on more recent data—is higher than the reported estimate, it is possible that the DHS unauthorized estimates for 2005-2009 also underestimate the unauthorized immigrant population." Despite their upward revision in estimates, they concluded: "it is unlikely that the unauthorized immigrant population increased thereafter given relatively high U.S. unemployment, improved economic conditions in Mexico, record low numbers of apprehensions of unauthorized immigrants at U.S. borders, and greater levels of border enforcement." Similarly, Passel, Cohn, and Ana Gonzalez-Barrera of the Pew Research Center revised their estimates in 2013 to conform to the 2010 census. Rather than showing a decrease of 1.3 million from 2007 to 2009, the new estimates show a decrease of 0.1 million from 2007 to 2009. Their new estimates indicate that the decline in authorized resident aliens after 2007 has stalled in 2012, and they suggest the trend may be reversing. Appendix A presents a table detailing their revised estimates. Analysis from the March Current Population Survey The annual March CPS provides detailed socioeconomic data that are not available in the monthly CPS, shedding further light on the traits and trends in authorized migration. The most recent detailed analysis that Passel and Cohn have done is for 2010. As Figure 2 illustrates, the 2010 distribution of the unauthorized population by region of origin was similar to Woodrow and Passel's analysis of the 1986 data, despite the growth in overall numbers from 3.2 million in 1986 to 11.2 million in 2010. There were 2.6 million, or 23%, from Latin American countries (excluding Mexico) in 2010. Asia's share of the unauthorized alien residents appeared to have grown over this period (from 6% to 11%), and the estimated numbers of unauthorized resident aliens from Asia rose from 0.2 million in 1986 to 1.3 million in 2010. In 1986, 69% of the unauthorized aliens residing in the United States were estimated to be from Mexico, compared with 58% in 2010. While the sheer number of unauthorized Mexicans residing in the United States increased substantially from 2.1 million in 1986 to a peak of almost 7 million in 2007, the estimated number fell to 6.1 million in 2011. "The sharp downward trend in net migration from Mexico began about five years ago," writes Passel, Cohn, and Gonzalez-Barrera, "and has led to the first significant decrease in at least two decades in the unauthorized Mexican population." Passel and Cohn's analysis of the 2010 CPS finds that about one-third of the estimated 11.2 million unauthorized aliens resided in two states: California and Texas, as the map reproduced in Figure 3 shows. Another group of states—Florida, New York, New Jersey, and Illinois—have unauthorized resident alien populations exceeding half a million. Passel and Cohn also observed declines in the number of unauthorized resident aliens. The four individual states where the number of unauthorized immigrants declined from March 2007 to March 2010 were New York, Florida, Virginia and Colorado. Additionally, the combined unauthorized immigrant population in Arizona, Nevada and Utah also decreased during that period, although the change was not statistically significant for any of those states individually. They also found that the combined unauthorized resident alien population of Arizona, Nevada, and Utah decreased from an estimated 850,000 in 2007 to an estimated 700,000 in 2010. As part of an earlier analysis, Passel and Cohn also calculated estimates of the number of households with unauthorized aliens. They reported that the number of persons living in families in which the head of the household or the spouse was an unauthorized alien was an estimated 16.6 million in 2008. They also reported that there were an estimated 1.5 million unauthorized children and an estimated 4.0 million citizen children who were living in families in which the head of the family or a spouse was unauthorized in 2008. Analysis from the American Community Survey The American Community Survey (ACS) is a national sample survey that consists of non-overlapping samples from which the U.S. Census Bureau collects monthly household data over the course of a year. It was tested in 2000 and fully implemented in 2005. Although it does not enable the post-1986 time series analysis that the CPS offers, it has a larger sample size. As a result, OIS demographers Hoefer, Rytina, and Baker decided: "The ACS was selected for the estimates because of its large sample size, about 3 million households in 2007 compared to 100,000 for the March 2008 Current Population Survey, the primary alternative source of national data on the foreign-born population." They drew on the larger sample size of the ACS to analyze changes in the unauthorized resident alien population between 2000 and 2010. As has been the case for many years, California continued to be the top state of residence of the unauthorized population in 2011, with an estimated 2.8 million ( Figure 4 ). However, California's share of the total unauthorized population declined from 30% in 2000 to 25% in 2011, according to the OIS demographers. While the map in Figure 3 puts Texas on a par with California, the OIS analysis of the ACS data estimates that Texas has 1 million less than California—1.8 million unauthorized residents. As Figure 4 depicts, Florida had 740,000, ranking it third in unauthorized alien residents. Florida, however, was the only state among the top 10 to have a decline in the estimated number of unauthorized alien residents, an 8% decrease from 0.8 million to 0.74 million. Among the 10 leading states of residence of the unauthorized population in 2011, OIS reported that those with the greatest percentage increases in unauthorized aliens from 2000 to 2011 were Georgia (95%), Texas (64%), North Carolina (53%) and Washington (51%). Migrants from Mexico continued to dominate the unauthorized alien population in the ACS, as Figure 5 illustrates, and as they had in the CPS data shown in Figure 2 The OIS demographers estimated that the unauthorized resident alien population from Mexico increased from 4.7 million in 2000 to 6.8 million in 2011, an estimate larger than Passel and Cohn's estimate of 6.1 million unauthorized resident alien population from Mexico in 2011. The 10 leading countries of origin represented over 80% of the unauthorized alien population in 2011 and are presented in Figure 5 . The other top source countries were El Salvador, Guatemala, Honduras, the Philippines, India, Ecuador, Vietnam, Korea, and China. Asian nations made up five of the top 10 source countries for unauthorized resident aliens in 2011. In terms of the percentage change from 2000 to 2011, Honduras led among the top 10 source countries with a 132% increase. India's percentage change from 2000 to 2011 was 94%, and Ecuador and Guatemala were 83% and 82%, respectively. Interestingly, Vietnam became a top 10 source country as much because of the decrease among other source countries (from 1.94 million in 2000 to 1.75 million in 2011) as its increase from 0.16 million in 2000 to 0.17 million in 2011. Although the stereotypic image of an unauthorized alien is a young male, females have made up a sizeable minority of the unauthorized alien population for many years. The OIS demographers estimated over 5.3 million females among the unauthorized alien population in 2011. Males comprised the majority—an estimated 6.1 million or 53%—of the unauthorized alien population in 2011. As Figure 6 illustrates, unauthorized resident males tended to cluster in the peak working age groups of 18-24, 25-34, and 35-44. Although not larger in actual numbers, unauthorized resident females are more likely than males to be among those 17 and younger as well as those age 45 and older, according to the OIS demographers. Figure 7 depicts that the portion of the resident unauthorized population that arrived from 2005 to 2010 was estimated to be 14%, the lowest five-year interval since 1980-1984 (7%). The largest five-year interval was 2000-2004, during which an estimated 3.3 million unauthorized alien residents came to the United States. Reportedly, unauthorized aliens from Mexico arrived at an average of 500,000 annually during this period. A nearly comparable number of unauthorized residents—3 million—arrived during the prior five-year period (1995-1999). Only 1.6 million unauthorized resident aliens came to the United States during 2005-2010. These data further suggest that the rate of unauthorized migration slowed in recent years. Analysis of the Monthly Current Population Survey Steven Camarota and Karen Jensenius of the Center for Immigration Studies used the monthly CPS data to estimate that the unauthorized resident alien population has fallen from 12.5 million in 2007 to 10.8 million in 2009. Their analysis of the monthly data from January 2000 through January 2009 found that their estimate of the unauthorized alien population generally tends to be larger in the spring and summer, when employment in agriculture, hospitality, and construction tends to rise, although this pattern was not evidenced every year. The monthly CPS provides more timely data, but offers much more limited demographic, immigration, and citizen information than the annual March CPS Supplement or the annual ACS. In the absence of more detailed immigration data, Camarota and Jensenius opted to use Hispanics aged 18 to 40 who have no more than a high school diploma for what they call "likely illegal population" or their proxy for unauthorized migration. They then offered the following observation: [S]ince the peak in July 2007, the likely illegal Mexican population has declined 13.4 percent through February of this year…. On average, since January of 2008 the likely illegal population is about 7 percent lower each month compared to same month in the prior year. This is true through the first quarter of 2009. As already discussed, if we compare the two-year period of the first quarter of 2007 (which is reported as February) to the first quarter of 2009 we find a total decline of 10.9 percent in the likely illegal population. They posited that "the observed decline must be due to a combination of less-educated young Hispanic immigrants leaving the country and fewer entering the country." Acknowledging that their analysis was over simplified and not inclusive of other factors likely to reduce unauthorized migration, Camarota and Jensenius estimated that out-migration of those Mexicans aged 18-40 who have no more than a high school diploma might have been more than twice as large in the 2006 to 2009 period as in the 2002 to 2005 period. Contributing Factors The research points to various factors that have contributed to the increase in unauthorized resident aliens over the past two decades as well as a leveling off of these trends in recent years. Historically, unauthorized migration is generally attributed to the "push-pull" of prosperity-fueled job opportunities in the United States in contrast to limited or nonexistent job opportunities in the sending countries. Accordingly, the economic recession that began in December 2007 may have curbed the migration of unauthorized aliens, particularly because sectors that traditionally rely on unauthorized aliens, such as construction, services, and hospitality, have been especially hard hit. Some researchers maintain that lax enforcement of employer sanctions for hiring unauthorized aliens facilitated the "pull" for many years and that the ratcheting up of work site enforcement in 2007 and 2008 has subsequently mitigated the flow. Trend data suggest a correlation, but it remains difficult to demonstrate this element empirically, especially because the increased worksite enforcement and removals were coincident with the housing downturn and the onset of the economic recession. Political instability or civil unrest at home is another element that traditionally has induced people to risk unauthorized migration. Asylum seekers who enter the United States illegally have always been included in the estimates of the unauthorized alien population. Asylum claims ebbed and flowed in the 1980s and peaked in FY1996. Since FY1997, defensive asylum claims have declined overall, dropping by 53% through FY2009 and rising slightly since 2010. Comparatively, asylum seekers have become a smaller share of the unauthorized resident alien population and do not account for the overall trends in the unauthorized resident aliens in recent years. Although most policy makers have assumed that tighter border enforcement reduces unauthorized migration, some researchers have observed that the strengthening of the immigration enforcement provisions, most notably by the enactment of the Illegal Immigration Reform and Immigrant Responsibility Act of 1996 (IIRIRA), may have inadvertently increased the population of unauthorized resident aliens. This interpretation, generally referred to as a caging effect, argues that IIRIRA's increased penalties for illegal entry, coupled with increased resources for border enforcement particularly after the September 11, 2001, terrorist attacks, stymied what had been a rather fluid movement of migratory workers along the southern border; this in turn raised the stakes in crossing the border illegally and created an incentive for those who succeed in entering the United States to stay. More recently, some maintain that strengthened border security measures, such as "enforcement with consequences" and coordinated efforts with Mexico to reduce illegal migrant recidivism may be having an impact. The increased number of U.S. Border Patrol agents from 12,349 agents in FY2006 to 21,444 agents in FY2012 illustrates a clear inverse relationship with the leveling off of unauthorized migration over the same period. However, these border patrol resource trends also correlate with unemployment levels over this period. While the empirical evidence to support a causal link between strengthened border enforcement policies and reduced illegal migration has not been demonstrated, some researchers credit it as part of a constellation of factors holding down the flow. The current system of legal immigration is frequently cited as another factor that contributed to the growth in unauthorized alien residents. There are statutory ceilings that limit the type and number of immigrant visas issued each year, which lead to wait-times for visas to become available to legally come to the United States. Some observe that family members sometimes risk staying in the United States on an expired temporary visa or entering the United States illegally to be with their family while they wait for the visas to become available. It remains difficult, however, to demonstrate a causal link or to guarantee that increased levels of legal migration would absorb the current flow of unauthorized migrants. The increase in the number of aliens deported from the United States annually from 189,026 in 2001 to 387,242 in 2010 might also have had a chilling effect on family members weighing illegal presence. Some observers point to more elusive factors—such as pronounced shifts in immigration enforcement priorities away from illegal entry to identifying and removing suspected terrorists and criminal aliens, or well-publicized legislative debates of possible "amnesty" legislation—as having magnet effects when they assess the increase in unauthorized resident aliens over the past 25 years. It is difficult to measure whether, or to what extent, these other phenomena have contributed to the flow of unauthorized resident aliens. Appendix A. Pew Research Center's 2013 Estimates The table below is taken directly from Population Decline of Unauthorized Immigrants Stalls, May Have Reversed by Passel, Cohn, and Gonzalez-Barrera, in which they revised their estimates to conform to the 2010 census. They concluded: "The resulting series of unauthorized immigrant estimates are consistent over time but inconsistent with previous estimates." Their new estimates have unauthorized levels peaking at 12.2 million in 2007 rather than 12.4 million. They also have revised estimates for 2009, from 11.1 million to 11.3 million, among other revisions to earlier estimates. In other words, the revisions have smoothed out the recent trends. Appendix B. Early Estimates of the Unauthorized Resident Alien Population According to demographer Robert Warren of the former Immigration and Naturalization Service (INS), the estimated unauthorized resident alien population grew to 3.4 million in 1992 and to 5.0 million in 1996. By the close of the decade, the estimated number of unauthorized alien residents had more than doubled. Jeffrey Passel, now at the Pew Research Center, estimated the unauthorized population in 2000 at 8.5 million, but this latter estimate included aliens who had petitions pending or temporary relief from deportation. Subsequently, Warren estimated that there were 7.0 million unauthorized aliens residing in the United States in 2000. Warren later revised his earlier analyses using the latest CPS and estimated that there were 3.5 million unauthorized aliens living in the United States in 1990 and 5.8 million in 1996. Unlike Passel, Warren excluded "quasi-legal" aliens (e.g., those who had petitions pending or relief from deportation) from his estimates.

Estimates derived from the March Supplement of the U.S. Census Bureau's Current Population Survey (CPS) indicate that the unauthorized resident alien population (commonly referred to as illegal aliens) rose from 3.2 million in 1986 to 12.4 million in 2007, before leveling off at 11.7 million in 2012. The estimated number of unauthorized aliens had dropped to 1.9 million in 1988 following passage of a 1986 law that legalized several million unauthorized aliens. Jeffrey Passel, a demographer with the Pew Research Center, has been involved in making these estimations since he worked at the U.S. Bureau of the Census in the 1980s. Similarly, the Department of Homeland Security's Office of Immigration Statistics (OIS) reported an estimated 11.5 million unauthorized alien residents as of January 2011, up from 8.5 million in January 2000. The OIS estimated that the unauthorized resident alien population in the United States increased by 37% over the period 2000 to 2008, before leveling off since 2009. The OIS estimated that 6.8 million of the unauthorized alien residents in 2011 were from Mexico. About 33% of unauthorized residents in 2011 were estimated to have entered the United States since 2000, but the rate of illegal entry appears to be slowing. The OIS based its estimates on data from the U.S. Census Bureau's American Community Survey. Although increased border security, a record number of alien removals, and high unemployment, among other factors, have depressed the levels of illegal migration in recent years, the number of unauthorized aliens residing in the United States remains sizeable. Research suggests that various factors have contributed to the ebb and flow of unauthorized resident aliens, and that the increase is often attributed to the "push-pull" of prosperity-fueled job opportunities in the United States in contrast to limited job opportunities in the sending countries. Accordingly, the economic recession that began in December 2007 may have curbed the migration of unauthorized aliens, particularly because sectors that traditionally rely on unauthorized aliens, such as construction, services, and hospitality, have been especially hard hit. Some researchers also suggest that the increased size of the unauthorized resident population during the late 1990s and early 2000s is an inadvertent consequence of border enforcement and immigration control policies. They posit that strengthened border security curbed the fluid movement of seasonal workers. This interpretation, generally referred to as a caging effect, argues that these policies raised the stakes in crossing the border illegally and created an incentive for those who succeed in entering the United States to stay. More recently, some maintain that strengthened border security measures, such as "enforcement with consequences," coordinated efforts with Mexico to reduce illegal migrant recidivism, and increased border patrol agents, may be part of a constellation of factors holding down the flow. The current system of legal immigration is cited as another factor contributing to unauthorized migration. The statutory ceilings that limit the type and number of immigrant visas issued each year create long waits for visas. According to this interpretation, many foreign nationals who have family in the United States resort to illegal avenues in frustration over the delays. Some researchers speculate that record number of alien removals (e.g., reaching almost 400,000 annually since FY2009) caused a chilling effect on family members weighing unauthorized residence. Some observers point to more elusive factors when assessing the ebb and flow of unauthorized resident aliens—such as shifts in immigration enforcement priorities away from illegal entry to removing suspected terrorists and criminal aliens, or well-publicized discussions of possible "amnesty" legislation.

Introduction Paraguay is a landlocked South American country bordering Argentina, Bolivia, and Brazil and has a population of about 6.5 million, predominately concentrated in and around the capital city of Asunción. The majority of the population is of mixed Spanish and Guaraní Indian descent. Both Spanish and Guaraní are the official languages, with over 90% of the population fluent in Guaraní. Paraguay's per capita income was $1,400 in 2006, according to the World Bank, one of the lowest in South America, while about 60% of the people live in poverty and 32% live in extreme poverty, according to the U.N. Economic Commission for Latin America and the Caribbean. Political Situation2 The current political context in Paraguay has been shaped by the country's turbulent political history. In the late 19 th century, a two-party system emerged with the formation of the Colorado Party and the Liberal Party, but the Colorado Party soon became the dominant political force, ruling between 1887 and 1904. Paraguay was defeated in the War of the Triple Alliance (1864-1870) against Argentina, Brazil and Uruguay and lost 25% of its territory and over half of its population. This defeat led to an extensive period of political instability, with three civil wars in the first half of the 20 th century and a war with Bolivia between 1932-1935, the Chaco War, that further weakened political institutions and hindered economic development. The Liberals ruled from 1904 until 1940, until the military assumed control with a succession of authoritarian leaders. The Colorado Party returned to power in 1946, and has remained in power until the present day, making it the longest-ruling political party in the world. In the late 1940s, the party began to assume greater control over state institutions and the bureaucracy to the point where party membership was a prerequisite for civil service positions and promotion in the military, further perpetuating the Colorado Party's dominance. General Alfredo Stroessner, who was a member of the Colorado Party, staged a coup in 1954, and consolidated power in a repressive military dictatorship that lasted 35 years. The key to the Stroessner regime's longevity was an alliance among the military, dominant economic groups, and the Colorado Party. The military regime was characterized by strong political repression, the personalization of authority, ultra-nationalist and anti-communist rhetoric, and widespread corruption. With democratic advances occurring in other South American countries, Stroessner ultimately was overthrown in a 1989 coup and fled to Brazil, where he lived until his death in 2006. In 2004, a Truth and Justice Commission ultimately was set up to investigate human rights abuses that occurred under the Stroessner regime. The overthrow of the Stroessner regime initiated a process of democratization, with the enactment of a new constitution in 1992 and competitive elections held for the first time in 1993. Despite the democratic transition, however, many characteristics of the country's extensive period of military rule have persevered. Although opposition parties have held a majority in Congress, the dominance of the Colorado Party has remained intact, including its control over the state apparatus. The political culture has remained a product of the country's authoritarian past with pervasive corruption and clientelism. Nascent democratic institutions have been weak and almost every post-Stroessner President has faced some legal troubles. In 1996, Army Commander General Lino Oviedo revolted after President Juan Carlos Wasmosy ordered him to step down. Oviedo resigned, but attempted to run in the 1998 presidential elections as the Colorado Party's candidate. Oviedo's candidacy was nullified after the Supreme Court upheld his conviction and ratified a 10-year prison term for his barracks revolt. Oviedo's running mate, Raúl Cubas, was elected President in 1998 and defied the Supreme Court by freeing Oviedo from prison as one of his first acts in office. This action led to the initiation of impeachment proceedings against the President, and intensified the rivalry between Vice President Luis Maria Argaña and President Cubas and Oviedo. Argaña was assassinated in March 1999 and blame was placed on both Cubas and Oviedo, sparking widespread demonstrations and violence in Asunción. President Cubas was forced to resign, and both he and Oviedo fled the country. As a result, Luis Gonzalez Macchi, the president of the Senate, completed the presidential term and attempted to establish a government of national unity, but constant infighting within the coalition led to a weak government that was marred by corruption and inefficiency. Nicanor Duarte Frutos of the Colorado Party (National Republican Association or ANR) was elected president on April 27, 2003, defeating Julio César Franco of the opposition Authentic Radical Liberal Party (PLRA, related to the original Liberal Party) as well as three other candidates in an election that observers judged to be free and fair. The Colorado Party also captured 37 seats in the 80-member Chamber of Deputies, the largest block, and 16 of 45 seats in the Senate, while the largest opposition party, the PLRA, won 21 seats in the lower house and 12 seats in the Senate. Three smaller parties won the remaining seats. During the campaign, Duarte portrayed himself as a strong leader, and he promised to implement widespread institutional reforms, prioritize the fight against corruption and establish a transparent government. As discussed below, President Duarte has enacted reforms that tackle tax evasion and corruption. Since his election, however, the President's popularity has declined because of public concerns about rising crime and unemployment. As a result, he has resorted to more populist rhetoric as a means of retaining support for the Colorado Party. Corruption Observers maintain that corruption remains a major impediment to the emergence of stronger democratic institutions and sustainable economic development in Paraguay. President Duarte's measures to combat corruption have included increased penalties for tax evasion and other measures to increase tax revenue, greater oversight of government spending, and a crackdown on the trade of contraband and counterfeit goods. He also removed members of the Supreme Court after corruption allegations surfaced against them. These measures were partially successful, as evident in Transparency International's 2006 corruption perceptions index in which Paraguay ranked 111 out of 163 countries. This ranking was an improvement from 2004 when the country was classified among the six most corrupt countries in the world and the second most corrupt in the Western Hemisphere. For the 2007 index, however, Paraguay dropped to 138 out of 180 countries. The opposition has claimed that anti-corruption efforts have not been far-reaching enough because they have not addressed the clientelism that is pervasive in Paraguayan politics or the dominance of the Colorado Party in governmental institutions. 2008 Presidential Election Lead-up to the Election Initially, President Duarte sought to overturn the constitutional ban on consecutive re-election so that he could run in the April 20, 2008, presidential election. The opposition strongly contested the President's move, however, and he abandoned his re-election efforts. There were three major candidates in the presidential race: former minister of education Blanca Ovelar of the long-ruling Colorado Party; Fernando Lugo, the former Roman Catholic Bishop of an impoverished rural diocese, running on an electoral coalition known as the Patriotic Alliance for Change (APC); and former military commander Lino Oviedo, the leader of a failed 1996 coup who was released from prison in early September 2007, running as a candidate of party that he founded, the National Union of Ethical Citizens (UNACE). President Duarte supported Ovelar in the fiercely contested Colorado Party's primary elections in December 2007 against former Vice President Luis Castiglioni, a contest that caused deep divisions within the party. After an outbreak of yellow fever in Paraguay, which highlighted the government's inability to attack endemic poverty and health issues, Ovelar's position in the race was seriously weakened, but received a boost, however, when the Colorado Party's well-oiled electoral machinery supported her candidacy and she appeared to gain the reluctant support of some who had supported Luis Castiglioni in the primary. Ovelar received strong support from the Progressive Colorado Movement, and she maintained that her election as the first woman president would be a radical step for Paraguay that would bring real change to the country. Ovelar made combating corruption a central campaign theme, and vowed to create an independent judiciary. Lino Oviedo, who returned to Paraguay in 2004 to serve his 10-year prison sentence, was granted conditional release in September 2007, and indicated his desire to be a presidential candidate if court rulings permitted him. In a controversial November 2007 ruling, the Supreme Court absolved Oviedo of plotting a coup to oust then-President Juan Carlos Wasmosy in 1996, and also annulled any other pending charges against him by the military tribunal that was set up by Wasmosy. Some observers believed that Oviedo's release from prison, followed by these subsequent court decisions, were part of a pact between President Duarte and Oviedo to split the opposition vote in the elections and improve the Colorado Party's chances of retaining power. Oviedo is the founder and leader of UNACE, a political party that he ran from prison. In the presidential campaign, he was viewed as a populist and appealed to the same rural poor constituency that has supported Lugo. From February through the election in April 2008, most polls showed Fernando Lugo as the frontrunner, although support for his candidacy decreased gradually. He was endorsed by several left-wing labor unions and social organizations and parties, and most significantly by the conservative Authentic Radical Liberal Party (PLRA), Paraguay's main opposition party. In the aftermath of Oviedo's release, Lugo announced the new APC electoral coalition, which included the PLRA and seven smaller parties. PLRA member Federico Franco became Lugo's vice-presidential running mate. In the campaign, Lugo's political discourse emphasized empowering the poor, agrarian reform, health reform, and putting an end to endemic corruption, which he views as emanating from decades of Colorado Party dominance. Lugo also stated that he was open to private capital and a consensus-based development model. As a cornerstone of his candidacy, he also pushed for renegotiating the Itaipú and Yacyretá hydroelectric dam treaties with Brazil and Argentina and wants to raise the price of Paraguay's hydro-energy supplies to these countries. Some of Lugo's opponents accused him of maintaining close ties to Venezuelan President Hugo Chávez, a charge that Lugo has denied. These accusations resurfaced in 2007 when Paraguayan media reported the existence of a document detailing Chávez's plans for increasing his influence in Paraguay, which included seeking out political leaders that were sympathetic to the "Bolivarian" vision for South America. Just before the election, it appeared that a high turnout could favor Lugo, although only a few percentage points separated the three major candidates. A poll from April 13, which assumed a turnout of 65%, showed Lugo with 34.5% support, followed by Ovelar with 28.9% and Oviedo with 28.5%. In contrast, a far lower voter turnout was thought to likely favor Ovelar over Lugo, with Oviedo once again in third place. In the lead up to election day, some concerns about potential electoral fraud were voiced by the opposition. They maintained that there the electoral registry had not been comprehensively updated in years, and that the electoral tribunal was dominated by the ruling Colorados. Lugo was reported to have said on April 17 that only electoral fraud could defeat him in the election. Lugo's Victory Despite concerns about potential fraud, Paraguay held successful free and fair elections on April 20, 2008, in which Fernando Lugo won with 41% of the vote followed by Blanca Ovelar with 31% and Lino Oviedo with 22%. International observation teams from the Organization of American States (OAS) and the U.S.-based International Foundation for Electoral Systems (IFES) praised the successful conduct of the elections. Both groups characterized the election as historic, with the OAS maintaining that "in spite of differences, political parties and movements achieved a fundamental consensus on the rules of the game, which as in the rest of Latin America, constitutes the essential minimum for the construction of democracy." The election indeed was historic, and will end more than 60 years of Colorado Party rule when Lugo is inaugurated on August 15, 2008. Paraguay's Electoral Tribunal was lauded for the quick announcement of the results, and President Duarte was praised for promising a peaceful transfer of power. (Duarte subsequently announced that he would step down as President in June, two months early, in order to assume a Senate seat that he won in the election; he will be succeeded by Vice President Francisco Oviedo.) As part of his platform, Lugo, formerly known in Paraguay as the "bishop of the poor," pledged to fight corruption, to distribute resources and lands more equitably, to reduce poverty, and to negotiate the terms of hydro energy agreements with Brazil and Argentina. While triumphant at the polls, President-elect Lugo will face tough challenges when he takes office in August. Most significantly, his ability to government effectively could be affected by his coalition's lack of a majority in Paraguay's Congress. At this juncture, it is unclear what the final party make up will be, but no party or bloc has a majority in either house of Congress, so that Lugo's Patriotic Alliance for Change (APC) will have to work with other parties in order approve legislation. Oviedo's UNACE party could play a pivotal role in the Congress by aligning with either the APC or the Colorados. Lugo will also have to contend with satisfying competing interest within the APC coalition; the conservative PLRA, the party of Vice-President elect Federico Franco, holds the largest bloc of APC seats in Congress. A split within the Colorado Party, between those who supported Ovelar and those who supported Castiglioni, could bode well for Lugo's ability to secure a working coalition in Congress. Preliminary results indicate that in the 45-member Senate, the Colorados (National Republican Association or ANR) will have 15 seats; Lugo's APC coalition will have 17 seats, including the largest bloc of 15 seats for the PLRA and 2 for smaller parties in the coalition – the Party for a Country of Solidarity (PPS) and the Movement for Popular Equality (MPT or Tekojoja); Lino Oviedo's UNACE party will have 10 seats; and the Dear Fatherland Party (PPQ) will have 3 seats. In the 80-member Chamber of Deputies, the Colorados reportedly will have 31 seats; Lugo's APC coalition will have 31 seats, including the PLRA with 30 seats and the Democratic Progressive Party (PDP) with 1 seat; UNACE will have 14; and the PPQ will have 4 seats. Another potential difficulty for President Lugo is his ability to deal with entrenched government bureaucracy that essentially been controlled by the long-ruling Colorado Party. Some observers have suggested that the party could use its control of the bureaucracy to weaken the President and to keep him from fulfilling his campaign promises. Other observers, however, stress that Lugo's victory as a chance to further strengthen Paraguay's democratic transition and break its link with the authoritarian past of the Stroessner dictatorship. Most analysts expect that Lugo will govern as a moderate. The largest party in Lugo's electoral coalition, the PLRA, is a well-established conservative party. Lugo has described his political views as somewhere between those of Presidents Chávez (Venezuela) and Morales (Bolivia) and the more moderate stances of Presidents Lula (Brazil) and Bachelet (Chile). While Venezuela's Hugo Chávez and other leftist leaders in the region such as Nicaragua's Daniel Ortega and Ecuador's Rafael Correa welcomed Lugo's victory, most observers contend that Lugo will have to govern more moderately than these leaders since the electoral alliance that brought him to power is dominated by a center-right party. Lugo himself has said that "I am not of the left, nor of the right. I'm in the middle, a candidate sought by many." In terms of foreign policy, Lugo, in a post-election interview, asserted that he wants to maintain good relations with all countries, including the United States and Venezuela. During the electoral campaign, Lugo refrained from criticizing the United States, and also was careful not to criticize or praise Venezuelan President Hugo Chávez. After the elections, U.S. Ambassador to Paraguay James Cason congratulated Lugo and the APC on their victory and expressed a commitment to work and strengthen bilateral relations. The U.S. Embassy in Asúncion also maintained that Paraguay could be accredited with $500 million to support health, education, and infrastructure as part of the Millennium Challenge Account. Also in the aftermath of Lugo's victory, Brazilian President Lula da Silva maintained that he might be willing to negotiate a new price for the electricity that Paraguay exports to Brazil from Itaipú hydro-electric plant. Lugo had made the renegotiation of the terms of the Itaipú treaty with Brazil a cornerstone of his campaign. Most Paraguayans believe that Brazil pays far too little for the electricity. Economic Situation The Paraguayan economy, which remains heavily dependent upon its traditional agricultural exports of soybeans, cotton, and meat, grew by 4.3% in 2006, and 6.4% in 2007, fueled by soybean production. Paraguay lacks significant mineral and petroleum resources, but possesses vast hydroelectric resources, including the world's largest hydroelectric generation facility, the Itaipú Dam, built and operated jointly with Brazil. Remittances from Paraguayans living abroad have significantly contributed to sustained economic growth. According to the Inter-American Development Bank, remittances totaled some $700 million in 2007. Paraguay experienced an economic recession for several years in the aftermath of a succession of bank failures from 1996-1998 that wiped out half of Paraguay's locally owned banks. When elected in 2003, President Duarte inherited a government that had defaulted on $138 million in debt, primarily as a result of low tax revenue. Under President Duarte, the economy rebounded, due in part to the implementation of reforms that include anti-corruption initiatives, which have increased revenue, strengthened institutions, and created a more favorable environment for foreign investment. Paraguay is heavily influenced by the economic conditions of its larger neighbors, Argentina and Brazil, which are fellow members of the Common Market of the South (Mercosur). As one of the smaller countries of Mercosur, Paraguay has complained that its exports face significant restrictions entering Argentina and Brazil. Paraguay's industrial sector is still largely underdeveloped, with much of the population still employed in subsistence agriculture. Economic growth tends to be limited by Paraguay's imports of manufactured goods, as well capital goods that are necessary to supply the industrial and investment requirements of the economy. Paraguay's informal sector is very large, estimated at about half of the country's gross domestic product, and is estimated to employ over 40% of wage-earning workers. A significant part of the country's commercial sector consists of importing goods from the United States and Asia for re-export into neighboring countries. Most of these imported goods are not declared at customs, preventing the government from obtaining substantial tax revenue. Counterfeit trade and smuggling are prevalent in the country's border regions. Relations with the United States Paraguay and the United States have good relations, cooperating extensively on counternarcotics and counterterrorism efforts. The United States strongly supports the consolidation of Paraguay's democracy and continued economic reforms. President Duarte is viewed by many observers as very pro-U.S. and became the first Paraguayan head of state to be received at the Oval Office. As noted above, after the April 2008 election, U.S. Ambassador to Paraguay James Cason congratulated Lugo and the APC on their victory and expressed a commitment to work and strengthen bilateral relations. U.S. imports from Paraguay totaled about $60 million in 2007 while in the same year, the value of U.S. exports to Paraguay was over $1.2 billion, according to Department of Commerce trade statistics. Machinery and electrical machinery account for the lion's share of U.S. exports to Paraguay. The protection of intellectual property rights (IPR) has been a U.S. concern, especially piracy, counterfeiting, and contraband. The Duarte government has made significant efforts to improve IPR protection, but the United States Trade Representative maintains that the country continues to have problems due to its porous border and ineffective prosecutions. In 2003, U.S. and Paraguayan officials signed a Memorandum of Understanding (MOU) to strengthen legal protection and enforcement of intellectual property rights in Paraguay. In December 2007, the MOU was revised and extended through 2009. U.S. Aid The United States provided about $12.5 million in aid to Paraguay in FY2007 and an estimated $11.6 million in FY2008. For FY2009, the Administration has requested $11.8 million in assistance, with $2.7 million to support Child Survival and Health, $5.1 million in Development Assistance, $350,000 in International Military Education and Training (IMET), $300,000 in International Narcotics Control and Law Enforcement assistance, and $3.4 million for the continuation of a Peace Corps program in the country, with an estimated 183 volunteers. In past years, Paraguay had faced restrictions in terms of receiving Economic Support Funds (ESF) and IMET assistance because the Paraguayan government has not signed a bilateral immunity (Article 98) agreement that would give U.S. soldiers immunity from International Criminal Court prosecution. In the fall of 2006, however, President Bush waived the Article 98 restrictions for IMET and ESF for Paraguay. In addition to regular foreign assistance funding, Paraguay signed a $34.65 million Threshold Program agreement with the Millennium Challenge Corporation in May 2006, with the funds targeted specifically at programs to strengthen the rule of law and build a transparent business environment. Paraguay also signed an agreement with the United States in 2006 under the Tropical Forest Conservation Act that provides Paraguay with $7.4 million in debt relief in exchange for the Paraguayan government's commitment to conserve and restore tropical forests in the southeastern region. Counternarcotics Cooperation Paraguay is a major transit country for illegal drugs destined primarily for neighboring South American states and Europe. The Chaco region in the northwestern part of the country is a major transshipment point of illegal drugs, along with the tri-border area (TBA) with neighboring Argentina and Brazil. A 1987 U.S.-Paraguay bilateral counternarcotics agreement was extended in 2006. U.S. counternarcotics efforts in Paraguay have focused on providing training, equipment and technical assistance in order to strengthen the capacity of the country's National Anti-Drug Secretariat (SENAD), along with initiatives to help combat money laundering and corruption. The United States assisted in the completion of a helicopter pad and support facilities in order to increase SENAD's capacity to disrupt trafficking networks. According to the State Department's March 2008 International Narcotics Control Strategy Report, SENAD made record seizures in marijuana and cocaine, disrupted transnational criminal networks in cooperation with international law enforcement agencies, and arrested several high-profile drug traffickers. TBA and Terrorism The United States is particularly concerned about illicit activities in the TBA, where money laundering, drug trafficking, arms smuggling, and trade in counterfeit and contraband goods are prevalent. Such activities thrive in the tri-border region due to porous borders, a lack of surveillance, weak law enforcement and pervasive corruption by local officials, especially in the Paraguayan border city of Ciudad del Este. The United States has worked closely with the governments of the TBA countries on counterterrorism issues through the "3+1" regional cooperation mechanism, which serves as a forum for discussions, and the United States has provided anti-terrorism and anti-money-laundering support to Paraguay. U.S. Immigration and Customs Enforcement (ICE) sent a team of specialists to the tri-border region to investigate trade-based money laundering in 2006, and has assisted the Paraguayan government in developing a Trade Transparency Unit that will examine discrepancies in trade data in order to determine cases of customs fraud, trade-based money laundering or the financing of terrorism. U.S. treasury officials have held workshops in the region to encourage more banking sector involvement in efforts against money laundering while the U.S. embassy's legal adviser in Asunción held training courses for local investigators and prosecutors in charge of combating possible terrorism links. For a number of years, the United States has had concerns that the radical Lebanon-based Hezbollah and the Sunni Muslim Palestinian group Hamas have used the TBA for raising funds among its sizable Muslim communities by participating in illicit activities and soliciting donations. Nevertheless, according to the State Department's annual terrorism report for 2007 (issued April 30, 2008), there is no corroborated information that these or other Islamic extremist groups have an operational presence in the TBA. The State Department's 2007 terrorism report stated although Paraguay was generally cooperative on counterterrorism efforts, its judicial system remained severely hampered by a lack of strong anti-money-laundering and counterterrorism legislation. In December 2007, Paraguay's Congress approved anti-money laundering legislation as part of an overall on the country's penal code, which will improve the government's ability to obstruct and prosecute money laundering and terrorist financing, especially in Ciudad del Este. However, according to the terrorism report, counterterrorism legislation that has been introduced, but not yet approved, will be critical to keep Paraguay current with its international obligations. The terrorism report also maintained that Paraguay did not exercise effective immigration or customs control on its borders, and efforts to address illicit activity in the TBA were uneven because of a lack of resources, and corruption within customs, police, and the judiciary. The government's Secretariat for the Prevention of Money Laundering reportedly improved its progress during the second half of 2007.

The demise of the long-ruling Stroessner military dictatorship in 1989 initiated a political transition in Paraguay that has been difficult at times. Current President Nicanor Duarte Frutos has implemented some reforms that have addressed corruption and contributed to economic growth. Yet, due in large part to the country's authoritarian past, Paraguay's state institutions remain weak while corruption remains ingrained in the political culture, impeding democratic consolidation and economic development. In Paraguay's April 20, 2008, presidential election, former Roman Catholic bishop Fernando Lugo, running on an electoral coalition known as the Patriotic Alliance for Change (APC) won with 41% of the vote. He defeated the candidate of the long-ruling Colorado Party, Blanca Ovelar, who received 31%, and former military commander Lino Oviedo, who ran as the candidate of the National Union of Ethical Citizens (UNACE). The election was historic, and will end more than 60 years of Colorado Party rule when Lugo is inaugurated on August 15, 2008. For some observers, Lugo's victory is a chance for Paraguay to further strengthen its democratic transition, breaking a link with its authoritarian past. While victorious at the polls, President-elect Lugo will face tough challenges when he takes office in August. Most significantly, his ability to govern could be affected by his coalition's lack of a majority in Congress. Another potential difficulty for President Lugo is his ability to deal with entrenched government bureaucracy that essentially been controlled by the long-ruling Colorado Party. Most observers expect that Lugo will govern as a moderate since the electoral alliance that brought him to power is dominated by a center-right party. U.S.-Paraguayan relations have been strong, with extensive cooperation on counterterrorism and counternarcotics efforts. After Lugo's victory, U.S. Ambassador to Paraguay James Cason congratulated Lugo and the APC on their victory and expressed a commitment to work and strengthen bilateral relations. The United States remains concerned about illegal activities in the tri-border area with neighboring Argentina and Brazil, such as money-laundering, drugs and arms trafficking, and trade in counterfeit and contraband goods. The protection of intellectual property rights has been a U.S. concern, especially piracy, counterfeiting, and contraband. The United States provided about $12.5 million in aid to Paraguay in FY2007, an estimated $11.6 million in FY2008, and an FY2009 request for $11.8 million, including $3.4 million for a Peace Corps program. In addition to regular foreign assistance funding, Paraguay signed a $34.7 million Threshold Program agreement with the Millennium Challenge Corporation in May 2006, with the funds targeted specifically at programs to strengthen the rule of law and build a transparent business environment. For additional information, see CRS Report RL33620, Mercosur: Evolution and Implications for U.S. Trade Policy, by [author name scrubbed], and CRS Report RS21049, Latin America: Terrorism Issues, by [author name scrubbed]. This report will be updated as events warrant.

Coltec Indus. v. United States The transaction at issue in this case involved two Coltec subsidiaries: A and B. A gave a promissory note worth $375 million and property worth $4 million to B in exchange for stock in B and B's assumption of A's future asbestos liabilities. The value of the note was calculated to cover the liabilities. A then sold its stock in B for $500,000. Coltec claimed that A had a $378.5 million loss from the sale of the stock. Coltec asserted that A's basis in the stock was $379 million (the value of the note and property) and did not have to be reduced by the value of the assumed asbestos liabilities under the contingent liability rules in IRC § 358(d)(2). The IRS challenged, among other things, the transaction's economic substance. In 2004, the Court of Federal Claims held that the economic substance doctrine was an unconstitutional violation of the separation of powers doctrine. The court reasoned that because Congress had the authority to write the tax laws, it was unconstitutional for courts to require taxpayers to meet criteria beyond compliance with the congressionally written statutes. The court explained that taxpayers needed to be able to rely on the tax code's statutory language and that it was unfair to apply the economic substance doctrine on top of the statutes because of its unpredictability and ambiguity. The court dismissed the idea that Supreme Court and Federal Circuit decisions had endorsed the use of the economic substance doctrine, finding instead that the holdings in those cases relied on the statutory language and only used the doctrine as support for their conclusions. The court also noted that the doctrine's constitutionality had not previously been challenged and believed that recent case law raised questions about the doctrine's viability. In 2006, the U.S. Court of Appeals for the Federal Circuit reversed and remanded the lower court's decision, describing the holding as "untenable." The appellate court, noting that the economic substance doctrine had been recognized in several Supreme Court and Federal Circuit cases and in tax treatises, found no precedent for holding the doctrine to be unconstitutional. The court explained that the doctrine was similar to other canons of statutory construction, upheld by the Supreme Court as constitutional, that permitted courts to look beyond the statutory language if legislative intent would otherwise be violated. The court then laid out five principles of the doctrine: (1) a transaction without economic substance is disregarded for tax purposes, regardless of the taxpayer's motive for entering into it; (2) the taxpayer has the burden to prove the transaction's economic substance; (3) an objective test is used to determine whether there is economic substance; (4) the transaction that is tested is the one giving rise to the tax benefit; and (5) inter-company transactions that do not affect third-party economic interests deserve close scrutiny. Using these principles, the court determined that the Coltec transaction lacked economic substance because it did not "effect[] any real change in the flow of economic benefits, provide[] any real opportunity to make a profit, or appreciably affect[] Coltec's beneficial interests aside from creating a tax advantage." Black & Decker Corp. v. United States Black & Decker Corp. (BDC), after realizing $300 million in capital gains from the sale of assets, took part in a transaction seeking to create a capital loss. First, BDC transferred $561 million in cash to a subsidiary in exchange for stock and the subsidiary's assumption of BDC's future health benefits claims, which had an estimated present value of $560 million. One month later, BDC sold the stock for $1 million to an unrelated third-party. The subsidiary then lent $564 million to BDC's parent company, which the parent company repaid in monthly installments designed to furnish the subsidiary with funds to pay the benefit liabilities. BDC claimed a $560 million loss from the sale of stock. BDC asserted that its basis in the stock was $561 million and was not reduced by the value of the assumed liabilities under the contingent liabilities rules in IRC § 358(d)(2). The IRS disallowed the loss. The district court agreed with BDC's characterization of the transaction. The court stated that, under Fourth Circuit precedent, the question was whether "the taxpayer was motivated by no business purpose other than obtaining tax benefits in entering the transaction, and that the transaction has no economic substance because no reasonable possibility of profit exists." The fact that the taxpayer's sole motivation was tax avoidance was undisputed. With respect to the test's objective second prong, the court stated it would be met if the business engaged in "bona fide economically-based business transactions." The court found that the transaction met this standard because it had "very real economic implications" for the health plan participants and the businesses involved in the transaction because the subsidiary had assumed the administration of the benefit plans, was responsible for paying the claims, had proposed cost containment strategies that had been implemented, and had always had salaried employees. Thus, the court found that the transaction had economic substance and granted BDC's motion for summary judgment. The U.S. Court of Appeals for the Fourth Circuit disagreed with the district court. Because BDC had conceded the subjective prong of the test, the court looked only at the objective prong. The appeals court stated that the lower court had misapplied that prong by focusing on the subsidiary's business activities, when the test actually required looking at whether the transaction had a reasonable expectation of profit outside of the tax benefits. The court therefore found that many of the facts upon which the district court had based its decision (e.g., the fact that the subsidiary had salaried employees and paid claims as they came due) were irrelevant. Thus, the court reversed the district court's decision and remanded the case for further proceedings to determine the economic substance issue. Dow Chem. Co. v. United States Dow entered into a plan under which it bought corporate-owned life insurance (COLI) policies, of which it was the owner and beneficiary, on the lives of more than 21,000 employees. The company paid the premiums by borrowing funds from the insurers using the policies' cash value as collateral and by making partial withdrawals from the policies' cash value. The plan was not expected to generate positive pre-deduction cash flows or earn significant inside build-up (i.e., earn interest on the policies' value) unless Dow made substantial investments of cash into the plan. The plan also limited Dow's potential mortality gain (i.e., its potential to profit by being paid more death benefits than expected because of a high number of deaths). Dow deducted more than $33 million for interest paid on loans used to pay the premiums. The IRS disallowed the deductions, arguing that the transaction lacked economic substance. The district court held that the transaction did not lack economic substance. The court began by stating that the economic substance doctrine required the court to determine whether the transaction "has any practicable economic effects other than the creation of income tax losses," and, if so, whether the "taxpayer had a legitimate profit motive in entering into the transaction." The court, looking at prior cases in which courts had held COLI plans to lack economic substance, determined the test would be met if the transaction generated positive pre-deduction cash flow and it was possible for Dow to profit from both inside build-up and mortality gain. The court determined that these factors were met because the net present value of the policies was positive, the plan allowed for inside build-up, and the plan did not completely eliminate the transfer of risk. The Sixth Circuit Court of Appeals reversed the district court. Although the appellate court found that the lower court had properly framed the inquiry by looking at the plan's key characteristics to determine whether it lacked economic substance, it disagreed with the district court's findings on each factor. Specifically, the appellate court stated the district court erred by not looking at Dow's past conduct in determining the likelihood that Dow would make the significant future investments necessary for the plan to eventually have positive pre-deduction cash flow and generate inside build-up. The court found that Dow's past conduct made such future conduct unlikely. The appellate court also stated that the district court wrongly required that the plan not provide any possibility of mortality gain, and found that while the plan did allow for the possibility of such gain, it was basically designed to make the mortality provisions neutral. Based on these factors, the court held that the plans lacked economic substance and should be disregarded for tax purposes. Dow filed a petition for certiorari with the Supreme Court on October 4, 2006. TIFD III-E Inc. v. United States The taxpayer, which leased airplanes, among other business activities, became concerned during a downturn in the airline industry and entered into a transaction intended to partially monetize the value of its airplanes. The taxpayer formed a limited liability company (LLC) and then transferred airplanes worth $294 million and $246 million in cash to it. Two foreign banks then invested $117.5 million in the LLC. The LLC's operating agreement called for it to distribute most of its income to the banks each year. There was a significant difference between the bank's book income and tax income. This was because the book income had been reduced by expenses that included depreciation. The tax income, on the other hand, was not reduced by depreciation because the airplanes had already been fully depreciated for tax purposes. While the banks received most of the income, the operating agreement granted the taxpayer management control over the LLC. The operating agreement also called for the LLC to annually buy back a percentage of the banks' ownership interest so that the banks would be bought out after eight years. The overall effect of the transaction was that during the eight-year period, the taxpayer was able to partially monetize the airplanes by having access to the funds that the banks invested and the banks received a steady rate of return on their investment. The IRS argued that the transaction should be disregarded. The district court held that the transaction had economic substance. The court explained that the economic substance doctrine requires the court "examine both the subjective business purpose of the taxpayer for engaging in the transaction and the objective economic effect of the transaction." The court stated that the precedential decisions in the Second Circuit were unclear as to whether both prongs of the test had to be met. This was unimportant to the court, however, because it found that the transaction satisfied both tests. The court reasoned that the transaction had economic effect because the banks had invested $117.5 million and received a percentage of the LLC's income in return and that the taxpayer had a subjective business purpose in participating in the transaction because it needed to raise capital. The court then looked at whether the banks were actually partners in the transaction. The court found that they were because there were legitimate business reasons to create the LLC and the banks had an active stake in the LLC because its investment returns depended on the LLC's business performance. In 2006, the U.S. Court of Appeals for the Second Circuit reversed the lower court's decision. The appellate court did not disagree with the lower court that the transaction had economic substance due to the company's non-tax motive to raise equity capital. Instead, the appeals court found that the lower court erred in not looking at whether the banks were truly partners under the test developed in the Supreme Court's decision in Comm ' r v. Culbertson . The court stated that under Culbertson , it had to "determine[] the nature of the interest based on a realistic appraisal of the totality of the circumstances." The court found that the banks did not have any real equity interest because their "interest was in the nature of a secured loan, with an insignificant equity kicker," which meant that "only in a negligible fashion was their well-secured interest intertwined with the fortunes of the business." Thus, the appellate court did not find the Culbertson test to be met and held that the transaction should be disregarded for tax purposes. Legislation in the 110th Congress S. 96 (the Export Products Not Jobs Act) would codify the economic substance doctrine. The bill creates criteria for determining whether a transaction has economic substance, which apply once a court decides that the doctrine is relevant in the case. The bill also creates a new penalty for understatements of tax attributable to transactions lacking economic substance. The penalty equals 40% of the understatement and is reduced to 20% if the transaction was adequately disclosed. The bill also denies a deduction for interest on underpayments attributable to such transactions.

The economic substance doctrine is a judicially developed doctrine that has become one of the IRS's primary tools in fighting abusive tax shelters. The doctrine permits transactions lacking in economic substance to be disregarded for tax purposes. In 2006, four significant decisions dealing with the doctrine were issued by U.S. courts of appeals. In the 110th Congress, S. 96 (Export Products Not Jobs Act) has been introduced to codify the doctrine. This report discusses the doctrine's development and the four cases and summarizes the bill. It will be updated as events warrant.

Introduction On March 9, 2009, President Barack Obama signed Executive Order 13505, "Removing Barriers to Responsible Scientific Research Involving Human Stem Cells." The Obama executive order permits the Secretary of HHS through NIH to "support and conduct responsible, scientifically worthy human stem cell research, including human embryonic stem cell research, to the extent permitted by law" and directed NIH to review existing guidelines and "issue new NIH guidance on such research" within 120 days of the date of the executive order. The Obama decision allows scientists to use federal funds for research using the many human embryonic stem cell lines that have been created since the Bush 2001 policy. The Obama policy also eliminates the need to separate federally funded research from research conducted with private funds on cell lines that were previously ineligible for federal funding under the Bush policy; this often required building new but duplicative laboratories under the Bush policy using funds that could have been spent on associated research. Draft NIH guidelines were released on April 23, 2009. Final guidelines were issued on July 6, 2009. The Obama decision allows scientists to use federal funds for research on stem cell lines "that are posted on the new NIH Registry or they may establish eligibility by submitting an assurance of compliance" with the July 2009 guidelines. President Obama also issued a memorandum on scientific integrity directing the head of the White House Office of Science and Technology Policy "to develop a strategy for restoring scientific integrity to government decision making." Shortly after the 2009 guidelines were issued, opponents of human embryonic stem cell research brought suit in federal court arguing that federal funding of such research was barred by the Dickey amendment. Although federal funding of embryonic stem cell research was briefly enjoined by a preliminary injunction between August 23 and September 9, 2010, the United States Court of Appeals for the D.C. Circuit ultimately rejected that argument and allowed federal funding of human embryonic stem cell research to continue under the 2009 guidelines. On January 7, 2013, the Supreme Court denied the plaintiffs' petition for review and let the D.C. Circuit's opinion stand. The Obama executive order revoked the Bush Administration presidential statement of August 9, 2001, limiting federal funding for research involving human embryonic stem cells, and Executive Order 13435 of June 20, 2007, "which supplements the August 9, 2001, statement on human embryonic stem cell research." President George W. Bush had announced on August 9, 2001, that for the first time federal funds would be used to support research on human embryonic stem cells. However, the Bush decision limited funding to research on 21 stem cell lines that had been created prior to the date of the August 2001 policy announcement. In contrast, as of January 8, 2013, a total of 200 stem cell lines are listed in the new NIH stem cell registry. Legislation introduced but not passed in the 111 th and 112 th Congresses would have codified the Obama stem cell policy, preventing reversal by future Administrations. However, even if such legislation had been enacted, the use of federal funds for the derivation of new human embryonic stem cell lines would still not be permitted as long as the Dickey Amendment remains in effect. The amendment states federal funds cannot be used for the creation of human embryos for research purposes or for research in which human embryos are destroyed. This report provides background information on stem cell research and its potential applications as well as a history of federal policy decisions related to research on human embryos and stem cells. Basic Research and Potential Applications Most cells within an animal or human being are committed to fulfilling a single function within the body. In contrast, stem cells are a unique and important set of cells that are not specialized. Stem cells retain the ability to become some of the more than 200 different cell types in the body, and thereby play a critical role in repairing organs and body tissues throughout life. The term stem cells is often used in reference to these repair cells within an adult organism, but a more fundamental variety of stem cells is found in the early-stage embryo. Embryonic stem cells have the ability to become all the different types of cells found in the human body. This section discusses background, history, and potential applications of stem cell research. Embryonic Stem Cells from IVF Embryos or Fetal Tissue Embryonic stem cells were first isolated from mouse embryos in 1981 and from primate embryos in 1995. Animal embryos were the only source for research on embryonic stem cells until November 1998, when two groups of U.S. scientists announced the successful isolation of human embryonic stem cells. One group, at the University of Wisconsin, derived stem cells from five-day-old embryos produced via in vitro fertilization (IVF). The second group, at Johns Hopkins University, derived stem cells with very similar properties from five- to nine-week-old embryos or from fetuses obtained through elective abortion. Both groups reported the human embryos or fetuses were donated for research following a process of informing one or more parents and obtaining their consent. The cells removed from embryos or fetuses were manipulated in the laboratory to create embryonic stem cell lines that may continue to divide for many months to years. The vast majority of research on human embryonic stem cells, both in the United States and overseas, utilizes cell lines derived via the University of Wisconsin method. Many religious and socially conservative individuals who are opposed to abortion are also opposed to research involving embryos. For these individuals, research involving human embryonic stem cells is of concern because the stem cells are located inside the embryo, and the process of removing the cells destroys the embryo. They believe the destruction of embryos for the purpose of harvesting embryonic stem cells is morally and ethically unacceptable and argue that researchers should use other alternatives, such as induced pluripotent stem (iPS) cells or adult stem cells, both described below, instead of embryonic stem cells. Induced Pluripotent Stem (iPS) Cells In 2006, Shinya Yamanaka and his colleagues at Kyoto University in Japan published a paper showing that the addition of four mouse genes into mouse skin cell lines could cause some of the cells to behave like embryonic stem cells. Earlier studies in mouse embryos by Yamanaka's group had identified genes that are active in early embryos; combinations of these genes were then used to try and reprogram adult mouse cells to act like embryonic stem cells. Until this development—called induced pluripotent stem (iPS) cells—the characteristics displayed by the iPS cells were thought to occur only in cells found within the embryo. In 2012, Shinya Yamanaka was awarded the Nobel Prize in Physiology or Medicine for this work. In November 2007, Yamanaka's group, and a second at the University of Wisconsin, announced a similar development in human cells through the introduction of four genes into human skin cells. The research teams accomplished the reprogramming of the adult skin cells by using a retrovirus to transport the four genes into the skin cells. The two teams each used a different set of four genes; the Kyoto group has subsequently achieved reprogramming using three genes. Some who are opposed to human embryonic stem cell research argue that "scientific reasons alone will now incline even the most willful researchers to leave the human embryo alone.… [The iPS technique] is so simple and powerful. The embryonic stem cell debate is over." Others, however, argue that although development of iPS cells may one day lessen the need to study stem cells derived from the human embryo, "it would be premature" to stop working with human embryonic stem cells for several reasons. For example, it is unclear whether iPS cells share all the characteristics of embryonic stem cells, and therefore multiple comparisons between the two types of cells will be necessary. In addition, because scientists have used potentially cancer-causing retroviruses to transfer the reprogramming genes, these iPS cells would not be desirable for therapeutic uses in patients. Therefore, alternative mechanisms to accomplish reprogramming would need to be developed. Scientists are in the process of investigating the use of other safer viruses to transfer the genes. Some groups are exploring chemical methods of achieving the same results by switching on genes in the adult cell rather than transferring in additional gene copies with a virus. Embryonic Stem Cells Obtained via SCNT (Cloning) Another potential source of embryonic stem cells is somatic cell nuclear transfer (SCNT), also referred to as cloning . In SCNT the nucleus of an egg is removed and replaced by the nucleus from a mature body cell, such as a skin cell obtained from a patient. In 1996, scientists in Scotland used the SCNT procedure to produce Dolly the sheep, the first mammalian clone. When SCNT is used to create another individual, such as Dolly, the process is called reproductive cloning. In contrast, scientists interested in using SCNT to create cloned stem cells would allow the cell created via SCNT to develop for a few days, and then the stem cells would be removed for research. Creating stem cells using SCNT for research purposes is sometimes referred to as therapeutic cloning . Stem cells created via SCNT would be genetically identical to the patient, and thus would avoid any tissue rejection problems that could occur if the cells were transplanted into the patient. Although various scientific groups have reported success in using SCNT to create cloned embryos (which are then used to produce stem cell lines or live births) of a variety of different mammals (sheep, rabbits, cows), attempts at creating primate embryos via SCNT had been unsuccessful. However, in June 2007, researchers at the Oregon National Primate Research Center at Oregon Health and Science University announced the successful derivation of stem cells from a rhesus monkey embryo created via SCNT. Results of the Oregon group were confirmed in November 2007. The unsubstantiated announcement by Clonaid in December 2002 of the birth of a cloned child contributed to the controversy over research on human embryos. In addition, charges of ethical and scientific misconduct clouded the reputation of scientists involved in deriving stem cells from human embryos created via SCNT. In February 2004, scientists at the Seoul National University (SNU) in South Korea announced the first isolation of stem cells from a cloned human embryo and in May 2005 announced advances in the efficiency of creating cloned human embryos and in isolating human stem cells. Concerns about the SNU work arose in November 2005 when a U.S. co-author of the 2005 paper accused Hwang Woo Suk, the lead SNU researcher, of ethical misconduct. In December 2005, a Korean co-author of the May 2005 paper stated that the research was fabricated and the paper should be retracted; Hwang agreed to the retraction. On January 10, 2006, SNU stated that results of the 2004 paper were also a deliberate fabrication. Stem Cells from Adult Tissue or Umbilical Cord Blood Stem cells obtained from adult organisms are also the focus of research. Such work is evaluating the characteristics of adult stem cells from a variety of different sources, such as bone marrow and the umbilical cord following birth. Bone marrow transplantation, a type of adult stem cell therapy, has been used for 50 years to treat patients for a variety of blood-related conditions. Bone marrow is one source of hematopoietic stem cells—cells that have the capacity to multiply and differentiate into all types of blood cells. Umbilical cord blood is another source of hematopoietic stem cells. Opponents of stem cell research advocate that adult instead of embryonic stem cell research should be pursued because they believe the derivation of stem cells from IVF embryos is ethically unacceptable. Others believe that adult stem cells should not be the sole target of research because of important scientific and technical limitations. Adult stem cells may not be as long lived or capable of as many cell divisions as embryonic stem cells. Also, adult stem cells may not be as versatile in developing into various types of tissue as embryonic stem cells, and the location and rarity of the cells in the body might rule out safe and easy access. For these reasons, many scientists argue that both adult and embryonic stem cells should be the subject of research, allowing for a comparison of their various capabilities. Reports issued by the NIH and the Institute of Medicine (IOM) state that both embryonic and adult stem cell research should be pursued. In FY2004, the Consolidated Appropriations Act, 2004 ( P.L. 108-199 ), provided $10 million to establish a National Cord Blood Stem Cell Bank within the Health Resources and Services Administration (HRSA). HRSA was directed to use $1 million to contract with the IOM to conduct a study that would recommend an optimal structure for the program. The study, Cord Blood: Establishing a National Hematopoietic Stem Cell Bank Program , was released in April 2005. As stated above, the blood cell forming (hematopoietic) stem cells found in cord blood can be used as an alternative to bone marrow transplantation in the treatment of leukemia, lymphoma, certain types of anemia, and inherited disorders of immunity and metabolism. The IOM report provides the logistical process for establishing a national cord blood banking system, establishes uniform standards for cord blood collection and storage, and provides recommendations on ethical and legal issues associated with cord blood collection, storage and use. On December 20, 2005, President George W. Bush signed the Stem Cell Therapeutic and Research Act of 2005 ( P.L. 109-129 ). The act provided for the collection and maintenance of human cord blood for the treatment of patients and for research, and authorized the appropriation of $15 million for each fiscal year from FY2007 through FY2010. The act reauthorized the national bone marrow registry, authorizing the appropriation of $34 million for FY2006 and $38 million for each year from FY2007 through FY2010. In addition, the act created a database to enable health care workers to search for cord blood and bone marrow matches and linked all these functions under a new name, the C.W. Bill Young Cell Transplantation program. Legislation enacted in the 111 th Congress ( P.L. 111-264 ) authorizes a total of $53 million each year through FY2015 for the C.W. Bill Young Cell Transplantation Program. The law required the Government Accountability Office (GAO) to report, within one year of enactment, on efforts to increase cord blood unit donation and collection for the National Cord Blood Inventory (NCBI). The October 2011 GAO report found that while several practices may increase the number and diversity of cord blood units banked, there were also reported challenges to increasing collection, including resource limitations, competition from other banks that collect units only for the use of family members of the donor, and slowing growth in the demand for cord blood. Potential Applications of Stem Cell Research Stem cells provide the opportunity to study the growth and differentiation of individual cells into tissues. Understanding these processes could provide insights into the causes of birth defects, genetic abnormalities, and other disease states. If normal development were better understood, it might be possible to prevent or correct some of these conditions. Stem cells could be used to produce large amounts of one cell type to test new drugs for effectiveness and chemicals for toxicity. The damaging side effects of medical treatments might be repaired with stem cell treatment. For example, cancer chemotherapy destroys immune cells in patients, decreasing their ability to fight off a broad range of diseases; correcting this adverse effect would be a major advance. Stem cells might be transplanted into the body to treat disease (e.g., diabetes, Parkinson's disease) or injury (e.g., spinal cord). Before stem cells can be applied to human medical problems, substantial advances in basic cell biology and clinical technique would be required. In addition, very challenging regulatory decisions would be required on any individually created tissue-based therapies resulting from stem cell research that would need individual approval. Such decisions would likely be made by the Center for Biologics Evaluation and Research (CBER) of the Food and Drug Administration (FDA). The potential benefits would be likely only after many more years of research. Technical hurdles include developing the ability to control the differentiation of stem cells into a desired cell type (like a heart or nerve cell) and to ensure that uncontrolled development, such as cancer, does not occur with some stray cells. Experiments may involve the creation of a chimera, an organism that contains two or more genetically distinct cell types, from the same species or different species. If stem cells are to be used for transplantation, the problem of immune rejection must also be overcome. Some scientists think that the creation of many more embryonic stem cell lines will eventually account for all the various immunological types needed for use in tissue transplantation therapy. Others envision the eventual development of a "universal donor" type of stem cell tissue, analogous to a universal blood donor. However, if the method used to create iPS cells or if the SCNT technique was employed (using a cell nucleus from the patient), the stem cells created via these methods would be genetically identical to the patient, would presumably be recognized by the patient's immune system, and thus might avoid any tissue rejection problems that could occur in other stem cell therapeutic approaches. Because of this, scientists believe that these techniques may provide the best hope of eventually treating patients using stem cells for tissue transplantation. Regulation of Research A Brief History of Federal Policy on Human Embryo Research Federal funding of any type of research involving human embryos, starting with in vitro fertilization (IVF) then later the creation of stem cell lines from embryos, had been prohibited by various policy decisions dating back to the late 1970s. This section presents a brief history of federal policy on human embryo research, from the creation of the Ethics Advisory Board during the Carter Administration, the implementation of the Dickey Amendment during the Clinton Administration, and through the human embryonic stem cell policies of the George W. Bush and the Barack Obama Administrations. The Ethics Advisory Board The Ethics Advisory Board (EAB) was created in 1978 by the Department of Health, Education and Welfare (HEW), the forerunner of HHS. The EAB was formed at the recommendation of the National Commission for the Protection of Human Subjects of Biomedical and Behavioral Research. The National Commission operated from 1974 to 1978 and issued 10 reports, many of which formed the basis of federal regulations for research involving human subjects. In May 1978 the EAB agreed to review a research proposal involving IVF that had been received by HEW in 1977 and had been approved for its scientific merit. The July 1978 birth in England of the first IVF baby, Louise Brown, aroused great public interest. As a result, HEW in September 1978 "asked the Board to broaden its consideration of the pending application to include the scientific, ethical, legal, and social issues surrounding human IVF and embryo transfer in general. " The EAB released its report on May 4, 1979, which found that IVF research was acceptable from an ethical standpoint and could be supported with federal funds. At that time, federal regulations that govern human subject research stipulated that federally supported research involving human IVF must be reviewed by an EAB. "No action was ever taken by the Secretary with respect to the board's report; for other reasons, the Department dissolved the EAB in 1980. Because it failed to appoint another EAB to consider additional research proposals, HEW effectively forestalled any attempts to support IVF, and no experimentation involving human embryos was ever funded pursuant to the conditions set forth in the May 1979 report or through any further EAB review." Other types of embryo research ensuing from the development and use of IVF, such as cloning and stem cells, were also blocked from receiving federal support. Enactment of the National Institutes of Health (NIH) Revitalization Act of 1993, P.L. 103-43 , Section 121(c), nullified the regulatory provision requiring EAB review of IVF proposals, "removing an 18-year barrier to such research." Congressional intent of Section 121(c) can be found in the report language that accompanied the House bill: Subsection (c) nullifies the de facto moratorium currently in place on federal support for research on human in vitro fertilization, a promising area of research on the treatment of infertility. Since 1979, this research has been effectively banned by HHS under regulations which require the approval of such research by an Ethics Advisory Board. Because no such Board has been appointed by the Secretary …, no review of any application for in vitro fertilization has been allowed to go forward at NIH. The effect of this de facto moratorium has been to hobble this area of research, relying only on the private sector without regulation or clear ethical or medical guidelines. NIH Human Embryo Research Panel In response to the NIH Revitalization Act of 1993 ( P.L. 103-43 , Section 121(c)), the NIH established the Human Embryo Research Panel in 1994 to assess the moral and ethical issues raised by this research and to develop recommendations for NIH review and conduct of human embryo research. The NIH Panel released a report providing guidelines and recommendations on human embryo research in September 1994. The panel identified areas of human embryo research it considered to be unacceptable, or to warrant additional review. It determined that certain types of cloning without transfer to the uterus warranted additional review before the panel could recommend whether the research should be federally funded. However, the panel concluded that federal funding for such cloning techniques followed by transfer to the uterus should be unacceptable into the foreseeable future. The NIH Panel recommended that some areas of human embryo research should be considered for federal funding, including SCNT, stem cells and, under certain limited conditions, embryos created solely for the purpose of research . The panel's report was unanimously accepted by the NIH Advisory Committee to the Director (ACD) on December 2, 1994. After the ACD meeting on December 2, 1994, President William J. Clinton directed NIH not to allocate resources to support the " creation of human embryos for research purposes ." The President's directive did not apply to research involving so-called "spare" embryos, those that sometimes remain from clinical IVF procedures performed to assist infertile couples to become parents. Nor did it apply to human parthenotes, eggs that begin development through artificial activation, not through fertilization. Following the Clinton December 2, 1994, directive to NIH, the agency proceeded with plans to develop guidelines to support research using spare embryos. NIH plans to develop guidelines on embryo research were halted on January 26, 1996, with the enactment of P.L. 104-99 , an appropriations law that contained a rider affecting FY1996 funding for NIH. The rider, often referred to as the Dickey Amendment, prohibited HHS from using appropriated funds for the creation of human embryos for research purposes or for research in which human embryos are destroyed. The Dickey Amendment Private or other non-federal funding for experiments involving embryos has been necessary because Congress attached the Dickey Amendment to legislation that affected FY1996 NIH funding. The amendment, originally introduced by Representative Jay Dickey, prohibits HHS from using appropriated funds for the creation of human embryos for research purposes or for research in which human embryos are destroyed. The Dickey Amendment language has been added to each of the annual Labor, HHS, and Education appropriations acts for FY1997 through FY2012. HHS funding for FY2013 through March 27, 2013, is provided in the Continuing Appropriations Resolution, 2013 ( P.L. 112-175 ) under the same terms and conditions as the FY2012 appropriations act. The Dickey Amendment is found in Section 508 of Division F—Departments of Labor, Health and Human Services, and Education, and Related Agencies Appropriations Act, 2012, of P.L. 112-74 . It states that (a) None of the funds made available in this Act may be used for— (1) the creation of a human embryo or embryos for research purposes; or (2) research in which a human embryo or embryos are destroyed, discarded, or knowingly subjected to risk of injury or death greater than that allowed for research on fetuses in utero under 45 CFR 46.204(b) and Section 498(b) of the Public Health Service Act (42 U.S.C. 289g(b)). (b) For purposes of this section, the term 'human embryo or embryos' includes any organism, not protected as a human subject under 45 CFR 46 [the Human Subject Protection regulations] as of the date of enactment of this Act, that is derived by fertilization, parthenogenesis [development from an egg without fertilization], cloning, or any other means from one or more human gametes [sperm or egg] or human diploid cells [cells that have two sets of chromosomes, such as somatic cells]. In addition, no federal funds had been used to support research on stem cells derived from either human embryos or fetal tissue prior to the August 2001 Bush Administration decision (see the " George W. Bush Administration Stem Cell Policy " section). The research published in November 1998 that announced the successful isolation of human embryonic stem cells, performed at the University of Wisconsin and Johns Hopkins University, was supported by private funding from the Geron Corporation. Clinton Administration Stem Cell Policy Following the November 1998 announcement on the derivation of human embryonic stem cells by scientists at the University of Wisconsin and Johns Hopkins University, NIH requested a legal opinion from HHS on whether federal funds could be used to support research on human stem cells derived from embryos. The January 15, 1999, response from HHS General Counsel Harriet Rabb found that the Dickey Amendment would not apply to research using human stem cells "because such cells are not a human embryo within the statutory definition." The finding was based, in part, on the determination by HHS that the statutory ban on human embryo research defines an embryo as an organism that when implanted in the uterus is capable of becoming a human being. Human stem cells, HHS said, are not and cannot develop into an organism; they lack the capacity to become organisms even if they are transferred to a uterus. As a result, HHS maintained that NIH could support research that uses stem cells derived through private funds, but could not support research that itself, with federal funds, derives stem cells from embryos because of the federal ban in the Dickey Amendment. Shortly after the opinion by the HHS General Counsel was released, NIH disclosed that the agency planned to fund research on stem cells derived from human embryos once appropriate guidelines were developed and an oversight committee established. NIH Director Harold Varmus appointed a working group that began drafting guidelines in April 1999. Draft guidelines were published in the Federal Register on December 2, 1999. About 50,000 comments were received during the public comment period, which ended February 22, 2000. On August 25, 2000, NIH published in the Federal Register final guidelines on the support of human embryonic stem cell research. The August 2000 guidelines stated that studies utilizing "stem cells derived from human embryos may be conducted using NIH funds only if the cells were derived (without federal funds) from human embryos that were created for the purposes of fertility treatment and were in excess of the clinical need of the individuals seeking such treatment." Under the August 2000 guidelines, NIH would not fund research directly involving the derivation of human stem cells from embryos; this was prohibited by the Dickey Amendment. Other areas of research ineligible for NIH funding under the August 2000 guidelines include (1) research in which human stem cells are utilized to create or contribute to a human embryo; (2) research in which human stem cells are combined with an animal embryo; (3) research in which human stem cells are used for reproductive cloning of a human; (4) research in which human stem cells are derived using somatic cell nuclear transfer (i.e., the transfer of a human somatic cell nucleus into a human or animal egg); (5) research utilizing human stem cells that were derived using somatic cell nuclear transfer; and (6) research utilizing stem cells that were derived from human embryos created for research purposes, rather than for infertility treatment. NIH began accepting grant applications for research projects utilizing human stem cells immediately following publication of the August 2000 guidelines; the deadline for submitting a grant application was March 15, 2001. All such applications were to be reviewed by the NIH Human Pluripotent Stem Cell Review Group (HPSCRG), which was established to ensure compliance with the August 2000 guidelines. James Kushner, director of the University of Utah General Clinical Research Center, served briefly as chair of the HPSCRG. Applications would also have undergone the normal NIH peer-review process. The first meeting of the HPSCRG was scheduled for April 25, 2001, to determine whether researchers had followed the August 2000 guidelines in deriving the human embryonic stem cell lines. However, in mid-April 2001, HHS postponed the meeting until a review of the Clinton Administration's policy decisions on stem cell research was completed by the new administration following the election of George W. Bush. According to media sources, the 12 HPSCRG members, whose names were not made public, represented a wide range of scientific, ethical and theological expertise and opinion, as well as at least one "mainstream Catholic." The Bush Administration conducted a legal review of the Clinton Administration policy decisions on federal support for stem cell research, as well as a scientific review, prepared by NIH, of the status of the research and its applications. The scientific review was released on July 18, 2001, at a hearing held by the Senate Appropriations Subcommittee on Labor, Health and Human Services and Education. The NIH report did not make any recommendations, but argued that both embryonic and adult stem cell research should be pursued. George W. Bush Administration Stem Cell Policy On August 9, 2001, President George W. Bush announced that for the first time federal funds would be used to support research on human embryonic stem cells, but funding would be limited to "existing stem cell lines where the life and death decision has already been made." President Bush stated that the decision "allows us to explore the promise and potential of stem cell research without crossing a fundamental moral line, by providing taxpayer funding that would sanction or encourage further destruction of human embryos that have at least the potential for life." He also stated that the federal government would continue to support research involving stem cells from other sources, such as adult tissues, "which do not involve the same moral dilemma." Under the Bush policy, federal funds could only be used for research on existing stem cell lines that were derived (1) with the informed consent of the donors, (2) from excess embryos created solely for reproductive purposes, and (3) without any financial inducements to the donors. NIH examined the derivation of all existing stem cell lines and created a registry of lines that satisfied the Bush criteria. According to the White House, this would ensure that federal funds were used to support only stem cell research that is scientifically sound, legal, and ethical. Federal funds would not be used for (1) the derivation or use of stem cell lines derived from newly destroyed embryos, (2) the creation of any human embryos for research purposes, or (3) the cloning of human embryos for any purpose. NIH created a Human Embryonic Stem Cell Registry listing the cell lines that met the eligibility criteria. The Bush policy and the NIH registry effectively replaced the August 2000 stem cell guidelines that were developed under the Clinton Administration and never fully implemented. Grant proposals for embryonic stem cell research underwent the normal peer-review process without the added review of the HPSCRG, as had been specified under the August 2000 stem cell guidelines. In February 2002, NIH announced the approval of the first expenditures for research on human embryonic stem cells. The NIH registry originally listed 78 human embryonic stem cell lines as eligible for use in federally funded research under the Bush policy. However, many of these stem cell lines were found to be either unavailable or unsuitable for research. Over time, a growing number of scientists, disease advocates and others became concerned that federally supported research on human embryonic stem cells was limited to 21 cell lines. Because these pre-August 2001 cell lines were developed using 1990s techniques, they were harder to work with and were genetically unstable compared to newer stem cell lines. In reaction to the limitations imposed by the Bush policy, several U.S. research groups decided to develop additional human embryonic stem cell lines using private funding or funds provided by state governments. States responded to the Bush policy with initiatives to encourage or provide funding for stem cell research to prevent the relocation of scientists and biotechnology firms to other states or overseas. However, without the central direction and coordinated research approach that the federal government provides, others became concerned that the states' actions would result in duplication of research efforts, a lack of oversight for ethical concerns, and ultimately a loss of U.S. preeminence in this important area of basic research. Moreover, research groups studying human embryonic stem cell lines derived after August 2001were required to build new but duplicative laboratories, using funds that could have been spent on associated research, to ensure that absolutely no federal funds were used to support work on the newer stem cell lines. In April 2004, over 200 House Members sent a letter to President George W. Bush requesting that the Administration revise the stem cell policy and utilize the excess embryos that are created during infertility treatment. The letter pointed out that an estimated 400,000 frozen IVF embryos "will likely be destroyed if not donated, with informed consent of the couple, for research." According to the letter, "scientists are reporting that it is increasingly difficult to attract new scientists to this area of research because of concerns that funding restrictions will keep this research from being successful." The letter went on to state that "[w]e have already seen researchers move to countries like the United Kingdom, which have more supportive policies. In addition, leadership in this area of research has shifted to the United Kingdom, which sees this scientific area as the cornerstone of its biotech industry." In response, then NIH Director Elias A. Zerhouni wrote "And although it is fair to say that from a purely scientific perspective more cell lines may well speed some areas of human embryonic stem cell research, the president's position is still predicated on his belief that taxpayer funds should not sanction or encourage further destruction of human embryos that have at least the potential for life." Some observers in 2004 believed this indicated a possible policy shift by conceding that science could benefit from additional stem cell lines and the president's position rested solely on ethical arguments. A June 4, 2004, letter signed by 58 Senators also urged President Bush to expand the federal stem cell policy, stating that "despite the fact that U.S. scientists were the first to derive human embryonic stem cells, leadership in this area of research is shifting to other countries such as the United Kingdom, Singapore, South Korea and Australia." On July 14, 2004, HHS announced that NIH would establish Centers of Excellence in Translational Stem Cell Research and a National Embryonic Stem Cell Bank. Then-Secretary Tommy Thompson stated that "before anyone can successfully argue the stem cell policy should be broadened, we must first exhaust the potential of the stem cell lines made available with the policy." In reaction, the President of the Coalition for the Advancement of Medical Research stated that "creating a bank to house stem cell lines created before August 2001 does nothing to increase the wholly inadequate supply of stem cell lines for research." At a March 2007 Senate hearing, then NIH Director Zerhouni stated, in response to a question on the status of stem cell research, "It's not possible for me to see how we can continue the momentum of science and research with the stem cell lines we have at NIH that can be funded." When asked about research alternatives, Zerhouni stated that "the presentations about adult stem cells holding as much or more potential than embryonic stem cells, in my view, do not hold scientific water. I think they are overstated." He noted that overseas competitors were investing heavily in human embryonic stem cell research. "I think it is important for us not to fight with one hand tied behind our back here.… I think it's time to move forward on this area. It's time for policy makers to find common ground, to make sure that NIH does not lose its historical leadership.... To sideline NIH on such an issue of importance in my view is shortsighted." These statements were notable at the time because they were divergent with Bush Administration policy. On June 20, 2007, President Bush signed Executive Order 13435 directing the support of "research on the isolation, derivation, production and testing of stem cells that are capable of producing all or almost all of the cell types of the developing body and may result in improved understanding of or treatments for diseases and other adverse health conditions, but are derived without creating a human embryo for research purposes or destroying, discarding, or subjecting to harm a human embryo or fetus." However, many scientists continued to stress that research should focus on all types of stem cells, including those derived from human embryos. Obama Administration Stem Cell Policy On March 9, 2009, President Barack Obama signed Executive Order 13505: "Removing Barriers to Responsible Scientific Research Involving Human Stem Cells." The Obama executive order revoked the Bush presidential statement of August 9, 2001, as well as Executive Order 13435 signed by President Bush on June 20, 2007. The Obama executive order permits the Secretary of HHS through NIH to "support and conduct responsible, scientifically worthy human stem cell research, including human embryonic stem cell research, to the extent permitted by law" and directed NIH to review existing guidelines and "issue new NIH guidance on such research" within 120 days of the date of the executive order (see " NIH Stem Cell Guidelines and Funding for Stem Cell Research "). The Obama decision allows scientists to use federal funds for research utilizing the hundreds of human embryonic stem cell lines that have been created since the Bush 2001 policy. To ensure that all federally funded human stem cell research is conducted according to the same principles as the new NIH guidelines, a July 30, 2009, presidential memorandum directed the heads of all executive departments and agencies that support and conduct stem cell research to adopt the guidelines. Shortly after the 2009 guidelines were issued, opponents of human embryonic stem cell research brought suit in federal court arguing that federal funding of such research was barred by the Dickey amendment's prohibition against federal funding of "research in which a human embryo or embryos are destroyed, discarded, or knowingly subjected to risk of injury or death greater than that allowed for research on fetuses in utero [under federal law]." Specifically, the litigation turned on whether HHS could lawfully interpret the term "research" to include only activities performed once human embryonic stem cells had been isolated, or whether "research" must also include the antecedent embryonic stem cell derivation activities that generally resulted in the destruction of human embryos. Although federal funding of embryonic stem cell research was briefly enjoined by a preliminary injunction between August 23 and September 9, 2010, the United States Court of Appeals for the D.C. Circuit ultimately held that the text and legislative history of the Dickey amendment sufficiently supported HHS's narrower construction of the term "research" and allowed federal funding of human embryonic stem cell research to continue under the 2009 guidelines. On January 7, 2013, the Supreme Court denied the plaintiffs' petition for review and let the D.C. Circuit's opinion stand. The Obama policy eliminates the need to separate federally funded research from research conducted with state or private funds on cell lines that were previously ineligible for federal funding under the Bush policy; this often required building new but duplicative laboratories under the Bush policy using funds that could have been spent on associated research. States, such as California, Connecticut, Illinois, Maryland, New Jersey, and New York, may be reconsidering their funding of stem cell research given the change in federal policy that occurred under the Obama Administration and the impact of the nation's economic recession on state budgets. NIH Stem Cell Guidelines and Funding for Stem Cell Research On April 17, 2009, NIH announced the release of draft guidelines for the support and conduct of "ethically responsible and scientifically worthy" human stem cell research, including human embryonic stem cell research. The draft guidelines were published in the Federal Register on April 23, 2009. Written comments on the draft guidelines were accepted by NIH through May 26, 2009. About 49,000 comments were received by the agency. Final guidelines were issued by NIH on July 6, 2009, and became effective on July 7, 2009. The 2009 NIH guidelines specify the conditions that must be met and supported with documentation before a human embryonic stem cell line could be used in research conducted with federal funds; these conditions are repeated below. The human embryonic stem cells should have been derived from human embryos that were created using IVF for reproductive purposes and were no longer needed for that purpose; that were donated by individuals who sought reproductive treatment and who gave voluntary written consent for the human embryos to be used for research purposes; for which all of the following can be assured and documentation provided, such as consent forms, written policies, or other documentation provided: All options available in the health care facility where treatment was sought pertaining to the embryos no longer needed for reproductive purposes were explained to the individual(s) who sought reproductive treatment. No payments, cash or in kind, were offered for the donated embryos. Policies and/or procedures were in place at the health care facility where the embryos were donated that neither consenting nor refusing to donate embryos for research would affect the quality of care provided to potential donor(s). There was a clear separation between the prospective donor(s)'s decision to create human embryos for reproductive purposes and the prospective donor(s)'s decision to donate human embryos for research purposes. Specifically (1) Decisions related to the creation of human embryos for reproductive purposes should have been made free from the influence of researchers proposing to derive or utilize human embryonic stem cells in research. The attending physician responsible for reproductive clinical care and the researcher deriving and/or proposing to utilize human embryonic stem cells should not have been the same person unless separation was not practicable. (2) At the time of donation, consent for that donation should have been obtained from the individual(s) who had sought reproductive treatment. That is, even if potential donor(s) had given prior indication of their intent to donate to research any embryos that remained after reproductive treatment, consent for the donation for research purposes should have been given at the time of the donation. (3) Donor(s) should have been informed that they retained the right to withdraw consent for the donation of the embryo until the embryos were actually used to derive embryonic stem cells or until information which could link the identity of the donor(s) with the embryo was no longer retained, if applicable. During the consent process, the donor(s) were informed of the following: (1) the embryos would be used to derive human embryonic stem cells for research; (2) what would happen to the embryos in the derivation of human embryonic stem cells for research; (3) the human embryonic stem cells derived from the embryos might be kept for many years; (4) the donation was made without any restriction or direction regarding the individual(s) who may receive medical benefits from the use of the human embryonic stem cells, such as who may be recipients of cell transplants; (5) the research is not intended to provide direct medical benefit to the donors; (6) the results of research using the human embryonic stem cells may have commercial potential, and the donor(s) would not receive financial or any other benefits from any such commercial development; (7) whether information that could identify the donor(s) would be available to researchers. Under the 2009 NIH guidelines, funding would not be allowed for research using human embryonic stem cells derived from other sources, including SCNT, parthenogenesis (development from an egg without fertilization), or IVF embryos created for research purposes. At a news conference on April 17, 2009, the Acting Director of NIH, Raynard Kington, stated that there is "strong broad support for the use of federal funds to conduct human embryonic stem cell research on cell lines derived from embryos created for reproductive purposes," and pointed to legislation twice passed by Congress as evidence. Dr. Kington stated that "there is not similar broad support for using the other sources" and that NIH is not aware of any human stem cell lines created via SCNT or "from embryos created specifically for research purposes." A survey of the scientific literature conducted by a researcher at Harvard University found at least 783 cell lines created from excess IVF embryos and did not find "a report that IVF was used specifically to make a line of human embryonic stem cells." Some were concerned that the lines that were eligible for use in federally funded research under the 2001 Bush policy may not qualify under the 2009 NIH guidelines because of the very detailed requirements for informed consent which were not in place and widely observed prior to 2006. It was suggested that it may be necessary to "grandfather" some of these older cell lines to allow for their continued use in research. Rather than grandfathering, the 2009 NIH guidelines allow a Working Group of the Advisory Committee to the Director to review the ethical principles and procedures used in the process of obtaining informed consent for the donation of the embryo and advise NIH on whether the cell line should be eligible for NIH funding. In December 2009, the agency created a new NIH registry of human embryonic stem cell lines that are eligible for use in research supported by federal funds. In February 2010, the agency proposed expanding the definition of what constitutes a human embryonic stem cell to include "early stage embryos up to and including" the blastocyst stage. The previous definition, "cells that are derived from the inner cell mass of blastocysts," excluded certain human embryonic stem cell lines which might be otherwise appropriate for federal funding. In April 2010 NIH approved four stem cell lines developed by the WiCell Research Institute that had been eligible for federal funding under the Bush policy. The H9 stem cell line had been widely used by stem cell researchers. As of January 8, 2013, a total of 200 stem cell lines are listed in the registry. As discussed above, federal funding of human embryonic stem cell research were briefly enjoined between August 23 and September 9, 2010. During this time, NIH placed a notice on its website that suspended action on grant applications and contracts that involve human embryonic stem cells and other matters related to the 2009 NIH guidelines. NIH stated that "grant awards that were funded on or before August 23, 2010, are not affected by the preliminary injunction order, and award recipients may continue to expend the funds awarded to them prior to the date of the injunction." On August 30, 2010, the agency ordered that all intramural researchers using human embryonic stem cells must stop their experiments immediately. Eight research projects were affected, most if not all used cell lines that were approved under the Bush policy. In a statement on the agency's website, NIH Director Francis S. Collins said, "The recent court ruling that halted the federal funding of human embryonic stem cell research could cause irreparable damage and delay potential breakthroughs to improve care for people living with serious diseases and conditions such as spinal cord injury, diabetes, or Parkinson's disease. The injunction threatens to stop progress in one of the most encouraging areas of biomedical research, just as scientists are gaining momentum—and squander the investment we have already made." In a joint statement, the Association of American Medical Colleges, the Association of American Universities, the Association of Public and Land-grant Universities, and the Council on Governmental Relations said the court injunction "not only blocks potential life-saving research but also threatens to undermine the system of peer-reviewed science that has helped make America the unquestioned world leader in scientific discovery." Once the preliminary injunction was stayed on September 9, 2010, NIH grant review and other activities under the NIH Guidelines were permitted to continue even though the underlying case was still being litigated. Funding for stem cell research by NIH is shown in Table 1 . NIH received $10 billion in funds provided by the stimulus package, the American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5 ); Table 1 shows the amount of ARRA funds used for research on stem cells. The NIH website provides more information on stem cell activities and funding opportunities. FDA Regulation of Stem Cell Research FDA, the agency that ensures the safety and efficacy of food, drugs, medical devices and cosmetics, regulates stem cell research aimed at the development of any "product" subject to its approval. The regulation of cells or tissues intended for implantation or infusion into a human patient is the responsibility of the FDA Center for Biologics Evaluation and Research (CBER). FDA refers to such cells as HCT/Ps, which stands for human cells, tissue, and cellular and tissue-based products. Stem cells (whether derived from embryos, cord blood, adult cells or iPS cells) are just one example of HCT/P. Other examples of HCT/Ps include bone, skin, corneas, ligaments, tendons, dura mater, heart valves, oocytes, and semen. HCT/Ps are regulated under 21 CFR 1271. The agency's website states that FDA uses a risk-based approach to regulation, focusing on three general areas: 1. limiting the risk of transmission of communicable disease from donors to recipients; 2. establishing manufacturing practices that minimize the risk of contamination; 3. requiring an appropriate demonstration of safety and effectiveness for cells and tissues that present greater risks due to their processing or their use. Some HCT/Ps are regulated solely under Section 361 of the Public Health Service (PHS) Act, which is concerned with control of communicable diseases. These HCT/Ps must meet the requirements in 21 CFR 1271 but are not required to undergo FDA premarket review (including a license, approval, or clearance). Such HCT/Ps meet all the criteria listed in 21 CFR 1271.10. Establishments that manufacture HCT/Ps that meet the criteria in 1271.10 must register with FDA, submit a list of each HCT/P manufactured, and comply with the requirements of 21 CFR 1271. There are exceptions from the requirements of 21 CFR 1271; these are listed in 21 CFR 1271.15. Some examples of such exceptions include establishments that use HCT/Ps solely for nonclinical scientific or educational purposes; remove HCT/Ps from an individual and implant such HCT/Ps into the same individual during the same surgical procedure; or recover reproductive cells or tissue and immediately transfer them into a sexually intimate partner of the cell or tissue donor. HCT/Ps that do not meet the criteria listed in 1271.10 and do not qualify for any of the exceptions listed in 1271.15 are regulated as a drug, device, and/or biological product under the Federal Food, Drug, and Cosmetic Act and/or Section 351 of the PHS Act; all such HCT/Ps would require premarket approval (including a license, approval or clearance). In January 2009, FDA approved a request to begin tests of human embryonic stem cells in 8 to 10 patients with recent spinal cord injuries. The Phase I clinical trial supported by Geron, a California biotechnology company, was the first to use such cells in human subjects. In November 2011 Geron announced that it would stop work on its stem cell therapy program to focus on cancer therapy. The decision was made because of financial problems, forcing Geron to cut 38% of its workforce to save $25 million per year. The company will continue to monitor the four patients who have received stem cell injections but will not enroll new patients. The four patients have not experienced serious adverse events but have also shown no signs that the therapy was reversing the spinal cord injury. In November 2010, a second U.S. company, Advanced Cell Technology (ACT) headquartered in Santa Monica, CA, announced that it had received approval from FDA to conduct a clinical trial using human embryonic stem cells to treat two conditions which cause blindness. The ACT trial has treated two patients as of November 2011. Some have expressed concern over the possibility that transplanted stem cells may form a type of tumor called a teratoma. Extensive studies in rodents were performed to assure FDA that the stem cells did not cause tumors in animals. Stem Cell Research Guidelines by Other Entities Two non-federal entities have also played a role in providing guidelines for the conduct of stem cell research. Because of the lack of federal regulation of such research during the George W. Bush Administration, the National Academies developed voluntary guidelines for deriving, handling, and using human embryonic stem cells. The International Society for Stem Cell Research (ISSCR), "an independent, nonprofit organization formed in 2002 to foster the exchange of information on stem cell research," developed guidelines in order to facilitate international collaboration by providing a uniform set of practices for scientists worldwide. National Academies Guidelines In July 2004 the National Academies established the committee on Guidelines for Human Embryonic Stem Cell Research to develop voluntary guidelines for deriving, handling and using human embryonic stem cells due to the lack of federal regulation of such research at that time. The National Academies stated that there should be a global ban on human reproductive cloning and therefore the guidelines focused only on therapeutic and research uses of human embryonic stem cells and somatic cell nuclear transfer. The committee released its "Guidelines for Human Embryonic Stem Cell Research" on April 26, 2005. The document provided guidance on informed consent of donors and stated that there should be no financial incentives in the solicitation or donation of embryos, sperm, eggs, or somatic cells for research purposes. The guidelines recommended that each institution conducting human embryonic stem cell research establish an oversight committee, including experts in the relevant areas of science, ethics, and law, as well as members of the public, to review all proposed experiments. The guidelines recommended that a national panel be established to oversee the issue in general on a continuing basis. The Human Embryonic Stem Cell Research Advisory Committee met for the first time in July 2006 and held a number of meetings to gather information about the need to revise the guidelines. In February 2007, a revised version of the guidelines was published with minor changes affecting Sections 1 (Introduction) and Section 2 (Establishment of an Institutional Embryonic Stem Cell Research Oversight Committee). The guidelines were updated again in September 2008 to reflect the advances with iPS cells by including a new section entirely devoted to this area of research. International Society for Stem Cell Research Guidelines In February 2007, the International Society for Stem Cell Research (ISSCR) released its "Guidelines for the Conduct of Human Embryonic Stem Cell Research." The ISSCR guidelines were developed by a committee of scientists, ethicists, and legal experts from 14 countries in order to "facilitate international collaboration by encouraging investigators and institutions to adhere to a uniform set of practices." In drafting the guidelines, the ISSCR committee used as a model the National Academies guidelines, the regulations of the California Institute for Regenerative Medicine, and "governmental regulations already in place in other countries, particularly that of the Human Fertilisation and Embryology Authority of the United Kingdom." In order to ensure the responsible development of safe and effective stem cell therapies for patients, the ISSCR released in December 2008 a second guidance document, "Guidelines for the Clinical Translation of Stem Cells." In addition, due to concerns over unproven stem cell therapies being marketed directly to patients, the ISSCR also developed a handbook to be used by patients and their doctors in evaluating a stem cell therapy. In the press release for the guidelines they noted "[t]oo often rogue clinics around the world exploit patients' hopes by offering unproven stem cell therapies, typically for large sums of money and without credible scientific rationale, oversight or patient protections." According to ISSCR, this concern was substantiated by a study conducted by the University of Alberta, Canada, which analyzed the claims of 19 Internet sites offering "stem cell therapies," the vast majority of which "over promise results and gravely underestimate the potential risks of their offered treatments." State Laws that Restrict Stem Cell Research110 The National Council of State Legislatures compiled information on state laws that restrict stem cell research. As of January 2008, the most recent summary information available, many states restrict research on aborted fetuses or embryos, but research is often permitted with consent of the parent or parents. Almost half of the states also restrict the sale of fetuses or embryos. Louisiana is the only state that specifically prohibits research on in vitro fertilized (IVF) embryos. Illinois and Michigan also prohibit research on live embryos. Arkansas, Indiana, Michigan, North Dakota, and South Dakota prohibit research on cloned embryos. Virginia may also ban research on cloned embryos, but the statute may leave room for interpretation because human being is not defined. (There may be disagreement about whether human being includes blastocysts, embryos or fetuses.) California, Connecticut, Illinois, Iowa, Massachusetts, New Jersey, New York, and Rhode Island have laws that prohibit cloning for the purpose of initiating a pregnancy, but allow cloning for research. Several states limit the use of state funds for cloning or stem cell research. Missouri forbids the use of state funds for reproductive cloning but not for cloning for the purpose of stem cell research, and Maryland's statutes prohibit state-funded stem cell researchers from engaging in reproductive cloning. Arizona law prohibits the use of public monies for reproductive or therapeutic cloning. Nebraska statutes limit the use of state funds for embryonic stem cell research. Restrictions only apply to state healthcare cash funds provided by tobacco settlement dollars. State funding available under Illinois Executive Order 6 (2005) may not be used for reproductive cloning or for research on fetuses from induced abortions. In reaction to the restrictive federal policy for funding research under the George W. Bush Administration, several states (California, Connecticut, Illinois, Indiana, Maryland, Massachusetts, New Jersey, New York, Ohio, Washington, Wisconsin, Virginia) have been encouraging or providing funding for stem cell research (adult, embryonic, and in some cases SCNT as well), in order to remain competitive and prevent the relocation of scientists and biotechnology firms to other states or overseas. The change in federal policy on embryonic stem cell research under the Obama Administration as well as the current economic situation has caused some states to reevaluate their stem cell research efforts. Legislation Legislation introduced in the 111 th and 112 th Congresses would have codified the Obama stem cell policy and prevented reversal by future Administrations. In addition, the legislation would have banned funding for reproductive human cloning, and required that stem cell lines meet ethical guidelines established by the NIH and that the guidelines be reviewed every three years. There was no further action on such legislation during the 111 th Congress or the 112 th Congress. The table below depicts action during the 109 th and 110 th Congresses on human embryonic stem cell research legislation.

Since FY1996, the Dickey amendment in Labor-Health and Human Services (HHS) appropriations acts has prohibited the use of federal funds for the creation of human embryos for research purposes or for research in which human embryos are destroyed. At the time, the Dickey amendment halted the development of guidelines by the National Institutes of Health (NIH) on the broad field of human embryo research and has each year since 1996 prohibited federal funding for human embryo research and related topics, including in vitro fertilization (IVF) and human embryonic stem cells. These cells have the ability to develop into virtually any cell in the body, and may have the potential to treat injuries as well as illnesses, such as diabetes and Parkinson's disease. Currently, most human embryonic stem cell lines used in research are derived from embryos produced via IVF. Because the process of removing these cells destroys the embryo, some individuals believe the derivation of stem cells from human embryos is ethically unacceptable. In August 2001, President George W. Bush announced that for the first time, federal funds would be used to support research on human embryonic stem cells. However, the Bush decision limited funding to research on 21 stem cell lines that had been created prior to the date of the August 2001 policy announcement. Scientists expressed concern about the quality and longevity of these 21 stem cell lines, believing that research advancement requires access to new human embryonic stem cell lines. However, those concerned about the ethical implications of deriving stem cells from human embryos argue that researchers should use alternatives, such as induced pluripotent stem (iPS) cells or adult stem cells (from bone marrow or umbilical cord blood). In June 2007, President Bush signed an executive order directing the support of "research on the isolation, derivation, production and testing of stem cells that are capable of producing all or almost all of the cell types of the developing body and may result in improved understanding of or treatments for diseases and other adverse health conditions, but are derived without creating a human embryo for research purposes or destroying, discarding, or subjecting to harm a human embryo or fetus." Many scientists continued to stress that research should focus on all types of stem cells, including those derived from human embryos. On March 9, 2009, President Barack Obama signed an executive order that reversed the nearly eight-year-old Bush Administration restriction on federal funding for human embryonic stem cell research and the June 2007 executive order. The Obama decision directed NIH to issue new guidelines for the conduct of embryonic stem cell research. Draft guidelines were released on April 23, 2009, and final guidelines were issued on July 6, 2009. In December 2009, NIH created a new registry of human embryonic stem cell lines that are eligible for use in research supported by federal funds under the 2009 guidelines. Shortly after the 2009 guidelines were issued, opponents of human embryonic stem cell research brought suit in federal court arguing that federal funding of such research was barred by the Dickey amendment. Specifically, the litigation turned on whether HHS could lawfully interpret the term "research" to include only activities performed once human embryonic stem cells had been isolated, or whether "research" must also include the antecedent embryonic stem cell derivation activities that generally resulted in the destruction of human embryos. Although federal funding of embryonic stem cell research was briefly enjoined, the United States Court of Appeals for the D.C. Circuit rejected that argument and allowed federal funding of human embryonic stem cell research to continue under the 2009 guidelines. The Supreme Court has declined to review that decision, letting the D.C. Circuit's opinion stand. As of January 8, 2013, a total of 200 stem cell lines are listed in the NIH registry. Legislation introduced but not passed in the 111th and 112th Congresses would have codified the Obama stem cell policy, preventing reversal by future Administrations. However, even if such legislation had been enacted, the use of federal funds for the derivation of new human embryonic stem cell lines would still not be permitted as long as the Dickey Amendment remains in effect.

Overview Prior to 1996, foreign States were immune from civil liability in U.S. courts for injuries caused by acts of terrorism carried out by their agents and proxies. In 1996, Congress amended the Foreign Sovereign Immunities Act (FSIA) to allow civil suits by U.S. victims of terrorism against certain States responsible for, or complicit in, such terrorist acts as torture, extrajudicial killing, aircraft sabotage, and hostage taking. The amendment enjoyed broad support in Congress, but was initially resisted by the executive branch. President Clinton signed the amendment into law after the Cuban air force shot down a civilian plane over international waters, an incident that resulted in one of the first lawsuits under the new FSIA exception. After a court found that the waiver of sovereign immunity did not itself create a private right of action, Congress passed the Flatow Amendment to create a cause of action. Numerous court judgments awarding plaintiffs substantial compensatory and punitive damages were to follow, until the D.C. Circuit in 2004 interpreted the provisions in a way that made further awards somewhat more difficult for plaintiffs to win. Plaintiffs thereafter largely relied on domestic state law to provide a cause of action, which resulted in some disparity in the amount and type of relief available to different victims of the same terrorist attacks. Although the defendant State sponsors of terrorism have frequently declined to appear in court to defend against the lawsuits, the litigation has nevertheless proven contentious, often leading to the perception on the part of plaintiffs that the U.S. government is their most formidable adversary. Nevertheless, U.S. courts have awarded victims of terrorism more than $19 billion against State sponsors of terrorism and their officials, most of which remains uncollected. The scarcity of assets within U.S. jurisdiction that belong to States subject to economic sanctions has made judgments against terrorist States difficult to enforce. Efforts by plaintiffs to attach frozen assets and diplomatic or consular property, while receiving support from Congress, have met with opposition from the executive branch. The total amount of judgments against terrorist States far exceeds the assets of debtor States known to exist within the jurisdiction of U.S. courts. The use of U.S. funds to pay portions of some judgments has drawn criticism. Calls for a more effective and fair means to compensate victims of terrorism have not yielded an alternative mechanism. The issue has pitted the compensation of victims of terrorism against U.S. foreign policy goals and some business interests. Congress passed a rider to the National Defense Authorization Act for FY2008 ( H.R. 1585 ), to provide a cause of action against terrorist States and to facilitate enforcement of judgments, and to permit some plaintiffs to refile claims that were unsuccessful under the previous law. The provision also permits the filing of new cases related to terrorist incidents that have been the subject of previous cases, in order to permit the filing of cases in which the plaintiffs were previously ineligible to file or had missed the filing deadline, or perhaps in order to garner higher damages. After the President vetoed the bill based on the possible impact the measure would have on Iraq, Congress passed a new version, H.R. 4986 , this time authorizing the President to waive its provisions with respect to Iraq. The President signed the bill into law, P.L. 110-181 , and promptly issued a waiver with respect to Iraq. The Administration now seeks a waiver for Libya and other States whose designation may be lifted. However, the Court of Appeals for the D.C. Circuit has ruled that the waiver with respect to Iraq does not affect pending cases, which are permitted to go forward under the FSIA as it was in effect prior to the FY2008 NDAA. This report provides background on the international law doctrine of foreign State immunity and the FSIA; summarizes the 1996 amendments creating an exception to state immunity under the FSIA for suits against terrorist States; details the subsequent cases and the legislative initiatives to assist claimants in efforts to collect on their judgments; sets forth the legal and policy arguments that were made for and against those efforts; summarizes the decision in Roeder v. Islamic Republic of Iran and efforts to help the plaintiffs and override the Algiers Accords; describes the Administration's actions vesting title to Iraq's frozen assets in the United States and making them unavailable to former POWs in Acree v. Republic of Iraq and other plaintiffs who have won judgments against Iraq; discusses an effort by Iran to void a judgment against it ( Ministry of Defense v. Elahi ); notes the laws in certain terrorist States that allow suits against the U.S. for similar acts; and concludes that the issue of providing fair compensation to victims of terrorism is not one that will likely dissipate any time soon. The report also contains two appendixes: Appendix A lists the cases covered by § 2002 of the Victims of Trafficking and Violence Protection Act of 2000 ( P.L. 106-386 ), the amount of compensation that has been paid in each case, and the source of the compensation. It provides a separate list of judgments handed down later that are not covered by the compensation schemes set forth in earlier legislation, whose creditors will likely compete with each other to satisfy claims out of scarce blocked assets. Appendix B lists the amount of the assets of each terrorist State blocked by the United States as of the end of 2006, as compared to the current sum of judgments that remain to be satisfied. The report will be updated as events warrant. Background on State Immunity Customary international law historically afforded sovereign States complete immunity from being sued in the courts of other States. In the words of Chief Justice Marshall, this immunity was rooted in the "perfect equality and absolute independence of sovereigns" and the need to maintain friendly relations. Although each nation has "full and absolute" jurisdiction within its own territory, the Chief Justice stated, that jurisdiction, by common consent, does not extend to other sovereign States: One sovereign being in no respect amenable to another; and being bound by obligations of the highest character not to degrade the dignity of his nation, by placing himself or its sovereign rights within the jurisdiction of another, can be supposed to enter a foreign territory only under an express license, or in the confidence that the immunities belonging to this independent sovereign station, though not expressly stipulated, are reserved by implication, and will be extended to him. This perfect equality and absolute independence of sovereigns, and this common interest impelling them to mutual intercourse, and an interchange of good offices with each other, have given rise to a class of cases in which every sovereign is understood to waive the exercise of a part of that complete exclusive territorial jurisdiction, which has been stated to be the attribute of every nation. During the last century, however, this principle of absolute sovereign immunity gradually came to be limited after a number of States began engaging directly in commercial activities. To allow States to maintain their immunity in the courts of other States even while engaged in ordinary commerce, it was said, "gave States an unfair advantage in competition with private commercial enterprise" and denied the private parties in other nations with whom they dealt their normal recourse to the courts to settle disputes. As a consequence, numerous States immediately before and after World War II adopted the "restrictive principle" of state immunity, which preserves sovereign immunity for most cases but allows domestic courts to exercise jurisdiction over suits against foreign States for claims arising out of their commercial activities. The United States adopted the restrictive principle of sovereign immunity by administrative action in 1952, and the State Department began advising courts on a case-by-case basis whether a foreign sovereign should be entitled to immunity from a U.S. court's jurisdiction based on the nature of the claim. In 1978 Congress codified the principle in the Foreign Sovereign Immunities Act (FSIA), so that the decision no longer depended on a determination by the State Department. The FSIA states the general principle that "a foreign state shall be immune from the jurisdiction of the courts of the United States and of the States" and then sets forth several exceptions. The primary exceptions are for cases in which "the foreign state has waived its immunity either expressly or by implication," cases in which "the action is based upon a commercial activity carried on in the United States by the foreign state," and suits against a foreign State for personal injury or death or damage to property occurring in the United States as a result of the tortious act of an official or employee of that State acting within the scope of his office or employment. For most types of claims covered, the FSIA also provides that the commercial property of a foreign State in the United States may be attached in satisfaction of a judgment against it regardless of whether the property was used for the activity on which the claim was based. However, assets belonging to separate instrumentalities of a foreign government are not generally available to satisfy claims against the foreign government itself or against other agencies and instrumentalities in which that government has an interest. The Anti-Terrorism and Effective Death Penalty Act of 1996: Civil Suits Against Terrorist States by Victims of Terrorism In 1996 Congress added another exception to the FSIA to allow the U.S. courts, federal and state, to exercise jurisdiction over foreign States and their agencies and instrumentalities in civil suits by U.S. victims of terrorism. The Anti-Terrorism and Effective Death Penalty Act of 1996 (AEDPA) amended the FSIA to provide that a foreign State is not immune from the jurisdiction of U.S. courts in cases in which money damages are sought against a foreign state for personal injury or death that was caused by an act of torture, extrajudicial killing, aircraft sabotage, hostage taking, or the provision of material support or resources ... for such an act if such act or provision of material support is engaged in by an official, employee, or agent of such foreign state while acting within the scope of his or her office, employment, or agency.... As predicates for such suits, the AEDPA amendment required that the foreign State be designated as a State sponsor of terrorism by the State Department at the time the act occurred or later so designated as a consequence of the act in question, that either the claimant or the victim of the act of terrorism be a U.S. national, and that the defendant State be given a prior opportunity to arbitrate the claim if the act on which the claim is based occurred in the territory of the defendant State. The act also provided that the terrorist States and their agencies and instrumentalities would be liable for compensatory damages, and the agencies and instrumentalities for punitive damages as well. The act further allowed the commercial property of a foreign State in the United States to be attached in satisfaction of a judgment against that State under this amendment regardless of whether the property was involved in the act on which the claim was based. After previously opposing similar proposals, the Clinton Administration agreed to these changes in the FSIA. After a court found that the terrorism exception to sovereign immunity did not itself create a cause of action, Congress passed the Civil Liability for Acts of State-Sponsored Terrorism (known as the "Flatow Amendment") to clarify that a cause of action existed against the officials, employees, and agents of States whose sovereign immunity was abrogated pursuant to the exception. The Flatow Amendment gives parties injured or killed by a terrorist act covered by the FSIA exception, or their legal representatives, a cause of action for suits against "an official, employee, or agent of a foreign state designated as a state sponsor of terrorism" who commits the terrorist act "while acting within the scope of his or her office, employment, or agency ...." if a U.S. government official would be liable for similar actions. This measure was adopted as part of the Omnibus Consolidated Appropriations Act for Fiscal 1997 without apparent debate. Early Cases and Efforts to Satisfy Judgments Several suits were quickly filed against Cuba and Iran pursuant to the new provisions. Neither State recognized the jurisdiction of the U.S. courts in such suits, however; and both refused to appear in court to mount a defense. The FSIA provides that a court may enter a judgment by default in such a situation if "the claimant establishes his claim or right to relief by evidence satisfactory to the court." After making the proper finding, several federal trial courts entered default judgments holding Iran and Cuba to be culpable for particular acts of terrorism and awarding the plaintiffs substantial amounts in compensatory and punitive damages. Neither Iran nor Cuba had any inclination to pay the damages that had been assessed in these cases. As a consequence, the plaintiffs and their attorneys sought to attach certain properties and other assets owned by the States in question that were located within the jurisdiction of the United States to satisfy the judgments. In the case of Flatow v. Islamic Republic of Iran , plaintiffs sought to attach the embassy and several diplomatic properties of Iran located in Washington, DC, the proceeds that had accrued from the rental of those properties after diplomatic relations had been broken in 1979, and an award that had been rendered by the Iran-U.S. Claims Tribunal in favor of Iran and against the U.S. government but which had not yet been paid. The Clinton Administration opposed these efforts, arguing that the diplomatic properties and the rental proceeds were essentially sovereign non-commercial property that remained immune to attachment pursuant to the FSIA. In addition, the Administration argued that it was obligated to protect Iran's diplomatic and consular properties under the Vienna Convention on Diplomatic Relations and the Vienna Convention on Consular Relations and that using such properties to satisfy court judgments would expose U.S. diplomatic and consular properties around the world to similar treatment by other countries. The Clinton Administration further argued that the funds set aside to pay an award to Iran by the decision of the Claims Tribunal were still U.S. property and, as such, were immune from attachment due to U.S. sovereign immunity. The court agreed and quashed the writs of attachment. Efforts were also mounted in both the Flatow case and in Alejandre v. Republic of Cuba (the Brothers to the Rescue case) to attach assets of Iran and Cuba in the United States that had been blocked by the U.S. government pursuant to sanctions regulations. Iran's assets in the United States had been frozen under the authority of the International Emergency Economic Powers Act (IEEPA) at the time of the hostage crisis in 1979. However, under the Algiers Accords reached to resolve the crisis, most of those assets had either been returned to Iran or placed in an escrow account in England subject to the decisions of the Iran-U.S. Claims Tribunal, an arbitral body set up by the Algiers Accords to resolve remaining disputes between the two countries or their nationals. Cuba's assets in the United States had been blocked since the early 1960s under the authority of the Trading with the Enemy Act (TWEA). The Clinton Administration opposed the efforts to allow access to these assets as well. It argued that such assets are useful, and historically have been used, as leverage in working out foreign policy disputes with other countries (as in the Iranian hostage situation) and that they will be useful in negotiating the possible future re-establishment of normal relations with Iran and Cuba. The Administration also contended that numerous other U.S. nationals had legitimate (and prior) claims against these countries that would be frustrated if the assets were used solely to compensate the recent victims of terrorism. The Administration also argued that using frozen assets to compensate victims of State-sponsored terrorism exposes the United States to the risk of reciprocal actions against U.S. assets by other States. 105th Congress: Section 117 of the Treasury and General Government Appropriations Act for Fiscal Year 1999 In an attempt to override these objections, the 105 th Congress in 1998 further amended the FSIA to provide that any property of a terrorist State frozen pursuant to TWEA or IEEPA and any diplomatic property of such a State could be subject to execution or attachment in aid of execution of a judgment against that State under the terrorism State exception to the FSIA. Section 117 of the Treasury Department Appropriations Act for Fiscal Year 1999 also mandated that the State and Treasury Departments "shall fully, promptly, and effectively assist" any judgment creditor or court issuing a judgment against a terrorist State "in identifying, locating, and executing against the property of that foreign state...." Because of the Administration's continuing objections, however, section 117 also gave the President authority to "waive the requirements of this section in the interest of national security." On October 21, 1998, President Clinton signed the legislation into law and immediately executed the waiver. The President explained his reasons in the signing statement for the bill as follows: I am concerned about section 117 of the Treasury/General Government appropriations section of the act, which amends the Foreign Sovereign Immunities Act. If this section were to result in attachment and execution against foreign embassy properties, it would encroach on my authority under the Constitution to "receive Ambassadors and other public ministers." Moreover, if applied to foreign diplomatic or consular property, section 117 would place the United States in breach of its international treaty obligations. It would put at risk the protection we enjoy at every embassy and consulate throughout the world by eroding the principle that diplomatic property must be protected regardless of bilateral relations. Absent my authority to waive section 117's attachment provision, it would also effectively eliminate use of blocked assets of terrorist States in the national security interests of the United States, including denying an important source of leverage. In addition, section 117 could seriously impair our ability to enter into global claims settlements that are fair to all U.S. claimants, and could result in U.S. taxpayer liability in the event of a contrary claims tribunal judgment. To the extent possible, I shall construe section 117 in a manner consistent with my constitutional authority and with U.S. international legal obligations, and for the above reasons, I have exercised the waiver authority in the national security interest of the United States. 106th Congress: Enactment of § 2002 of the Victims of Trafficking and Violence Protection Act of 2000 (VTVPA) President Clinton's exercise of the waiver authority conferred by section 117 of the FY1999 Treasury Department appropriations act blocked those with default judgments against Cuba and Iran from attaching the diplomatic property and frozen assets of those States to satisfy the judgments. In response, various Members during the 106 th Congress pressed for additional amendments to the FSIA that would override the President's waiver of section 117 and allow the judgments against terrorist States to be satisfied out of the States' frozen assets. Congress held hearings to consider the Justice for Victims of Terrorism Act, which was adopted as revised by the House and reported in the Senate. The Clinton Administration opposed the measure, and it was not enacted into law. Instead, negotiations with the Administration led by Senators Lautenberg and Mack resulted in the enactment of section 2002 of the Victims of Trafficking and Violence Against Women Act of 2000, which created an alternative compensation system for some judgment holders. It mandated the payment of a portion of the damages awarded in the Alejandre judgment out of Cuba's frozen assets and a portion of ten designated judgments against Iran out of U.S. appropriated funds "not otherwise obligated." In the meantime, additional and substantial default judgments continued to be handed down in other suits against Iran ; and a number of new suits against terrorist States were filed. Like § 117 of the Fiscal 1999 Appropriations Act for the Treasury Department, the Justice for Victims of Terrorism Act would have amended the FSIA to allow the attachment of all of the assets of a terrorist State, including its blocked assets, its diplomatic and consular properties, and moneys due from or payable by the United States. To that end it would have repealed the waiver authority granted in §117 and allowed the President to waive the authorization to attach assets only with respect to the premises of a foreign diplomatic or consular mission. In hearings on the measure, the Clinton Administration was repeatedly criticized for its opposition to the efforts of victims of terrorism to collect on the judgments they had obtained. Senator Mack, cosponsor of the Justice for Victims of Terrorism Act in the Senate, stated: ... Mr. Chairman, the President made promises to the families, encouraged them to seek justice, calling their efforts brave and courageous. He pledged to fight terrorism and signed several laws supporting the rights of victims to take terrorists to court. But ultimately, he has chosen to protect terrorist assets over the rights of American citizens seeking justice. This is simply not what America stands for. Victims' families must know that the U.S. Government stands with them in actions, as well as words. Several of the victims' relatives also made statements criticizing the Administration's actions. Treasury Deputy Secretary Stuart E. Eizenstat, Defense Department Under Secretary for Policy Walter Slocombe, and State Department Under Secretary for Policy Thomas Pickering responded for the Administration in a joint statement. While expressing support for the goal of "finding fair and just compensation for [the] grievous losses and unimaginable experiences" of the victims of terrorism, they said that the Victims of Terrorism Act was "fundamentally flawed" and had "five principal negative effects," as follows: First, blocking of assets of terrorist States is one of the most significant economic sanctions tools available to the President. The proposed legislation would undermine the President's ability to combat international terrorism and other threats to national security by permitting the wholesale attachment of blocked property, thereby depleting the pool of blocked assets and depriving the U.S. of a source of leverage in ongoing and office ( sic ) sanctions programs, such as was used to gain the release of our citizens held hostage in Iran in 1981 or in gaining information about POW's and MIA's as part of the normalization process with Vietnam. Second, it would cause the U.S. to violate its international treaty obligations to protect and respect the immunity of diplomatic and consular property of other nations, and would put our own diplomatic and consular property around the world at risk of copycat attachment, with all that such implies for the ability of the United States to conduct diplomatic and consular relations and protect personnel and facilities. Third, it would create a race to the courthouse benefiting one small, though deserving, group of Americans over a far larger group of deserving Americans. For example, in the case of Cuba, many Americans have waited decades to be compensated for both the loss of property and the loss of the lives of their loved ones. This would leave no assets for their claims and others that may follow. Even with regard to current judgment holders, it would result in their competing for the same limited pool of assets, which would be exhausted very quickly and might not be sufficient to satisfy all judgments. Fourth, it would breach the long-standing principle that the United States Government has sovereign immunity from attachment, thereby preventing the U.S. Government from making good on its debts and international obligations and potentially causing the U.S. taxpayer to incur substantial financial liability, rather than achieving the stated goal of forcing Iran to bear the burden of paying these judgments. The Congressional Budget Office ("CBO") has recognized this by scoring the legislation at $420 million, the bulk of which is associated with the Foreign Military Sales ("FMS") Trust Fund. Such a waiver of sovereign immunity would expose the Trust Fund to writs of attachment, which would inject an unprecedented and major element of uncertainty and unreliability into the FMS program by creating an exception to the processes and principles under which the program operates. Fifth, it would direct courts to ignore the separate legal status of States and their agencies and instrumentalities, overturning Supreme Court precedent and basic principles of corporate law and international practice by making state majority-owned corporations liable for the debts of the state and establishing a dangerous precedent for government owned enterprises like the U.S. Overseas Private Investment Corporation ("OPIC"). Notwithstanding these contentions, the Senate and House Judiciary Committees reported, and the House passed, a slightly amended version of the Justice for Victims of Terrorism Act. The bill in the Senate was reported without a committee report. The House Judiciary Committee stated in its report: The President's continued use of his waiver power has frustrated the legitimate rights of victims of terrorism, and thus this legislation is required. While still allowing the President to block the attachment of embassies and necessary operating assets, H.R. 3485 would amend the law to specifically deny blockage of attachment of proceeds from any property which has been used for any non-diplomatic purpose or proceeds from any asset which is sold or transferred for value to a third party. The House passed the bill by voice vote under a suspension of the rules. The Clinton Administration persisted in opposing the bill, however, and that led to extensive negotiations between the Administration and interested Members of Congress. Ultimately, these negotiations led to the addition to an unrelated bill pending in conference of a limited alternative compensation scheme, which was signed into law by President Clinton on October 28, 2000. Section 2002 of the Victims of Trafficking and Violence Protection Act of 2000 directed the Secretary of the Treasury to pay portions of any judgments against Cuba and Iran that had been handed down by July 20, 2002, or that would be handed down in any suits that had been filed on one of five named dates on or before July 27, 2000. The judgments that had been handed down by July 20, 2000, were the Alejandre, Flatow, Cicippio, Anderson and Eisenfeld cases. Six suits had been filed against Iran on the five dates specified in the statute—February 17, 1999; June 7, 1999; January 28, 2000; March 15, 2000; and July 27, 2000—and all have subsequently been decided. ( See Appendix A for a full list of the cases.) Section 2002 gave the claimants in these eleven suits three options: First, they could obtain from the Treasury Department 110 percent of the compensatory damages awarded in their judgments, plus interest, if they agreed to relinquish all rights to collect further compensatory and punitive damages; Second, they could receive 100 percent of the compensatory damages awarded in their judgments, plus interest, if they agreed to relinquish (a) all rights to further compensatory damages awarded by U.S. courts and (b) all rights to attach certain categories of property in satisfaction of their judgments for punitive damages, including Iran's diplomatic and consular property as well as property that is at issue in claims against the United States before an international tribunal. The property in the latter category included Iran's Foreign Military Sales (FMS) trust fund, which remains at issue in a case before the Iran-U.S. Claims Tribunal. Third, claimants could decline to obtain any payments from the Treasury Department and continue to pursue satisfaction of their judgments as best they could. To pay a portion of the judgment against Cuba in the Alejandre case, the statute directed that the President vest and liquidate Cuban government properties that have been frozen under TWEA. For the ten designated cases against Iran, §2002 provided for payment out of U.S. funds, as follows: The statute directed the Secretary of the Treasury to use any proceeds that have accrued from the rental of Iranian diplomatic and consular property in the United States plus appropriated funds not otherwise obligated (meaning U.S. funds) up to the amount contained in Iran's Foreign Military Sales account. The Foreign Military Sales (FMS) Fund had, as of 2000, about $377 million in funds. The account originally contained funds deposited by Iran to pay for military equipment and services during the reign of the Shah. However, Congress also provided funds for the account in order to continue to pay contractors for goods and services after Iran terminated contracts under the FMS program. Disposition of military equipment procured for Iran through the FMS fund and the money remaining in the FMS account is an unresolved issue between the United States and Iran before the U.S.-Iran Claims Tribunal, where Iran has filed claims seeking billions of dollars primarily for alleged overcharges and nondeliveries of military equipment, as well as for allegedly unjustified charges billed to Iran for terminating its FMS program and the associated contracts. The United States has filed counterclaims to recover amounts it claims Iran owes on the contracts. For payments paid out of U.S. funds, §2002 stated that the United States would be subrogated to the rights of the persons paid (meaning that the United States would be entitled to pursue their right to payment of the damage awards from Iran). Section 2002 further provided that the United States "shall pursue" these subrogated rights as claims or offsets to any claims or awards that Iran may have against the United States; and it bars the payment or release of any funds to Iran from frozen assets or from the Foreign Military Sales Fund until these subrogated claims have been satisfied. Section 2002 further expressed the "sense of the Congress" that relations between the United States and Iran should not be normalized until these subrogated claims have been "dealt with to the satisfaction of the United States." It also "reaffirmed the President's statutory authority to manage and ... vest foreign assets located in the United States for the purpose[] ... of assisting and, where appropriate, making payments to victims of terrorism." In addition, §2002 modified one provision of §117 of the Treasury Department appropriations act for fiscal 1999 by changing the mandate that the State and Treasury Departments "shall" assist those who have obtained judgments against terrorist States in locating the assets of those States to the more permissive "should make every effort" to assist such judgment creditors. Finally, §2002 modified the waiver authority that the President had been given in §117. It repealed that subsection and instead provided that "[t]he President may waive any provision of paragraph (1) in the interest of national security." (Paragraph (1) was the subsection that allowed the frozen assets of a terrorist State, including its diplomatic property, to be attached in satisfaction of a judgment against that State.) Immediately after signing the legislation into law on October 28, 2000, President Clinton exercised the substitute waiver authority granted by §2002 and waived "subsection (f)(1) of section 1610 of title 28, United States Code, in the interest of national security." Thus, except to the extent §2002 allowed the blocked assets of Cuba to be used to satisfy a portion of the Alejandre judgment, it did not eliminate the bar to the attachment of the diplomatic property and the blocked assets of terrorist States to satisfy judgments against those States. In November and December 2000, the Office of Foreign Assets Control in the Department of the Treasury issued a notice detailing the procedures governing application for payment by those in the eleven designated cases who might want to obtain the partial payment of their judgments afforded by §2002. All of the claimants in the designated suits chose to obtain such compensation. In early 2001 the federal government liquidated $96.7 million of the $193.5 million of Cuban assets that had previously been blocked and paid that amount to the claimants in the Alejandre suit and their attorneys. The claimants in the ten designated cases against Iran variously chose to receive either 100 percent or 110 percent of their compensatory damages awards; and they ultimately received more than $380 million in compensation out of U.S. funds. ( See Appendix A for a listing of the cases, the payments made, and the option chosen.) 107th Congress: Additional Cases Added to §2002 and Attachment of Assets Allowed in Other Cases Subsequent to the enactment of §2002 of the Victims of Trafficking statute in late 2000, the courts handed down additional default judgments in suits against terrorist States under the FSIA exception. As noted above, six of these additional judgments were covered by the compensation scheme set forth in §2002 because the suits had been filed on one of the five dates on or prior to July 27, 2000 specified in the statute. But other default judgments, as well as additional cases that were filed and remained pending, were not covered by §2002. As a consequence, pressure for finding some means to compensate the additional claimants continued to grow. The 107 th Congress enacted several pieces of legislation, as follows: (1) Directive to develop a comprehensive compensation scheme (P.L. 107-77) In the Act Making Appropriations for the Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies for the Fiscal Year Ending September 30, 2002, Congress in November 2001 directed President Bush to submit, no later than the time he submitted the proposed budget for FY2003, a legislative proposal to establish a comprehensive program to ensure fair, equitable, and prompt compensation for all United States victims of international terrorism (or relatives of deceased United States victims of international terrorism) that occurred or occurs on or after November 1, 1979. That directive had not been part of either the House or Senate-passed versions of H.R. 2500 . But it was added in lieu of an amendment sponsored by Senator Hollings that the Senate had adopted, without debate, which would have authorized partial payment of the judgments in five additional cases (including the Roeder case, infra ). In explaining the conference substitute for that provision, the conference report stated: Objections from all quarters have been repeatedly raised against the current ad hoc approach to compensation for victims of international terrorism. Objections and concerns, however, will no longer suffice. It is imperative that the Secretary of State, in coordination with the Departments of Justice and Treasury and other relevant agencies, develop a legislative proposal that will provide fair and prompt compensation to all U.S. victims of international terrorism. A compensation system already is in place for the victims of the September 11 terrorist attacks; a similar system should be available to victims of international terrorism. In signing the measure into law, President Bush cited the directive regarding submission of a comprehensive plan and stated that "I will apply this provision consistent with my constitutional responsibilities." No such plan was put forward in the second session of the 107 th Congress. (2) Coverage of additional cases under §2002 (P.L. 107-228) On September 30, 2002, President Bush signed into law a measure—the Foreign Relations Authorization Act for Fiscal 2003—that added cases filed against Iran on June 6, 2000, and January 16, 2002 to those that can be compensated under §2002. The first case— Carlson v. The Islamic Republic of Iran —was by six Navy divers who were on board a TWA airliner that was hijacked in 1985 and who were subsequently imprisoned and tortured by Lebanese Shiite terrorists. That suit had been filed separately from a suit by the family of Robert Stethem, who was murdered in the course of the same hijacking— Stethem v. The Islamic Republic of Iran . But the two suits had been consolidated for trial, and the court decided the cases together. Stethem's suit had been included as one of the cases that was compensable under §2002 as originally enacted, but the companion suit by the Navy divers had not been included. The amendment enacted into law as part of the foreign relations authorization bill had been adopted by the House on May 16, 2001, by voice vote to rectify what its sponsor termed this "inadvertent error." The second case, specified by its filing date of January 16, 2002, was added to the measure by the conference committee and was identified by the Office of Foreign Assets Control as the case of Kapar v. Islamic Republic of Iran . (3) Attachment of frozen assets authorized (P.L. 107-297) On November 26, 2002, President Bush signed the Terrorism Risk Insurance Act (TRIA) into law. Section 201 of TRIA overrode long-standing objections by the Clinton and Bush Administrations to make the frozen assets of terrorist States available to satisfy judgments for compensatory damages against such States (and organizations and persons) as follows: Notwithstanding any other provision of law, and except as provided in subsection (b), in every case in which a person has obtained a judgment against a terrorist party on a claim based upon an act of terrorism, or for which a terrorist party is not immune under section 1605(a)(7) of title 28, United States Code, the blocked assets of that terrorist party (including the blocked assets of any agency or instrumentality of that terrorist party) shall be subject to execution or attachment in aid of execution in order to satisfy such judgment to the extent of any compensatory damages for which such terrorist party has been adjudged liable. Subsection (b) of §201, in turn, narrowed the waiver authority previously afforded the President on this subject and permits the President to waive this provision "in the national security interest" only with respect to "property subject to the Vienna Convention on Diplomatic Relations or the Vienna Convention on Consular Relations." In addition, §201 of P.L. 107-297 amended §2002 of the Victims of Trafficking Act with respect to suits against Iran: It added to the list of suits against Iran that are compensable under § 2002, without further identification, all those that were filed before October 28, 2000. It made 90 percent of the amount remaining in the §2002 fund (about $15.7 million) available to pay the compensatory damages awarded in any judgment rendered in the cases previously added by P.L. 107-228 and by this statute which had been entered as of the date of this statute's enactment (November 26, 2002) and provided that, if the total amount of damages awarded exceeded the amount available, each claimant is to receive a proportionate amount. It set aside the remaining 10 percent of the §2002 fund for compensation under the same formula of the final judgment entered in the case filed against Iran on January16, 2002 ( Kapar v. Islamic Republic of Iran ). It provided that persons who receive less than 100 percent of the compensatory damages awarded in their judgments against Iran under the foregoing scheme do not have to relinquish their right to obtain additional compensatory damages, as was required of those previously compensated under §2002, but only to relinquish their right to obtain punitive damages. Bush Administration's Proposed Compensation Alternative During the 108 th Congress, Senator Lugar (R-IN) introduced an Administration proposal that would have established an administrative procedure to provide compensation to victims of international terrorism as an alternative to suits under the terrorist State exception to the FSIA. S. 1275 would have amended §201 of the Terrorism Risk Insurance Act to provide that claimants who obtain judgments against terrorist States after the date of the bill's introduction could no longer collect on the compensatory damages portions of those judgments out of the States' blocked assets. As an alternative, the bill would have created a new compensation scheme called the "Benefits for Victims of International Terrorism Program." Administered by the State Department, the program would have been able to authorize the payment of up to $262,000 to those who have been killed, injured, or held hostage by an act of international terrorism. A person who accepted benefits under the program would have been barred from bringing or maintaining a suit against a terrorist State for the same act. In a hearing on the bill by the Senate Committee on Foreign Relations on July 17, 2003, William Taft, then State Department Legal Adviser, asserted that "[t]he current litigation-based system of compensation is inequitable, unpredictable, occasionally costly to the U.S. taxpayer, and damaging to foreign policy and national security goals of this country." Stuart Eizenstat, now in private practice but formerly the Clinton Administration's point man on this issue, claimed that the amount of compensation that would be provided under the bill was insufficient to make the scheme a viable alternative to litigation. Allan Gerson, a professor and trial lawyer involved in suits under the FSIA exception, charged that the proposal would deny plaintiffs their day in court and do nothing to hold terrorist States accountable for their actions. No further action was taken on the bill. The Search for a Cause of Action: Cicippio-Puleo v. Iran After Congress passed the Flatow Amendment in 1996, providing for a cause of action against foreign officials for terrorist conduct, the judge in the Flatow case held Iran itself liable under a theory of respondeat superior , and awarded compensatory as well as punitive damages. Many trial courts followed the Flatow precedent, awarding both compensatory and punitive damages against a foreign State despite the textual limitations in the FSIA exception with respect to punitive damages. However, the Court of Appeals for the District of Columbia held in 2004 that the amendment does not provide a cause of action against terrorist States themselves, including governmental agencies and separate commercial "agencies and instrumentalities" under the FSIA. Moreover, although the Flatow Amendment created a cause of action against an "official, employee, or agent of a [designated terrorist State] while acting within the scope of his or her office, employment, or agency," the court held that it did not create a cause of action against foreign officials in their official capacities. The Cicippio-Puleo case involved claims for damages brought by the adult children and siblings of Joseph Cicippio, a hostage victim who had previously won a $30 million default judgment against Iran for financing the Hezbollah terrorists who kidnapped him in Beirut and held him hostage there for some five years. The children and siblings had not participated in the original lawsuit, but filed suit in 2001 for intentional infliction of emotional distress and the loss of solatium they suffered as a result of Mr. Cicippio's ordeal. The district court judge dismissed the case for failure to state a claim upon which relief could be granted, holding that the prevailing common law rule governing third party claims for outrageous conduct causing severe emotional distress prevented plaintiffs' recovery. The appellate court requested a briefing from the U.S. government explaining its interpretation of the relevant statutes, and, at the government's urging, held that neither the FSIA exception nor the Flatow Amendment created a cause of action against a foreign State. The court remanded the case to the district court to permit the plaintiffs to amend their complaint to state a valid cause of action. On remand, the judge awarded the plaintiffs $91 million in compensatory damages for intentional infliction of emotional distress under Pennsylvania law. With respect to lawsuits against individual officials and employees of foreign governments, the court agreed with the U.S. government that "insofar as the Flatow Amendment creates a private right of action against officials, employees, and agents of foreign states, the cause of action is limited to claims against those officials in their individual , as opposed to their official, capacities." This interpretation was said to follow from Supreme Court holdings establishing that an official-capacity claim against a government official is in substance a claim against the government itself, inasmuch as the government would be responsible to pay any damages awarded against its officials. Nevertheless, some judges have continued to award punitive damages against foreign officials acting in their official capacity. Some judges have found foreign officials liable in their personal capacities, awarding treble damages against those officials under the Antiterrorism Act (ATA), 18 U.S.C. § 2333 (despite the limitation in 18 U.S.C. § 2337 making that cause of action unavailable against U.S. and foreign officials "acting within his or her official capacity or under color of legal authority"). The Cicippio-Puleo ruling complicated plaintiffs' efforts to sue designated State sponsors of terrorism by requiring them to identify a source of law outside the FSIA to provide a substantive cause of action. Some plaintiffs who had already been awarded default judgments were obliged to amend their complaints to identify a basis for liability. Plaintiffs have, with a few exceptions, had little difficulty establishing a cause of action under various U.S. state laws without relying on the Flatow Amendment. However, the application of state tort law has resulted in some disparity in the availability or amount of damages to which plaintiffs may be entitled. For example, in one case, damages for intentional infliction of emotional distress were denied to plaintiffs domiciled in Pennsylvania and Louisiana because those states' tort laws impose a presence requirement for third party plaintiffs to recover for emotional distress. The application of federal statutes outside the FSIA has also resulted in a lower amount of damages than might have been awarded under earlier court interpretations of the Flatow Amendment. Plaintiffs suing for damages related to the terrorist attack on the U.S.S. Cole in 2000 were awarded a cumulative sum less than $8 million for economic damages, and were not entitled to damages for pain and suffering, because the judge found the Death on the High Seas Act to provide the only remedy. Iran Hostages Case: Roeder v. Islamic Republic of Iran Judicial Proceedings In late 2000 a suit was filed in federal district court on behalf of the 52 embassy staffers who had been held hostage by Iran from 1979-81 and on behalf of their families. Roeder v. Islamic Republic of Iran sought both compensatory and punitive damages from Iran. In August of 2001, the trial court granted a default judgment to the plaintiffs and scheduled a hearing on the damages to be awarded. But in October 2001, a few days before the scheduled hearing, the U.S. government intervened in the proceeding and moved that the judgment be vacated and the case dismissed. The government contended that the suit did not meet all of the requirements of the terrorist State exception to the FSIA (notably, that Iran had not been designated as a State sponsor of terrorism at the time the U.S. personnel were held hostage) and that the suit was barred by the explicit provisions of the 1981 Algiers Accords that led to the release of the hostages. While that motion was pending before the court, Congress passed as part of the Hollings amendment to the FY2002 Appropriations Act for the Departments of Commerce, Justice, and State a provision specifying that Roeder should be deemed to be included within the terrorist State exception to the FSIA. As amended, the pertinent section of the FSIA excludes suits against terrorist States from the immunity generally accorded foreign States but directs the courts to decline to hear such a case (with the amendment in italics) if the foreign state was not designated as a state sponsor of terrorism ... at the time the act occurred, unless later so designated as a result of such act or the act is related to Case Number 1:00CV03110 (ESG) in the United States District Court for the District of Columbia . The conference report on the bill explained the provision as follows: Subsection (c) quashes the State Department's motion to vacate the judgment obtained by plaintiffs in Case Number 1:00CV03110 (ESG) in the United States District Court for the District of Columbia. Consistent with current law, subsection (c) does not require the United States government to make any payments to satisfy the judgment. In signing the appropriations act into law on November 28, 2001, however, President Bush took note of this provision and commented as follows: [S]ubsection (c) ... purports to remove Iran's immunity from suit in a case brought by the 1979 Tehran hostages in the District Court for the District of Columbia. To the maximum extent permitted by applicable law, the executive branch will act, and will encourage the courts to act, with regard to subsection 626(c) of the Act in a manner consistent with the obligations of the United States under the Algiers Accord that achieved the release of U.S. hostages in 1981. The government continued to pursue its motion to dismiss the case, arguing, inter alia , that the suit is barred by the Algiers Accords. During the course of the proceeding Judge Sullivan expressed concern regarding the lack of clarity of the recent Congressional enactment with respect to that contention. A week later in the fiscal 2002 appropriations act for the Department of Defense, the 107 th Congress included a provision making a minor technical correction in the reference to the Roeder case. But the conference report also elaborated on what it said was the effect and intent of the earlier amendment of the FSIA with respect to Roeder , seemingly in response to Judge Sullivan's expression of concern. The conference report explained that: The language included in Section 626(c) of Public Law 107-77 quashed the Department of State's motion to vacate the judgment obtained by plaintiffs in Case Number 1:00CV03110(EGS) and reaffirmed the validity of this claim and its retroactive application.... The provision included in Section 626(c) of Public Law 107-77 acknowledges that, notwithstanding any other authority, the American citizens who were taken hostage by the Islamic Republic of Iran in 1979 have a claim against Iran under the Antiterrorism Act of 1996 and the provision specifically allows the judgment to stand for purposes of award damages consistent with Section 2002 of the Victims of Terrorism Act of 2000 (Public Law 106-386, 114 Stat. 1541). Nonetheless, in signing the Department of Defense appropriations measure into law on January 10, 2002, President Bush continued to insist as follows: Section 208 of Division B makes a technical correction to subsection 626(c) of Public Law 107-77 (the FY2002 Commerce, Justice, State, the Judiciary and Related Agencies Appropriations Act), but does nothing to alter the effect of that provision or any other provision of law. Since the enactment of sub-section 626(c) and consistent with it, the executive branch has encouraged the courts to act, and will continue to encourage the courts to act, in a manner consistent with the obligations of the United States under the Algiers Accords that achieved the release of U.S. hostages in 1981. After two additional hearings, Judge Sullivan on April 18, 2002, granted the government's motion to vacate the default judgment against Iran and to dismiss the suit. In a lengthy opinion the court concluded that: at the time it entered a default judgment for plaintiffs on August 17, 2001, it did not, in fact, have jurisdiction over the case and, thus, should not have entered a judgment ; the cause of action which Congress had adopted in late 1996 did not, in fact, apply to suits against terrorist States but only against the officials, employees, and agents of those States who perpetrate terrorist acts ; and the provision of the Algiers Accords committing the United States to bar suits against Iran for the incident constitutes the substantive law of the case, and Congress's two enactments specifically concerning the case were too ambiguous to conclude that it specifically intended to override this international commitment. In addition, the court in dicta suggested that Congress's enactments on the Roeder case might have interfered with its adjudication of the case in a manner that raised constitutional separation of powers concerns. It also chastised the plaintiffs' attorneys for what it said were serious breaches of their professional and ethical responsibilities. The U.S. Court of Appeals for the District of Columbia affirmed the decision of the lower court, placing emphasis on the fact that the legislative history plaintiffs sought to use—the joint explanatory statement prepared by House and Senate conferees—is not part of the Conference Report voted on by both houses of Congress and thus does not carry the force of law. Executive agreements are essentially contracts between nations, and like contracts between individuals, executive agreements are expected to be honored by the parties. Congress (or the President acting alone) may abrogate an executive agreement, but legislation must be clear to ensure that Congress - and the President - have considered the consequences. The "requirement of clear statement assures that the legislature has in fact faced, and intended to bring into issue, the critical matters involved in the judicial decision." The kind of legislative history offered here cannot repeal an executive agreement when the legislation itself is silent. [Citations omitted]. The court denied that its interpretation rendered any act of Congress futile. On the contrary, it stated that, "[i]f constitutional ... the amendments had the effect of removing Iran's sovereign immunity, which the United States had raised in its motion to vacate." Efforts to Abrogate the Algiers Accords Subsequent to the trial court's decision in Roeder , efforts have been made in the 107 th , the 108 th , and the 109 th Congresses to enact legislation that would explicitly abrogate the provision of the Algiers Accords barring the hostages' suit. On July 24, 2002, the Senate Appropriations Committee reported the "Fiscal 2003 Appropriations Act for the Departments of Commerce, Justice, and State" ( S. 2778 ). Section 616 of that bill proposed to amend the FSIA as follows: SEC. 616. Section 1605 of title 28, United States Code is amended by adding a new subsection (h) as follows: (h) CAUSE OF ACTION FOR IRANIAN HOSTAGES- Notwithstanding any provision of the Algiers Accords, or any other international agreement, any United States citizen held hostage in Iran after November 1, 1979, and their spouses and children at the time, shall have a claim for money damages against the government of Iran. Any provision in an international agreement, including the Algiers Accords that purports to bar such suit is abrogated. This subsection shall apply retroactively to any cause of action cited in 28 U.S.C. 1605 (a)(7)(A). In explaining the provision, the report of the Committee simply stated that "Section 616 clarifies section 626 of Public Law 107-77 that the Algiers Accord is abrogated for the purposes of providing a cause of action for the Iranian hostages." The measure received no further action prior to the adjournment of the 107 th Congress, however. In the 108 th Congress the Senate added amendments to three appropriations bills that expressly would have abrogated the Algiers Accord, but in each case the amendment was deleted in conference. The 109 th Congress did not take up any legislation to abrogate the Algiers Accords. One bill, H.R. 3358 , would have declared the Algiers Accords abrogated and inapplicable, and would have directed the Secretary of the Treasury to pay the Roeder plaintiffs $1,000 per day of captivity (family members were to be awarded $500 per day of captivity of the hostages), to be paid out of the FMS fund and frozen assets belonging to Iran. No action was taken on the bill, but it has been re-introduced in the 110 th Congress as H.R. 394 . In addition, H.R. 6305 / S. 3878 would have provided up to $500,000 for victims of hostage-taking, including specifically the Iran hostages and family members named in the Roeder case, who would have been eligible for additional compensation from the FMS account. The bill did not mention the Algiers Accords, and it would have prohibited recipients from commencing or maintaining a civil action in U.S. court against a foreign State. However, payment of compensation out of Iran's FMS fund could arguably violate the Algiers Accords in the event the U.S.-Iran Claims Tribunal finds that those funds are the property of Iran. Similar legislation has been introduced in the 110 th Congress as H.R. 3369 and H.R. 3346 ( see infra ). In creating a federal cause of action against terrorist States ( P.L. 110-181 , codified at 28 U.S.C. § 1605A, see infra ), the 110 th Congress carried over the language from former 28 U.S.C. § 1605(a)(7) that conferred jurisdiction over the Roeder case, despite the fact that the case has been dismissed. Nothing in the statute expressly abrogates the Algiers Accords, however, making it unlikely that the Roeder plaintiffs will prevail in an effort to sue Iran under the new cause of action. Iraq: Lawsuits Involving Acts of Saddam Hussein Regime Confiscation of Blocked Assets for Reconstruction On March 20, 2003, immediately after the U.S. and its coalition partners initiated military action against Iraq, President Bush issued an executive order providing for the confiscation and vesting of Iraq's frozen assets in the U.S. government and placing them in the Development Fund for Iraq for use in the post-war reconstruction of Iraq. According to the Terrorist Assets Report 2002 published by the Office of Foreign Assets Control, Iraq's blocked assets totaled approximately $1.73 billion at the end of 2002. However, the President's order excluded from confiscation Iraq's diplomatic and consular property as well as assets that had, prior to March 20, 2003, been ordered attached in satisfaction of judgments against Iraq rendered pursuant to the terrorist suit provision of the FSIA and §201 of the Terrorism Risk Insurance Act (which reportedly total about $300 million). The President stated that the remaining assets "should be used to assist the Iraqi people...." Thus, notwithstanding the enactment of §201 of TRIA, the President's action made Iraq's frozen assets unavailable to those who, after March 20, 2003, obtained judgments against that State for its sponsorship of, or complicity in, acts of terrorism. Subsequently, the President took several additional actions complementing and reinforcing this executive order. In the Emergency Wartime Supplemental Appropriations Act for Fiscal 2003 ("EWSAA"), Congress provided that "the President may make inapplicable with respect to Iraq section 620A of the Foreign Assistance Act of 1961 or any other provision of law that applies to countries that have supported terrorism." On the basis of that authority, President Bush on May 7, 2003, declared a number of provisions concerning terrorist States, including the FSIA exception and the section of the Terrorism Risk Insurance Act making their blocked assets available to victims of terrorism, inapplicable to Iraq. On May 22, 2003, he issued another executive order providing that the Development Fund of Iraq cannot be attached or made subject to any other kind of judicial process. POW Lawsuit: Acree v. Republic of Iraq Whether the President has the legal authority to restore Iraq's sovereign immunity and make its assets unavailable to victims of terrorism who had obtained judgments against Iraq was contested in Acree v. Republic of Iraq . In that case a federal district court on July 7, 2003—two and half months after the President's order—handed down a default judgment against Iraq for its imprisonment and torture of 17 American prisoners of war (POWs) during the first Gulf War in 1991. After detailing the treatment given the POWs, the court awarded them and their families $653 million in compensatory damages and added a punitive damages award of $306 million for the benefit of the POWs against Saddam Hussein and the Iraqi Intelligence Service. Upon request by the plaintiffs, Judge Roberts issued a temporary restraining order (TRO) requiring the government to retain at least $653 million of Iraq's assets vested in the United States by President Bush's executive order pending further decision by the court. The Justice Department then sought to intervene in the case, arguing that Iraq's sovereign immunity had been restored by Presidential Determination pursuant to authority granted by Congress. The court denied the government's motion to intervene as untimely because the Justice Department had waited 75 days past the Determination before it intervened, knowing that the Acree case was pending before the court. Additionally, the court found that the government's interest in promoting a new, democratic Iraqi government did not constitute a cognizable interest warranting intervention as of right, especially absent any showing of how the default judgment impaired such interest. The court also held that only Iraq could assert a defense based on sovereign immunity, and that Congress and the President could not retroactively restore Iraq's previously waived sovereign immunity. While the Presidential Determination did not retroactively restore Iraq's sovereign immunity, it was held effectively to preclude the plaintiffs from enforcing their judgment against the $1.73 billion in frozen Iraqi assets that had been vested by the President for the restoration of Iraq. After an expedited hearing on the matter, the court on July 30, 2003, held that none of the assets in question could be attached by the plaintiffs; and the court dissolved the TRO. In reaching that conclusion, the court relied primarily on the Supplemental Appropriations Act provision noted above and the subsequent actions by President Bush rather than on his March 20, 2003, executive order. The court concluded: The Act is Congressional authorization for the President to make TRIA prospectively inapplicable to Iraq, and the President exercised that authority when he issued the Determination on May 7, 2003. As a result, at the time the plaintiffs obtained their judgment against Iraq on July 7, 2003, TRIA was no longer an available mechanism for plaintiffs to use to satisfy their judgment. The Justice Department appealed the decision denying its motion to intervene, while plaintiffs appealed the decision that frozen Iraqi funds were unavailable to satisfy their judgment. The Court of Appeals for the D.C. Circuit held that the district court had abused its discretion by denying the government's motion to intervene. However, the court reversed the President's Determination insofar as it nullified the FSIA provisions with respect to Iraq, finding that Congress had not intended to permit the President to revoke those provisions. The plaintiffs were nevertheless prevented from collecting, because the court of appeals vacated their judgment based on their failure to state a cause of action against Iraq, and because Saddam Hussein retained immunity for official conduct. The court followed its precedent in Cicippio-Puleo v. Islamic Republic of Iran to hold that the terrorism exception to the FSIA combined with the Flatow Amendment, as in force at the time, created a private right of action against officials, employees and agents of a foreign government for their private conduct, but not against the foreign government itself, including its agencies and instrumentalities, or officials in their official capacity. The Supreme Court declined to review the decision. The Plaintiffs sought to reopen their case at the district court level in order to demonstrate the applicability of several causes of action. The district court, however, has dismissed the motion as moot, finding that the D.C. Circuit's earlier dismissal of their lawsuit without remanding it to the district court means that the court has no discretion to reopen it. Proposed Legislation: 108th and 109th Congresses Two bills were introduced during the 108 th Congress in the House of Representatives to provide relief for the plaintiffs. H.Con.Res. 344 would have expressed the sense of the Congress that the POWs and their immediate family members should be compensated for their suffering and injuries as the court had decided, notwithstanding § 1503 of EWSAA. The bill would also have expressed Congress's resolve to continue its oversight of the application of §1503 "in order to ensure that it is not misinterpreted, including by divesting United States courts of jurisdiction, with respect the POWs and other victims of Iraqi terrorism." Additionally, the Senate passed language in §325 of its version of the Emergency Supplemental Appropriations for Iraq and Afghanistan Security and Reconstruction Act, 2004 ( H.R. 3289 ), that would have found that the Attorney General should enter into negotiations with each such citizen, or the family of each such citizen, to develop a fair and reasonable method of providing compensation for the damages each such citizen incurred, including using assets of the regime of Saddam Hussein held by the Government of the United States or any other appropriate sources to provide such compensation. The language was not enacted. The other House bill from the 108 th Congress, H.R. 2224 , the Prisoner of War Protection Act of 2003, would have allowed the plaintiffs, as well as any POWs who might later assert a cause of action in the more recent war against Iraq, to recover damages out of the $1.73 billion in frozen Iraqi assets that were vested by order of the President to pay for the reconstruction of Iraq. Nothing similar to the Prisoner of War Protection Act was introduced in the 109 th Congress, but H.Con.Res. 93 would have "express[ed] the sense of the Congress that the Department of Justice should halt efforts to block compensation for torture inflicted by the Government of Iraq on American prisoners of war during the 1991 Gulf War." H.R. 1321 proposed the payment of $1 million to each of the seventeen plaintiffs out of unobligated funds appropriated under the heading of "Iraq Relief and Reconstruction Fund" in the 2004 Emergency Supplemental. Neither provision was enacted into law. Other Cases Against Iraq Smith v. Islamic Emirate of Afghanistan was initially a lawsuit against Al Qaeda, Afghanistan, and the Taliban for damages related to the terrorist attacks on the World Trade Center in 2001. The plaintiffs subsequently amended their complaints to add Iraq and Saddam Hussein as defendants. None of the defendants entered an appearance. The complaint against Saddam Hussein was dismissed because the judge found it precluded by the Flatow Amendment provision excluding lawsuits against foreign officials in cases in which U.S. officials would not be liable for similar conduct. The case against Iraq was permitted to continue, and the plaintiffs were found to have demonstrated to the court's satisfaction that Iraq had provided material support to Al Qaeda. A final judgment was entered on July 14, 2003, awarding the plaintiffs approximately $104 million in compensatory damages, with Iraq deemed responsible for approximately $63.5 million of the total. By that time, however, the President had already vested Iraq's frozen funds in U.S. possession, which frustrated plaintiffs' efforts to satisfy their judgment under TRIA § 201. The U.S. Court of Appeals for the 2d Circuit, in affirming the summary judgment in favor of the Federal Reserve Bank and the Treasury Department, found it unnecessary to rule on the validity of the President's order restoring Iraq's sovereign immunity, having found that the specific funds at issue were no longer blocked assets within the meaning of TRIA § 201. Consequently, the judgment creditors in this case have not been prevented from seeking to satisfy their judgments from other assets. A similar case, O ' Neill v. Republic of Iraq , Civil Action No. 1:04-01076 (GBD) (D.D.C., filed February 10, 2004), remains pending. Hill v. Republic of Iraq began as a lawsuit against Iraq and Saddam Hussein by twelve U.S. citizens who were held in hostage status by Iraq after its invasion of Kuwait in 1990. The former hostages, who were either held captive in or prevented from leaving Iraq or Kuwait from August 2 to mid-December of 1990, and some of their families were awarded a cumulative $9 million in compensatory damages and $300 million in punitive damages in a default judgment. The court subsequently found that an additional 168 plaintiffs had established their right to relief for being held hostage by Iraq; and the court awarded them approximately $85 million in compensatory damages. Judgment holders in this case were able to fully satisfy their compensatory judgments from Iraqi assets vested by the President in 2003. Vine v. Republic of Iraq involves 237 plaintiffs who were unsuccessful in joining the Hill case after the judge denied class action status to the lawsuit and imposed a moratorium on the addition of new plaintiffs. The plaintiffs include U.S. nationals who were used as "human shields" by the Iraqi government to protect various strategic sites from attack, and any U.S. nationals in hiding in Iraq or Kuwait for fear of capture, as well as some of their spouses. Iraq made an appearance in the case and moved to dismiss the claims on several grounds. The court dismissed causes of action based on the Flatow Amendment and federal common law, but permitted claims based on U.S. state and foreign law. The case remains pending. The judge dismissed as untimely several other claims that had been consolidated with the Vine case for determining Iraq's motion to dismiss. Two journalists, Robert Simon, a CBS News reporter, and Roberto Alvarez, a cameraman working for CBS News, alleged that they were illegally seized and subsequently tortured by Iraqi officials in 1991. Nabil Seyam and others filed a separate action based similar allegations. The court reasoned that the cause of action in these cases arose no later than December 1990, and that the 10-year statute of limitations had run prior to the cases' filings in 2003. Despite the statutory provision for "equitable tolling, including the period during which the foreign state was immune from suit," the court determined that the four years between the passage of the terrorist exception to the FSIA and the deadline for filing within the statute of limitations was sufficient to preclude equitable tolling. However, the Court of Appeals for the D.C. Circuit reversed that decision, holding that the statute of limitations under the statute did not run until 10 years after the enactment of the terrorism exception to the FSIA. Beaty v. Iraq is a suit against Iraq by five children of two men who were held hostage in Iraq during the 1990s. The two hostages and their wives sued Iraq in 1996 in conjunction with several other former hostages and their spouses, Daliberti v. Iraq , and were able to recover the resulting default judgment from the Iraqi frozen funds vested by President Bush in 2003. The Beaty plaintiffs grounded their complaint on claims of intentional infliction of emotional distress under state common law, violations of customary international law incorporated into federal common law, and loss of solatium under federal common law. Iraq entered an appearance and moved to dismiss the complaint for failure to state a claim upon which relief can be granted, for grounds of nonjusticiability under the political question doctrine, and for lack of jurisdiction due to the presidential order relieving Iraq from the legal consequences of its status as a terrorist State. The court suggested its agreement with the government's position, expressed in several statements of interest filed in the case, that the presidential order validly restored Iraq's sovereign immunity and divested the court of jurisdiction ; however, the court was bound by the appellate court decision in Acree to hold that § 1503 of EWSAA did not authorize the President's efforts in that regard. The court rejected the plaintiffs' federal common law claims but permitted the suit to continue with respect to the state claims under Florida and Oklahoma law, and accepted that the facts established in the Daliberti case may be deemed established for the purposes of all further proceedings without further proof. Iraq's interlocutory appeal was unsuccessful, but it has filed a petition for certiorari at the Supreme Court regarding the validity of the President's order restoring Iraq's sovereign immunity pursuant to § 1503 of EWSAA. The Supreme Court has asked the Solicitor General for his views on whether to grant the petition. Lawton v. Republic of Iraq is a lawsuit against Iraq asserting damages based on the bombing of the Alfred P. Murrah Building in Oklahoma City in 1995. The plaintiffs allege that the bombing "was orchestrated, assisted technically and/or financially, and directly aided by agents" of the Republic of Iraq. After Iraq failed to enter an appearance, the plaintiffs moved for a default judgment. The court initially denied the motion for failure to state a cause of action, but after the plaintiffs amended their complaint, the court entered a default against Iraq. Iraq subsequently entered an appearance and asked the court to set aside the entry of default, which the court granted based on its finding that Iraq had acted as expeditiously as possible, given the circumstances. The case remains pending. Effect of FY2008 NDAA, § 1083 on Iraq and Cases Pending Section 1083 of the National Defense Authorization Act for FY2008, P.L. 110-181 (discussed more fully infra ) made numerous changes to the relevant FSIA terrorist State exceptions, including provisions to facilitate plaintiffs' efforts to attach defendant State assets in satisfaction of judgments and to enable plaintiffs (like those in the Acree case) whose claims were dismissed for lack of a federal cause of action to refile their claims under new 28 U.S.C. § 1605A (new FSIA terrorism exception and explicit cause of action against terrorist States). In addition, subsection (c)(4) of section 1083 states that section 1503 of the Emergency Wartime Supplemental Appropriations Act (EWSAA) ( P.L. 108-11 ) "has [n]ever authorized, directly or indirectly, the making inapplicable of any provision of chapter 97 of title 28, United States Code, or the removal of the jurisdiction of any court of the United States." This provision would appear to be aimed at ensuring that no court construes section 1503 of EWSAA to restore Iraq's sovereign immunity with respect to actions involving terrorist acts that occurred while Iraq was designated a State sponsor of terrorism. President Bush vetoed the first version of the FY2008 NDAA, H.R. 1585 , on the stated basis that § 1083 would jeopardize Iraq's economic development and security. In response, Congress passed H.R. 4986 , virtually identical to the vetoed bill but authorizing the President to waive any provision of [§1083] with respect to Iraq, insofar as that provision may, in the President's determination, affect Iraq or any agency or instrumentality thereof, if the President determines that— (A) the waiver is in the national security interest of the United States; (B) the waiver will promote the reconstruction of, the consolidation of democracy in, and the relations of the United States with, Iraq; and (C) Iraq continues to be a reliable ally of the United States and partner in combating acts of international terrorism. The waiver authority applies retroactively "regardless of whether, or the extent to which, the exercise of that authority affects any action filed before, on, or after the date of the exercise of that authority or of the enactment of [ P.L. 110-181 (January 28, 2008)]." On the day the President signed the FY2008 NDAA into law, the White House signed a waiver and issued a press release justifying the exercise of the waiver authority. The memorandum declares that a waiver of all of the provisions of section 1083 with respect to Iraq "is in the national security interest of the United States," and lists the following factors: ●Absent a waiver, section 1083 would have a potentially devastating impact on Iraq's ability to use Iraqi funds to expand and equip the Iraqi Security Forces, which would have serious implications for U.S. troops in the field acting as part of the Multinational Force-Iraq and would harm anti-terrorism and counter-insurgency efforts. ● Application of section 1083 to Iraq or any agency or instrumentality thereof will hurt the interests of the United States by unacceptably interfering with political and economic progress in Iraq that is critically important to bringing U.S. troops home. ● If applied to Iraq or any agency or instrumentality thereof, the provisions of section 1083 would redirect financial resources from the continued reconstruction of Iraq and would harm Iraq's stability, contrary to the interests of the United States. A waiver will ensure that Iraqi assets of the Central Bank of Iraq, the government and commercial entities in which Iraq has an interest, remain available to maintain macroeconomic stability in Iraq and support private sector development and trade. ● By providing for the maintenance of macroeconomic stability, the waiver of section 1083 will promote the consolidation of democracy in Iraq. ● Absent a waiver of section 1083, Iraq's ability to finance employment alternatives, vocational training, and job placement programs necessary to promote community reintegration and development efforts contributing to counterterrorism efforts would be harmed. ● By ensuring that Iraq and its agencies and instrumentalities are not subject to litigation or liability pursuant to section 1083, waiver of section 1083 will promote the close relationship between the United States and Iraq. The waiver appears to foreclose any refiling of the Acree lawsuit under the new provision, but the D.C. Circuit's recent decision in Simon v. Republic of Iraq may permit the Acree case to go forward as a case pending under previous 28 U.S.C. §1605(a)(7), along with other pending claims against Iraq under the FSIA terrorism exception. In Simon , Iraq argued that the repeal of § 1605(a)(7) cut off jurisdiction of pending cases, while the presidential waiver prevented their conversion into claims under new § 1605A. The court disagreed, interpreting § 1083(c) of the NDAA to repeal § 1605(a)(7) only as to future claims against State sponsors of terror. Under this interpretation, plaintiffs with pending claims against defendants other than Iraq may be permitted to pursue claims under both the repealed § 1605(a)(7) and new §1605A. The court also rejected Iraq's contention that the lawsuit should be dismissed as presenting a political question. Iraq will likely ask the Supreme Court to review the decision, possibly in conjunction with the Beaty case. Final judgments against Iraq are not affected by the presidential waiver, but any judgments against Iraq will likely remain difficult to enforce. Some avenues available to plaintiffs to enforce terrorism judgments are not affected by § 1083, such as TRIA § 201 and the non-terrorism related exceptions related to the property of a sovereign in 28 U.S.C. §1610, but these will likely remain unavailing with respect to Iraq because of the executive orders that vested the frozen assets and protect other assets from attachment by judgment creditors. On the other hand, 28 U.S.C. §1610(a)(7), revoking the immunity to attachment of foreign State property with respect to claims for which the foreign State is not immune under the terrorism exception to the FSIA (as it existed both prior to and as amended by the NDAA), might remain available against Iraq despite the waiver. If that is the case, Iraqi government assets used for commercial purposes in the United States that are not subject to the protection of E.O. 13303 (which covers the Development Fund for Iraq and all interests associated with Iraqi petroleum and petroleum products), would be subject to attachment and execution on valid terrorism judgments against Iraq. The President could, however, issue another executive order to protect all Iraqi assets from attachment to satisfy judgments. Possibly believing that pending cases would be dismissed due to the exercise of the waiver provision, Congress included in §1083 its sense that [T]he President, acting through the Secretary of State, should work with the Government of Iraq on a state-to-state basis to ensure compensation for any meritorious claims based on terrorist acts committed by the Saddam Hussein regime against individuals who were United States nationals or members of the United States Armed Forces at the time of those terrorist acts and whose claims cannot be addressed in courts in the United States due to the exercise of the waiver authority [above]. Ministry of Defense (Iran) v. Elahi Although Iran has not appeared in court to defend itself in any of the terrorism cases brought against it, it did nonetheless challenge a decision that allowed a judgment-holder to collect part of a judgment against Iran out of an award owed to Iran by a third party. The Ministry of Defense and Support for the Armed Forces of the Islamic Republic of Iran (MOD) asked the Supreme Court to overturn a decision that allowed the respondent, Dariush Elahi to attach a $2.8 million arbitral award issued in Iran's favor by the International Chamber of Commerce for a breach of contract that occurred in 1979. Elahi had been awarded a default judgment of $311.7 million in a lawsuit against Iran and its Ministry of Intelligence and Security (MOIS) based on the 1990 the assassination of his brother, Dr. Cyrus Elahi, a dissident who was shot to death in Paris by agents of the Iranian intelligence service. Dariush Elahi and another judgment-holder, Stephen Flatow, both attempted to intervene in MOD's suit against Cubic Defense Systems, Inc. to attach Iran's award in partial satisfaction of their judgments against Iran. Flatow's petition was denied after the court found that he had waived his right to attach such assets by accepting payment under section 2002 of the Victims of Trafficking and Violence Protection Act of 2000 (VTVPA). Elahi's lawsuit was one of those cases added later to section 2002 of the VTVPA, however; and since he was only able to collect a portion of the compensatory damages from U.S. funds, he retained the right to pursue satisfaction of the rest of the compensatory portion of his claim from Iranian blocked assets not at issue before the U.S.-Iran Claims Tribunal. Iran argued that its judgment retained immunity under the FSIA as military property. The court rejected Iran's contention, noting that MOD did not assert that the judgment would be used for military purposes, but instead stated the money would be deposited in Iran's central bank. The court also rejected Iran's contention that the judgment is protected as "the property ... of a foreign central bank or monetary authority held for its own account" within the meaning of section 1611(b)(1), because it found that language to apply only to money held by a foreign bank "to be used or held in connection with central banking activities." MOD also sought to invoke the blocking regulations as a bar to the attachment of the judgment, but the court rejected that argument as well, pointing out that the transaction was permitted under a general license. Finally, MOD sought to bring a collateral attack against Elahi's default judgment, contesting the jurisdiction of the court that issued it on the basis of the alleged invalidity of the FSIA terrorism exception under the Cicippio-Puleo decision, supra . The court, construing the jurisdictional question as one of personal jurisdiction rather than subject-matter jurisdiction, found that MOD could have attempted to void the judgment on this basis at the district court level, but had waited too long to raise the issue during collateral proceedings. Because MOD was unable to show that the district court that issued the default judgment in favor of Elahi acted in a manner inconsistent with due process, or that the district court lacked subject-matter jurisdiction over the case, the court affirmed the decision in favor of Elahi. MOD petitioned for certiorari to the Supreme Court to review the decision on several bases. MOD challenged the Ninth Circuit's assumption that MOD is an "agency or instrumentality" of Iran rather than an integral part of the Iranian government without separate juridical status. This distinction has bearing under the FSIA as to how its assets are treated and whether it can be held liable for the debts of the Ministry of Intelligence and Security (MOIS). MOD also challenged the assessment that the judgment due it on a military contract is not military property under the FSIA. As to the collateral attack on Elahi's judgment, Iran argued that in the context of the FSIA, questions of personal jurisdiction and subject-matter jurisdiction over a foreign sovereign are so intimately linked as to be inseparable, which would allow MOD to dispute the validity of Elahi's default judgment by asserting it was founded on an invalid cause of action. Based on the recommendation of the Solicitor General, the Supreme Court granted certiorari only with respect to the issue of MOD's status as an "agency or instrumentality" of Iran. In a per curiam opinion, the Court vacated the decision below on the grounds that MOD had not had an opportunity to present argument on the issue. The Ninth Circuit had erred, according to the Court, because it had either mistakenly relied on a "concession" by the plaintiff that MOD was an "agency or instrumentality," or it had simply assumed that there was no relevant distinction between those entities and a foreign State proper. The FSIA provides an exception to the immunity from execution of the property of a foreign State only if such property is used for commercial purposes. By contrast, the property of an "agency or instrumentality" of a foreign State is not immune from execution if the entity is engaged in commercial activity in the United States, regardless of whether the property is used for the commercial activity. On remand, the appellate court found that MOD is a foreign State rather than an agency or instrumentality of a foreign State, so that the judgment owed to MOD in the Cubic Defense arbitration would have to qualify as property used for commercial activity in order for the FSIA exception to sovereign immunity to apply. The court did not regard the judgment as commercial property; however, the court found that it was a "blocked asset" within the meaning of TRIA § 201 because it represented an interest in military equipment that Iran had acquired prior to 1981, and permitted the judgment holder to attach the entire sum. One judge dissented, arguing that the judgment should be considered "at issue" before the Iran-U.S. Claims Tribunal in a case involving Iran's claims against the United States for non-delivery of military equipment. Although the judgment itself is not at issue, Judge Fisher reasoned, it could be used by the United States as an offset in the event Iran is eventually awarded compensation. If the judgment were considered to be at issue before the Iran-U.S. Claims Tribunal, the plaintiff would have relinquished his right to attach it in satisfaction of his judgment against Iran by accepting partial payment of compensatory damages from the U.S. Treasury pursuant to TRIA § 201. Iran again petitioned for certiorari, which the Supreme Court granted, to review whether the arbitral award is a "blocked asset" within the meaning of TRIA § 201 and whether it is "at issue" before the Iran-U.S. Claims Tribunal and thus off-limits to Elahi. The Solicitor General had filed a brief supporting certiorari on the first issue but advising against a review of the second on the basis that a determination in Iran's favor would merely mean that the award would be used to satisfy a judgment against Iran where the plaintiff had not relinquished his right to attach such assets. 109th Congress: Proposed Legislation In addition to the bills addressing the Acree decision, ( H.R. 1321 and H.Con.Res. 93 , discussed supra ) and one bill to provide compensation in the Roeder case ( H.R. 3358 ), two other bills in the 109 th Congress were introduced in an effort to untangle the state of litigation against terrorist States. H.R. 865 / S. 1257 , 109 th Congress, would have repealed the Flatow Amendment and enacted a new subsection (h) after the current 28 U.S.C. §1605 to provide an explicit cause of action against foreign terrorist States as well as their agents, officials and employees, making them liable "for personal injury or death caused by acts of that foreign State, or by that official, employee, or agent while acting within the scope of his or her office, employment, or agency, for which the courts of the United States may maintain jurisdiction under subsection (a)(7) for money damages." The bill would have authorized money damages for such actions to include economic damages, solatium, damages for pain and suffering, and punitive damages, and it would have made a foreign State vicariously liable for the actions of its officials, employees, or agents. It also contained provisions to facilitate the attachment of property in aid of execution of such judgments. The bill would have provided that the removal of a foreign State from the list of designated foreign State sponsors of terrorism would not terminate a cause of action that arose during the period of such designation, and would have made the above amendments effective retroactively to permit some plaintiffs to revive dismissed cases. H.R. 6305 / S. 3878 (109 th Congress) would have directed the President to set up a claims commission to hear claims on behalf of U.S. nationals who were victims of hostage-taking by a foreign State or other terrorist party, permitting awards of up to $500,000, adjusted to reflect the annual percentage change in the Consumer Price Index. The Iran hostages and family members who were named in the Roeder case would have been eligible for additional compensation. Plaintiffs with unsatisfied judgments against terrorist States would have been permitted to bring a claim for compensation; however, recipients of compensation would have been unable to commence or maintain a lawsuit against a foreign State or its agencies and instrumentalities based on the same conduct. Members of the Armed Services taken hostage after August 2, 1990, would not have been eligible to seek compensation under the plan. Payment of awards was to come from the Hostage Victims' Fund, into which the President would have been authorized to allocate blocked assets, any funds recovered by the United States against persons for improper activity in connection with the Oil for Food Program of the United Nations, and any amounts forfeited or paid in fines for violations of various laws and regulations. 110th Congress The National Defense Authorization Act for FY2008, § 1083 The Justice for Victims of State Sponsored Terrorism Act, S. 1944 , was passed by the Senate as Section 1087 of the National Defense Authorization Act for Fiscal Year 2008 (NDAA FY2008), H.R. 1585 . A modified version of the provision, a measure to facilitate lawsuits against terrorist States, was included by House and Senate Conferees as section 1083, Terrorism Exception to Immunity. After President Bush vetoed H.R. 1585 due to the negative impact the measure was predicted to have on Iraq's economy and reconstruction efforts, Congress passed a new version, H.R. 4986 , which includes authority for the President to waive the FSIA provision with respect to Iraq. The President signed the bill into law on January 28, 2008. ( P.L. 110-181 ). Cause of Action and Abrogation of Immunity Section 1083 creates a new section 1605A in title 28, U.S. Code, to incorporate the terrorist State exception to sovereign immunity under the FSIA previously codified at 28 U.S.C. §1605(a)(7) and a cause of action against designated State sponsors of terrorism, in lieu of the Flatow Amendment. The exception to immunity and new cause of action against such States apply to cases in which money damages are sought for personal injury or death caused by certain defined terrorist acts or the provision of material support when conducted by an official, agent, or employee of the State acting within the scope of his or her office, employment, or agency, regardless of whether a U.S. official could be held liable under similar circumstances. The cause of action is stated in subsection (c) of new §1605A, and covers foreign terrorist States as well as their agents, officials and employees, making them liable for personal injury or death caused by acts for which the courts of the United States may maintain jurisdiction under the subsection. It spells out the types of damages that may be recovered, including economic damages, solatium, pain and suffering, and punitive damages. The Flatow Amendment permitted punitive damages against "an official, employee, or agent of a foreign state." P.L. 104-208 , Title I, §101(c) [Title V, § 589] (September 30, 1996), 110 Stat. 3009-172; codified at 28 U.S.C. § 1605 note. Some courts have awarded punitive damages against foreign governments and officials (including heads of State) by construing them to be agencies, instrumentalities, agents, employees, or officials or by reference to the doctrine of vicarious liability. See Appendix A for damages awarded in particular cases. The foreign State is to be held vicariously liable for the actions of its officials, employees, or agents. Subsection (d) provides that, in connection with the personal injury claims it authorizes, actions may also be brought for reasonably foreseeable property loss, regardless of insurance coverage, for third party liability, and for life and property insurance policy losses. New 28 U.S.C. § 1605A expands jurisdiction beyond cases involving U.S. nationals as a victim or claimant, expressly to include U.S. nationals, members of the Armed Forces, and government employees and contractors "acting within the scope of their employment when the act upon which the claim is based occurred." As was previously the case, if the act giving rise to the suit occurred in the foreign State being sued, the claimant must first afford that State a reasonable opportunity to arbitrate the claim. The language also directs that claims be heard in cases in which the "act [of terrorism]...is related to Case Number 1:00CV03110 (EGS) in the United States District Court for the District of Columbia," notwithstanding the other jurisdictional requirements listed. This appears intended to enable those held hostage at the U.S. embassy in Iran to bring suit, although the named case was ultimately dismissed. However, the language does not expressly abrogate the Algiers Accords, making a victory for those plaintiffs seemingly unlikely in the event they refile their claims. Limitations and Procedures The statute of limitations for claims under the act requires the commencement of an action within 10 years after April 24, 1996 or 10 years from the date on which the cause of action arose. But new lawsuits are barred six months after a defendant State has been removed from the list of State sponsors of terrorism. Subsection (c)(2) amends the Victims of Crime Act by changing the effective date to October 23, 1988 (instead of December 21, 1988), and expressly includes investigations in civil matters. This will make available funds under the Victims of Crime Act, 42 U.S.C. § 10603(c), to pay costs associated with appointment of a special master to determine civil damages for the bombing of the Marine barracks in Lebanon in 1983. Subsection (e) provides for the appointment of special masters to assist the court in determining claims and damages, to be funded from the Victims of Crime Act of 1984 for victims of international terrorism (42 U.S.C. §10603c). Subsection (f) makes interlocutory appeals subject to 28 U.S.C. §1292(b), which limits interlocutory appeals. Lis Pendens Section 1083 does not expressly provide for prejudgment attachment of property in anticipation of a judgment. However, new 28 U.S.C. § 1605A(g) provides for the establishment of an automatic lien of lis pendens with respect to all real or tangible personal property located within the judicial district that is subject to attachment in aid of execution under 28 U.S.C. §1610 and is titled in the name of a defendant State sponsor of terrorism or any entities listed by the plaintiff as "controlled by" that State, upon the filing of a notice of action in complaints that rely on the terrorism exception to the FSIA. The liens of lis pendens are expressly made enforceable pursuant to chapter 111 of title 28, U.S. Code. That chapter, however, does not establish federal procedures for enforcing lis pendens, although it does provide procedures for the enforcement of other liens in the event a defendant fails to enter an appearance. Federal law provides for the application of state law regarding lis pendens , and these rules vary by state. Ordinarily, the doctrine of lis pendens applies only to specific property at issue in a dispute, which must be described with sufficient specificity and in some cases recorded to enable a prospective purchaser to identify it. Lis pendens applies with respect to only the property described in the notice, and cannot affect other property of a defendant. It is not ordinarily available in suits seeking money judgments over matters unrelated to the property unless and until a valid judgment has been awarded. It does not generally apply to negotiable instruments. Ordinarily, the purpose of filing a lien of lis pendens in civil litigation is to put third parties on notice that the property is the subject of litigation, which effectively prevents the alienation of such property, although it is not technically a lien or a prejudgment attachment. It does not prevent or invalidate transactions involving the property, and its intent is not to aid either side in the underlying dispute. Its effect is to bind a person who acquires an interest in property subject to litigation to the result of the litigation as if he or she were a party to it from the outset. Because the resulting cloud on title can have a detrimental effect on the value of property and the right of enjoyment, courts in some jurisdictions have the discretion to require the lis pendens proponent to post a bond when the defendant property owner can show that damages are likely in the event the notice of lis pendens is unjustified. Some states require that the court expunge a lis pendens notice on evidence that the litigation is not the type contemplated by the relevant statute or that the proper procedures were followed. Some state statutes permit the court to cancel a notice of lis pendens if the defendant posts bond or provides some other substitute security, if adequate relief for the claimant may be secured by these means. For recording the lis pendens liens in suits filed under section 1605A, the clerk of the district court is required to file the notice of action "indexed by listing as defendants and all entities listed as controlled by any defendant." This appears to be intended to relieve plaintiffs of the burden of identifying specific property in the notices, but it is unclear what further measures might be required to ensure adequate notice is afforded to prospective purchasers or how it is to be determined without further process that the property is in fact subject to attachment, if the statute is interpreted to require such a showing. With respect to real property, federal law ordinarily requires compliance with recordation or indexing procedures applicable in the state where the property is located in order to give constructive notice of an action pending in a United States district court. State procedures typically require that notices of lis pendens affecting real estate are recorded with the local registry of deeds, although in some cases notice is deemed valid as long as the pleadings adequately describe the property at issue. A notice of lis pendens that is not properly recorded may be held ineffective as to the rights of a subsequent purchaser. If the filing requirement in section 1605A(g) is deemed to replace state statutes and to give constructive notice to prospective purchasers, such purchasers who have no actual notice of the lis pendens could raise due process claims. The provision appears to have no effect on actions in state courts, which are less frequently the venue for lawsuits under the terrorism exception to the FSIA, although lis pendens will be available under the applicable state law under the ordinary state court procedures for property that qualifies. In the case of State sponsors of terror, whose property for the most part is already subject to substantial limitations on transactions, the primary utility may be the establishment of a line of priority among lien-holders, to determine which successful plaintiffs have priority in collecting from the defendant's assets. One function of a lis pendens notice is to preserve for the plaintiff a priority over all subsequent lienors, purchasers, and encumbrancers. Because the notice "relates back" to the date of its filing, other plaintiffs who seek to attach property to execute on a judgment may take such property subject to the lis pendens of plaintiffs with pending cases against the same defendant who filed notice previously, even though the complaints may have been filed at a later date and no award has yet been issued. On the other hand, the extension of lis pendens over property owned by entities believed by plaintiffs to be "controlled by" the defendant State could potentially affect property that is not already subject to sanctions. Depending on how broadly the provision is construed, its exercise could deter transactions. In the case of States that are no longer subject to terrorism sanctions, the lis pendens provision could threaten lawful transactions and impose a new barrier to trade. As long as there are pending claims or outstanding judgments against such a State under the terrorism exception to the FSIA, U.S. companies doing business with it may be subject to litigation by plaintiffs and judgment creditors who believe the U.S. company is in possession of foreign property that is subject to execution on a terrorism judgment. Any real property or tangible property in which the defendant State has an interest may be rendered effectively inalienable by lis pendens notices. If a U.S. company is selling tangible goods to a former State sponsor of terrorism, an automatic lien of lis pendens on goods purchased but not yet delivered would probably not affect the company's ability to make delivery. Companies that buy property from such a country, however, could potentially lose title of the property to plaintiffs who are awarded a judgment. Property Subject to Execution Subsection (b)(3) of section 1083, P.L. 110-181 amends 28 U.S.C. § 1610 to address which property of foreign States is subject to levy in execution of terrorism judgments against those States. It adds a new subsection (g) to 28 U.S.C. §1610 to provide that the property of a foreign State against which a judgment has been entered under section 1605A, or of an agency or instrumentality of such a foreign State, "including property that is a separate juridical entity or is an interest held directly or indirectly in a separate juridical entity," is subject to attachment in aid of execution and execution upon that judgment, regardless of how much economic control over that property the foreign government actually exercises and whether the government derives profits or benefits from it. It also allows execution on the property where "establishing the property as a separate entity would entitle the foreign State to benefits in [U.S.] courts while avoiding its obligation." It does not provide the President any waiver authority (except with respect to Iraq). It does not abrogate sovereign immunity of other States that have possession of any assets of a defendant State. According to the Committee report accompanying the NDAA, the purpose of the provision is to enable any property in which the foreign state has a beneficial ownership to be subject to execution for terrorism judgments, except for diplomatic and consular property. The proposed language suggests that the "property" at issue is or belongs to a commercial entity in which the foreign government has an interest. The language renders subject to execution any property (including interests held directly or indirectly in a separate juridical entity) of the defendant foreign State regardless of five criteria set forth in subsection (g)(1): (A) the level of economic control over the property by the government of the foreign state; (B) whether the profits of the property go to that government; (C) the degree to which officials of that government manage the property or otherwise have a hand in its daily affairs; (D) whether that government is the sole beneficiary in interest of the property; or (E) whether establishing the property interest as a separate entity would entitle the foreign state to benefits in [U.S.] courts while avoiding its obligations. Courts ordinarily consider these criteria in determining whether an entity is an "alter ego" of a foreign government for liability purposes or is an "agency or instrumentality" of the foreign government for purposes of determining whether it is entitled to immunity. An entity that is not an agency or instrumentality of a foreign government is not entitled to sovereign immunity, but neither are its assets subject to attachment in execution of a judgment awarded against that foreign government. This is not due to sovereign immunity, but because a judgment creditor may not levy against a third party's property in order to satisfy a money judgment against a judgment debtor. The new language could be read as an effort to make any entity in which the judgment debtor foreign State (including its separate agencies and instrumentalities) has any interest liable for the terrorism-related judgments awarded against that State, even if the entity is not itself an agency or instrumentality of the State. The conferee's intent to enable execution on property in which the defendant state has beneficial ownership seems contradicted by the statement that the property is subject to execution regardless of whether the "profits of the property go to that government" or "whether that government is the sole beneficiary in interest of the property." On the other hand, subparagraph (3) addresses the rights of third parties who also have an interest in the property that may be subject to levy in execution on a judgment. Captioned "Third-Party Joint Property Holders," it states that nothing in the new section 1610(g) is to be construed as superceding the authority of a court to prevent the impairment of an interest held by a person "who is not liable in the action giving rise to a judgment." The conference report states the intent of the conferees was to "encourage the courts to protect the property interests of such innocent third parties by using their inherent authority, on a case-by-case basis, under the applicable procedures governing execution on judgment and attachment in anticipation of judgment." Nonetheless, this savings language is not easily squared with the provision's stated applicability to indirectly held property, without regard to the benefit the debtor government derives from the property. Moreover, agencies or instrumentalities of foreign governments have not generally been considered to be liable for the debts of the foreign government itself or for other agencies or instrumentalities. Subparagraph (3) could be read to permit the court to protect their assets as well, although subparagraph (1) appears intended to make their assets available to satisfy terrorism judgments against the foreign State. Blocked and Regulated Property under Sanctions Regulations New subsection (g)(2), captioned "U.S. sovereign immunity inapplicable," would make a property described in (g)(1) that is regulated by reason of U.S. sanctions not immune by reason of such regulation from execution to satisfy a judgment. It would not explicitly waive U.S. sovereign immunity, but appears designed to defeat provisions in the sanctions regulations that make blocked property effectively immune from court action. In this respect, it echoes language in current §1610(f)(1), except that it applies only to regulated property rather than property that is blocked or regulated pursuant to sanctions regimes, and it would not be subject to the presidential waiver in §1620(f)(3). Unlike § 201 of TRIA (28 U.S.C. § 1610 note), the new language applies to regulated rather than blocked assets, and it allows assets to be attached in aid of enforcing punitive damages. Despite its caption, new section (g)(2) will not likely make funds in the U.S. Treasury, such as any funds set aside to pay a debt to Iran or those held in the Foreign Military Sales (FMS) trust fund account presently under dispute between Iran and the United States, reachable by judgment creditors. Even if the provision is read to waive U.S. sovereign immunity, these funds remain the property of the United States and could not be used to satisfy the debt of another party. A contrary interpretation of the provision might implicate other policy concerns. To allow attachment of the FMS trust fund would eliminate the U.S.' ability to claim a right to those funds in subrogation of payments made pursuant to VTVPA § 2002 in the event the Iran-U.S. Claims Tribunal issues an award in Iran's favor, and could also breach U.S. obligations under the Algiers Accords. New subsection (g)(2) will not likely affect the rights of those who received U.S. funds in partial payment of their judgments against Iran, who will likely remain barred by the applicable provisions of VTVPA § 2002 from attaching certain property or attempting (in certain cases) to collect the punitive portions of their damages. Application to Pending Cases Subsection (c) of the § 1083 spells out how its amendments are to apply to pending cases. It states that the amendments apply to any claim arising under them as well as to any action brought under current 28 U.S.C. § 1605(a)(7) or the Flatow Amendment that "relied on either of these provisions as creating a cause of action" and that "has been adversely affected on the grounds that either or both of these provisions fail to create a cause of action against the state," and that "is still before the courts in any form, including appeal or motion under rule 60(b) of the Federal Rules of Civil Procedure...." In cases brought under the older provisions, the federal district court in which the case originated is required, on motion by the plaintiffs within 60 days after enactment, to treat the case as if it had been brought under the new provisions, apparently to include reinstating vacated judgments. The subsection also states that the "defenses of res judicata, collateral estoppel and limitation period are waived" in any reinstated judgment or refiled action. The language does not indicate how pending cases in state courts are to be handled. The provision does not appear to permit the refiling of actions to override decisions construing the statute of limitations strictly. However, it might be read to permit post-judgment relief to pursue increased awards, possibly including punitive damages, where the application of state law or other law to a claim resulted in a lower award than would have been permitted pursuant to the Flatow Amendment if it had been read to provide a federal cause of action. It could be interpreted to permit the amendment of judgments against officials in their private capacity to make the foreign State responsible for the debt. In addition, subparagraph (3) permits the filing of new cases involving incidents that are already the subject of a timely-filed action under any of the terrorism exceptions to the FSIA. This appears to allow victims of State-supported terrorism to bring suit notwithstanding the limitation time for filing, so long as another victim of the same terrorist act had brought suit in time. It may allow claimants previously not covered by the exceptions, such as foreign nationals working for the United States government overseas who were injured in a terrorist attack, to bring a lawsuit despite expiration of the statute of limitations. It may also allow plaintiffs with previous judgments to pursue new judgments based on the same terrorist incident but citing the new cause of action. Such actions must be filed within sixty days after enactment or the date of entry of judgment in the original action. Refiled actions and actions related to previous claims are to be permitted to go forth even if the foreign State is no longer designated as a State sponsor of terrorism, as long as the original action was filed when the State was on the list of terrorist States. (28 U.S.C. § 1605A(a)(2)(A)(i)(II)). Although subsection (c) refers to "pending cases," it appears to encompass finally adjudicated cases in which litigants have, as of the date of enactment (January 28, 2008), filed a motion for relief from final judgment under Rule 60(b) or any other motion that might be available to allow discretionary relief after a final judgment is rendered and appeals are no longer possible. Ordinarily, a change in statutory law may be applied to civil cases that arose prior to its enactment, if Congress makes clear its intent in this regard, but only in cases still pending before the courts and those filed after enactment. To the extent that § 1083 is read to require courts to reopen final judgments and previously dismissed cases, or reinstate vacated judgments, the provision may be vulnerable to invalidation as an improper exercise of judicial powers by Congress. A similar objection may be raised with respect to the waiver of legal defenses—while it is well-established that Congress can waive legal defenses in actions against the United States, an effort to abrogate valid legal defenses of other parties could raise constitutional due process and separation of powers issues. Subsection (c)(4) of section 1083 states that section 1503 of the Emergency Wartime Supplemental Appropriations Act (EWSAA) (PL 108-11) "has [n]ever authorized, directly or indirectly, the making inapplicable of any provision of chapter 97 of title 28, United States Code, or the removal of the jurisdiction of any court of the United States." This provision would appear to be aimed at ensuring that no court construes section 1503 of EWSAA to restore Iraq's sovereign immunity with respect to actions involving terrorist acts that occurred while Iraq was designated a State sponsor of terrorism, as the government has continued to argue despite the D.C. Circuit's ruling in the Acree case that EWSAA did not affect the FSIA. However, the presidential waiver authority in subsection (d) appears to obviate the effect of the language. The Consolidated Appropriations Act, P.L. 110-161 (Libya) The Consolidated Appropriations Act for FY2008 ( H.R. 2764 ), § 654 prohibits the expenditure of any funds made available in that act to finance directly any assistance for Libya unless "the Secretary of State certifies to the Committees on Appropriations that the Government of Libya has made the final settlement payments to the Pan Am 103 victims' families, paid to the La Belle Disco bombing victims the agreed upon settlement amounts, and is engaging in good faith settlement discussions regarding other relevant terrorism cases." The Secretary is further required to submit a report within 180 days of enactment describing State Department efforts to facilitate a resolution of these cases and U.S. commercial activities in Libya's energy sector. Proposals to Waive § 1083 for Former State Sponsors of Terrorism Although new lawsuits are barred six months after a defendant State has been removed from the list of State sponsors of terrorism, new cases based on a terrorist act that is or was already the subject of a lawsuit under the terrorism exception to the FSIA are permitted within 60 days of enactment of the NDAA (signed into law January 28, 2008) or 60 days within the date of entry of judgment in the "original lawsuit." Accordingly, without intervention by Congress, a State would remain subject to new lawsuits based on certain acts of terrorism that occurred while it was designated a state sponsor of terrorism until 60 days after the entry of final judgment in cases currently pending. The threat of new lawsuits or attachment of property in satisfaction of prior judgments could impede the resumption of ordinary trade with that State. Although new 28 U.S.C. § 1610(g) may not permit the attachment of property belonging to U.S. companies doing business with a former State sponsor of terrorism subject to section 1083 (at least so long as that government has no interest of its own in the property), the measure could make commercial transactions more difficult. Judgment holders would likely seek to attach goods purchased by the debtor government as well as financial instruments used to pay for goods or services or to secure contract performance. If judgment holders succeed in seizing property or debts in the possession of a U.S. company, the contracting government could seek to hold the company liable for breach of contract for failing to make payment or delivery, as the case may be. Or the government could seek to justify its own breach or early termination of a contract, which could also result in losses to the U.S. company involved. Although it seems likely that a U.S. court would not find the U.S. company in breach of contract for having submitted to a judicial order, the contract in question may call for disputes to be resolved according to foreign law or in a foreign forum or through international arbitration, in which case the outcome may be less certain. The risk of litigation, which is unlikely to be without cost even if successful, may serve as a deterrent to trade. If a former State sponsor of terrorism chooses not to open accounts or establish standby letters of credit in financial institutions subject to U.S. jurisdiction, trade between U.S. companies and that country could become more difficult and riskier for the U.S. companies involved, and the foreign State may avoid risk by choosing business partners outside the United States. Exemption for Libya (S. 3370) U.S. businesses seeking to establish a commercial relationship with Libya expressed concern that § 1083 will harm U.S.-Libya trade. The Bush Administration, which has touted renewed U.S. investment in Libya and growth in bilateral trade as beneficial to the U.S. economy and as important tools for reestablishing relations with a reformed state sponsor of terrorism, appears to share their view. Nearly $1.7 billion has been awarded against Libya, with an additional $5.3 billion awarded against certain named Libyan officials, and with some 20 additional cases pending. The State Department announced that settlement negotiations to resolve outstanding cases against Libya were ongoing, and asked Congress to amend section 1083 to permit waivers in the case of all States that are removed from the list of designated State sponsors of terrorism. Senator Biden introduced a separate bill negotiated by the Administration, S. 3370 , to exempt Libya from terror-related lawsuits if it agrees to compensate certain U.S. victims under a claims settlement agreement with the United States. S. 3370 , the "Libyan Claims Resolution Act," was enacted on August 4, 2008. It provides an exception to the FSIA for Libya in the event Libya signs an international agreement ("claims agreement") with the United States to settle terrorism-related claims and to provide fair compensation. It contains a sense of the Congress in support of the President's efforts "to provide fair compensation to all nationals of the United States who have terrorism-related claims against Libya." The statute authorizes the Secretary of State to designate one or more "entities" within the United States to assist in the provision of compensation. It does not indicate whether the designated entity is to have a role in adjudicating claims, or whether the amount of compensation and identity of claimants eligible for compensation are to be specifically set forth in the claims agreement. It appears that the government is to receive funds pursuant to an agreement with Libya, which it would then turn over to the designated entity for dispersal to claimants, although there is no express requirement to this effect in the statute. All of the entity's property that is related to the claims agreement would then be immune from judicial attachment, and the entity itself would be immune from lawsuits related to actions it takes to implement a claims agreement. A designated entity will not be subject to the Government Corporation Control Act. If the Secretary of State certifies to Congress that sufficient funds have been received under the claims agreement, the statute will provide immunity to Libya, including its agencies and instrumentalities as well as its officials, employees, and agents, for all claims brought under the terrorism exception to the FSIA, either under the previous version of the statute or as amended by § 1083 of the FY08 NDAA, whether the suits are brought in federal or state courts. The statute provides immunity to property belonging to Libya, including its agencies and instrumentalities, and the property of Libyan agents, officials, and employees, from attachment in aid of execution or similar judicial process under the FSIA terrorism exception. In order for the funds received by the government to be sufficient for the purposes of the certification under the bill, they must be sufficient to cover settlements Libya has agreed to pay to victims of the Pan Am 103 airliner bombing and the La Belle Disco bombing, as well as to provide "fair compensation" to U.S. nationals who have pending cases against Libya for wrongful death or physical injury arising under section 28 U.S.C. § 1605A (including previous actions that have been given effect as if they had been filed under § 1605A). It appears that the amount of fair compensation is left to the discretion of the Secretary of State. It is unclear how the entity designated to assist in the dispersal of the funds is to determine how much to provide to each of the claimants. There is no express requirement that the designated entity disperse the funds. The provision does not explicitly state that only claims described in the certification requirement would be compensated, but this seems to be a fair inference. Under this interpretation, no compensation is envisioned in the case of claimants who are not beneficiaries of a settlement agreement in the Pan Am 103 and La Belle Disco cases unless they have a pending case under § 1605A for wrongful death or physical injury. Claims that would otherwise be permitted under § 1605A, for example, a claim for solatium or intentional infliction of emotional distress related to the hostage-taking of a family member, would not likely be compensated under the bill. It appears that finally adjudicated cases are not covered, in which case unsatisfied judgments against Libya and its officials will likely be unenforceable. Claimants do not appear to have any recourse in court to dispute the amount or a denial of compensation under the proposal, although a claim against the United States for an uncompensated "taking" in violation of the Fifth Amendment would not be foreclosed. Other Bills in the 110th Congress H.R. 3346 is substantially identical to H.R. 6305 as introduced in the 109 th Congress, except that it makes a provision for returning assets from the Hostage Victims' Fund to a foreign State after its status as a terrorist State has been terminated, provided all claims have been paid or the President determines that sufficient funds remain available to pay remaining claims. It is unclear whether these requirements refer to claims against the foreign State whose terrorist designation has been lifted, or whether claims against all terrorist States must be satisfied prior to the return of any frozen assets. H.R. 3369 contains the same provisions as H.R. 3346 , but also specifically includes plaintiffs in Hegna v. Islamic Republic of Iran among the class of persons who would be eligible to seek compensation from the Hostage Victims' Fund. The bill also expands the provision regarding additional compensation for former hostages held at the U.S. embassy in Iran to cover any person who was kidnapped by Hezbollah on December 4, 1984, and transferred to Iran. This language appears intended to cover Charles Hegna, except that it is unclear whether he is also a "person who qualifies for payment under subsection a(3)," depending on whether his estate is deemed to be a "person." Children and spouses of the specified victims at the time of the hostage-taking would be eligible to receive 50 percent of the "total amount of compensation paid to the person taken hostage." This subparagraph could exclude the Hegna plaintiffs as well, since Charles Hegna was murdered by the hijackers and never received compensation, unless it is read to encompass all compensation his family might recover under subsection a(1) or otherwise in satisfaction of their judgment. It is unclear whether the compensation received by the family members under section 2002 of the Victims of Trafficking Act would also be included in the "total amount of compensation." H.R. 394 would abrogate the Algiers Accords, to the extent it prevents former hostages from maintaining lawsuits against Iran, and establish a fund to pay the former hostages their families compensation derived from liquidated frozen assets and the Iranian FMS account. S. 1839 , passed by the Senate with unanimous consent on October 18, 2007, would require the Administration to submit to Congress a report every six months detailing the status of outstanding legal claims by American victims against the government of Libya for acts described in section 1605(a)(7) of title 28, United States Code. (Libya was removed from the list of State Sponsors of Terrorism on May 15, 2006 ). The reports would continue until the Secretary of State certifies there are no such claims left unresolved, and would be required to include the Administration's own efforts on behalf of those victims and the status of their negotiations with Libya to obtain payment. H.R. 5167 , the Justice for Victims of Torture and Terrorism Act, would repeal the waiver provision for Iraq passed in P.L. 110-181 (§ 1083(d)) and nullify any existing waivers issued pursuant to that provision. Suits Against the United States for "Terrorist" Acts At least two of the States affected by the FSIA exception appear to have enacted legislation allowing their citizens to file suit against the United States for violations of human rights or interference in the countries' internal affairs. Cuba reportedly allows such suits for violations of human rights; and at least two judgments assessing billions of dollars in damages against the U.S. have apparently been handed down. Iran reportedly has authorized suits against foreign States for intervention in the internal affairs of the country and for terrorist activities resulting in the death, injury, or financial loss of Iranian nationals; and at least one judgment for half a billion dollars in damages has been handed down against the United States. The judgment was awarded to a businessman who brought suit against the United States for "kidnapping, false imprisonment, using force, battering, abusing and ultimately inflicting physical and psychological injuries" in connection with his arrest by undercover U.S. Customs agents in the Bahamas for violating U.S. sanctions regulations. The judgment creditor in the case reportedly sought to attach the defunct U.S. embassy in Tehran to satisfy the judgment. Conclusion The 1996 amendments to the FSIA allowing victims of terrorism to sue designated foreign States for damages in U.S. courts were enacted with broad political support in Congress. But subsequent difficulties in obtaining payment of the substantial damages assessed for the most part in default judgments by the courts, and subsequent efforts in Congress to facilitate or allow such payment out of the defendant States' frozen assets in the United States, have raised issues fraught with both emotion and complexity. Matters of effectiveness, fairness, diplomacy, and possible reciprocal action against U.S. assets abroad have all entered the debate. In addition, the issue has pitted the compensation of victims of terrorism against U.S. foreign policy goals, including compliance with specific international obligations and the decision to use funds for the reconstruction of Iraq. U.S. courts have awarded victims of terrorism more than $19 billion in judgments against State sponsors of terrorism and their officials under the terrorism exception to the FSIA. Some claimants were able to collect portions of their judgments under §2002 of the Victims of Trafficking Act, while those not covered have been left largely to compete with each other to lay claim to the blocked assets of terrorist States for satisfaction of the compensatory damages portions of their judgments. In the case of Iran—the defendant in the largest number of suits filed, those blocked assets are virtually non-existent; and Presidential Determination 2003-23 made Iraq's blocked assets unavailable to pay subsequently awarded judgments against Iraq. Most of the Cuban assets made available by § 2002 to satisfy judgments have also been liquidated to pay to judgment creditors. An appellate court decision in 2004 holding that no cause of action exists under the FSIA to sue terrorist States themselves, as opposed to their employees, officials, and agents, led courts to apply domestic state tort law to lawsuits against terrorist States based on the domicile of the victim, resulting in some disparity of relief available to victims. Confusion about the definition of an "agency or instrumentality" of a foreign State also brought uncertainty to these lawsuits. The Supreme Court in the Elahi case clarified the importance of distinguishing between "agencies and instrumentalities" and foreign States themselves, but did not address any of the other issues raised by the terrorism exception to the FSIA. Section 1083 of the FY2008 National Defense Appropriations Act will likely clarify the existence of a federal cause of action against State sponsors of terrorism, but U.S. nationals with outstanding causes of action against Iraq may call on Congress for some form of redress. The total amount of judgments against State sponsors of terrorism and former State sponsors of terrorism is likely to increase more rapidly, especially if § 1803(c) is deemed valid to permit the refiling of cases, the reinstatement of vacated judgments, or the upward amendment of final awards, as well as the filing of new cases for which the statute of limitations has already expired. Whether more assets of those States will become available to satisfy those judgments is less certain. Making the assets of separate agencies and instrumentalities available to satisfy judgments may increase the total assets available for levy in the short term, but may also lead such entities to avoid future transactions that would put their assets at risk. An increase in transactions with debtor States is likely to occur only with respect to those States that are no longer subject to anti-terrorism sanctions, in which case the use of any assets that come into the jurisdiction of the United States to satisfy judgments may act as a barrier to trade notwithstanding the lifting of sanctions. On the other hand, if the terrorism exception to the FSIA results in a decrease in terrorist attacks affecting the interests of U.S. persons, such judgments should become less common with the passage of time and the statute of limitations. Appendix A. Judgments Against Terrorist States Appendix B. Assets of Terrorist States

In 1996 Congress amended the Foreign Sovereign Immunities Act (FSIA) to allow U.S. victims of terrorism to sue designated State sponsors of terrorism for their terrorist acts. The courts have handed down large judgments against the terrorist State defendants, generally in default, and successive Administrations have intervened to block the judicial attachment of frozen assets to satisfy judgments. After a court ruled that Congress never created a cause of action against terrorist States themselves, but only against their officials, employees, and agents, plaintiffs have based claims on state law. The limited availability of defendant States' assets for satisfaction of judgments has made collection difficult. Congress passed a rider to the National Defense Authorization Act for FY2008 (H.R. 4986), to provide a federal cause of action against terrorist States and to facilitate enforcement of judgments, authorizing the President to waive the provision with respect to Iraq. Congress subsequently passed S. 3370 to exempt Libya from the FSIA provisions if it agrees to compensate victims with pending lawsuits. Section 1083 of P.L. 110-181 is the latest in a series of actions Congress has taken over the last decade to assist plaintiffs in lawsuits against terrorist States. The 107th Congress enacted a measure in the Terrorism Risk Insurance Act of 2002 ("TRIA") (P.L. 107-297) to allow the attachment of blocked assets of terrorist States to pay compensatory damages to victims. The Victims of Trafficking and Violence Protection Act of 2000 ("VTVPA") (P.L. 106-386) liquidated some frozen assets to pay claims and provided some U.S. funds to compensate those holding judgments against Iran at the time. Section 1083 seeks to make more assets available to execute terrorism judgments. It permits the attachment of assets belonging to separate agencies and instrumentalities of defendant States, permits plaintiffs to file notices of lis pendens with respect to property owned by defendant States or entities they control, and permits some plaintiffs to refile claims. The Supreme Court has not directly addressed the FSIA terrorism exception, but in 2006 it remanded a decision based on the lower court's assumption that Iran's Ministry of Defense (MOD) is an "agency or instrumentality" of Iran rather than part of the government itself, and will decide in its upcoming term whether certain Iranian assets are available under the TRIA to judgment holders. The Court may also be asked to determine the effect of the waiver of § 1083 on pending cases against Iraq, which the Court of Appeals for the D.C. Circuit has permitted to go forward. This report provides background on the doctrine of State immunity and the FSIA; details the evolution of the terrorist State exception and some of the resulting judicial decisions; describes legislative efforts to help claimants satisfy their judgments; summarizes the hostages' suit against Iran and Congress's efforts to intervene; summarizes the status of lawsuits against Iraq and Libya; and provides an overview of proposed legislation (S. 3370, H.R. 3346, S. 1944, H.R. 394, H.R. 5167, and H.R. 2764). Appendix A provides a list of cases, including those covered by TRIA § 2002 and the amount of compensation paid. Appendix B lists the assets of each terrorist State currently blocked by the United States and the total amount owed by each for terrorism judgments. The report will be updated as events warrant.

Introduction In order to conduct foreign relations and promote the interests of their nationals located abroad, States (i.e., countries) require secure means of communicating with their diplomats (i.e., representatives of a government who conduct relations with another government on its behalf) and consular officers (i.e., representatives of a government who promote the government's commercial interests and provide assistance to its citizens located in another country) stationed in other States. To ensure that such channels of communication are preserved, States receiving foreign diplomats and consular officers have long accorded such persons with certain privileges and immunities on the basis of comity, reciprocity, and international agreement. As political and economic contacts between States have grown, customary practices regarding diplomatic and consular immunities have increasingly been codified via bilateral or multilateral agreement. These agreements not only describe the specific privileges and immunities to be accorded to foreign diplomats and consular officers by a receiving State, but also specify those privileges and immunities owed to other members of diplomatic and consular missions, as well as towards the family members of mission members. In recent decades, international organizations have been viewed as a means by which States may conduct multilateral relations and cooperate on issues which are transnational in scope. In order to ensure the autonomy of such organizations and prevent any member State from unreasonably interfering with organizational functions, many international organizations and their employees have been accorded certain privileges and immunities by their member States. These privileges and immunities are typically similar in scope to those accorded to foreign diplomatic missions. This report describes the privileges and immunities generally owed to foreign diplomatic, consular, and international organization personnel under U.S. law. It does not discuss certain exceptions to these immunities that may apply to U.S. citizens and legal permanent residents who are employed by international organizations or foreign embassies or consulates. The treaties and statutes discussed in this report are: the Vienna Convention on Diplomatic Relations (Diplomatic Convention); the Vienna Convention on Consular Relations (Consular Convention); the Agreement Regarding the Headquarters of the United Nations (Headquarters Agreement); the Convention on the Privileges and Immunities of the United Nations (U.N. Convention); and the International Organizations Immunities Act. This report contains charts detailing the privileges and immunities provided by the legal authorities mentioned above, along with the personnel to whom such privileges and immunities apply. It is important to note that the above-mentioned authorities are not exhaustive, and the scope of immunity due in any particular case may be governed in whole or in part by other instruments. For example, the United States is a party to many bilateral consular conventions that contain immunities provisions. In most instances, the other signatory is, along with the United States, a party to the Consular Convention. In these cases, the instrument affording greater protection to each State's consular officers is controlling. Some countries with which the United States has a consular treaty are not parties to the Consular Convention. The immunities accorded to consular personnel of such States are governed by the appropriate bilateral treaties, not by the authority discussed in this report. Furthermore, not all international organizations are covered by the International Organizations Immunities Act (IOIA), or, as is the case with the United Nations, are covered not only by the IOIA but also by a number of international agreements. Even where immunities are governed generally by the authorities cited in the relevant chart, individuals serving in similar positions for different countries may nevertheless enjoy different immunities. For example, the Diplomatic Relations Act, which effectively adopted the standards of the Diplomatic Convention for domestic application, provides that the President may, on the basis of reciprocal treatment, specify immunities for individual countries that are more or less favorable than those under the Convention. Both the Diplomatic Convention and the Consular Convention allow the United States to apply immunities restrictively where a particular country has applied immunity rules restrictively towards American representatives. Similarly, the IOIA conditions certain immunities on the basis of treatment of American representatives abroad. It must be emphasized that the immunities provided to foreign diplomats, consular officials, and employees of international organizations may be waived by the sending State or the appropriate international organization, with or without the consent of the individual involved. On the other hand, certain individual acts may lead to a waiver of immunity. For example, the initiation of civil proceedings by an otherwise exempt individual may preclude him from invoking immunity with regards to a directly-connected counterclaim. Another example of this type of personal waiver is the relinquishment of all immunity by consular employees and staff who undertake private gainful employment in the receiving State. Still another example is when a foreign person accorded immunity wishes to become a lawful permanent resident of the United States, in which case the person must waive the rights, privileges, immunities, and exemptions he would otherwise accrue on account of his occupational status. Finally, note that even where an individual enjoys immunity from jurisdiction, a person harmed by the immune individual nevertheless may have recourse to compensation under one of two statutes. First, the Diplomatic Relations Act requires that (1) each diplomatic mission in the United States (including otherwise immune missions to international organizations), (2) members of these missions and their families, and (3) high ranking United Nations officials all meet liability insurance requirements relating to the operation of motor vehicles in the United States. Second, the Foreign Sovereign Immunities Act provides that a foreign State shall not, with limited exception, be immune from suit for money damages being sought against it for harm occurring in the United States and caused by a wrongful nondiscretionary act of one of its officials or employees acting within the scope of duty. Overview of Applicable Statutes and Treaties The following sections provide an overview of the statutes and agreements governing the privileges and immunities accorded to foreign diplomats, consular officials, employees of international organizations, and related personnel. Vienna Convention on Diplomatic Relations Pursuant to its treaty obligations under the Vienna Convention on Diplomatic Relations (VCDR), ratified in 1972, the United States accords certain privileges and immunities to designated categories of persons employed by other Convention parties' diplomatic missions, along with the household family members of certain mission employees. Persons entitled to certain privileges and immunities under the Diplomatic Convention include diplomatic agents and their immediate household families, the mission's administrative and technical staff and the immediate household families of those staff members; the mission's service staff; and private servants of members of the mission. Under the Convention, the United States accords diplomatic agents (and members of their households) absolute immunity from its criminal jurisdiction and near-absolute immunity from U.S. civil and administrative jurisdiction. A diplomatic agent is also not obliged to give evidence as a witness. Below the rank of diplomat, the administrative, technical, and service staffs also are immune from criminal jurisdiction, but have more limited immunity from civil and administrative jurisdiction. The household family members of diplomatic agents and mission staff are also generally provided with the same privileges and immunities accorded to the diplomatic agent or mission staff member to which they are related. To varying degrees, persons covered by the Diplomatic Convention also receive immunity from taxes and customs duties, military and public service obligations, and alien registration requirements. Congress passed the Diplomatic Relations Act to grant the privileges and immunities accorded under the Diplomatic Convention to all foreign diplomatic missions, personnel, and the families of such personnel, regardless of whether the sending State is a party to the Convention. This extension is subject to the sending State's reciprocal treatment towards U.S. diplomatic missions, personnel, and families of such personnel, along with other terms and conditions the President deems appropriate. Vienna Convention on Consular Relations The Vienna Convention on Consular Relations (VCCR), which was ratified by the U.S. in 1969, accords certain privileges and immunities to consular officers (i.e., persons who exercise consular functions on behalf of the sending State, notably including the consular post) and their immediate household families; the post's administrative and technical staff and the immediate household families of those staff members; the post's service staff; and honorary consuls (i.e., consular officers other than career consular officers). These privileges and immunities are lesser in scope than those enjoyed by similarly-situated members of diplomatic missions and those members' household families. For example, while foreign diplomats and their family members receive full immunity from the criminal jurisdiction of the receiving State under the Diplomatic Convention, consular officers covered by the Consular Convention only receive immunity for actions they take in the course of their official functions, and their family members receive no immunity from the criminal jurisdiction of the receiving State. Family members of consular employees also receive no immunity from the receiving State's civil jurisdiction. Members of the consular post and their family members do receive varying degrees of immunity from the receiving State's taxes and custom duties, alien registration requirements, and military service obligations. The privileges and immunities owed under the Consular Convention only apply between Convention parties. The privileges and immunities owed by the U.S. to the consular personnel of non-Convention parties are governed by applicable bilateral treaty. In the case that the U.S. and another Convention party also have a bilateral treaty governing consular relations, the instrument providing broader coverage is controlling. International Organizations Immunities Act The IOIA provides a significant number of privileges and immunities for international organizations designated by the President via executive order. Certain privileges and immunities are also accorded to employees, officials, and representatives to such organizations, along with members of their immediate families, though these are less than those accorded to the international organizations themselves. Officials, employees, and representatives to designated international organizations are accorded immunity pursuant to the IOIA following validated notification to the Secretary of State of their organizational position. The terms "official," "employee," and "representative" are not defined by the IOIA The United Nations was designated as an "international organization" for purposes of the IOIA immediately following the statute's enactment. Several dozen other international organizations have been designated as receiving coverage under the IOIA, including such organizations as the International Monetary Fund, the International Committee of the Red Cross, the Organization of American States, the World Health Organization, and the World Trade Organization. U.N. Convention on Privileges and Immunities In the same year the IOIA was enacted, the U.N. General Assembly also adopted the Convention on the Privileges and Immunities of the United Nations, establishing de minimus standards for the immunities and privileges accorded to the United Nations and U.N. officials, Member State representatives, and experts working for U.N. missions. These immunities and privileges are largely similar to those accorded via the IOIA. The United States ratified the Convention in 1970. As with the IOIA, the U.N. Convention on Privileges and Immunities (UNCPI) does not define the term "employee" or "official," though this is perhaps of little concern because the U.N. Convention provides immunity only to those categories of U.N. officials (beyond the U.N. Secretary-General and all Assistant Secretary-Generals) designated by the Secretary-General to receive protection under the Convention. The Convention also does not define "experts on missions" who receive immunity under the U.N. Convention. However, an advisory decision by the International Court of Justice (which has ultimate authority to interpret the U.N. Convention), found that the category of experts on U.N. missions includes, inter alia , persons entrusted by the United Nations with mediating disputes, preparing reports and studies, conducting investigations, or finding and establishing facts on behalf of U.N. missions. The Convention defines "representatives" of U.N. Member States as including all delegates, advisors, and secretaries of Member State delegations. Besides granting an explicit set of privileges and immunities to designated persons, the U.N. Convention also specifies that certain designated individuals (i.e., U.N. representatives, the U.N. Secretary-General, all Assistant Secretary-Generals, and certain U.N. officials designated to receive protection under the Convention by the Secretary-General) are to receive most or all of the privileges and immunities accorded by a receiving State to diplomatic envoys. Accordingly, by reference to other statutes and treaties adopted by the receiving State, the U.N. Convention provides these U.N. officials and representatives with certain privileges and immunities beyond those explicitly described under the U.N. Convention. Generally speaking, the U.N. officials and representatives covered by the U.N. Convention are given the same privileges and immunities as those the U.S. accords to diplomats under the Diplomatic Convention. With respect to designated U.N. officials, however, Diplomatic Convention standards concerning immunity from criminal prosecution apparently are not so incorporated, as the U.N. Convention provides that such officials are immune only for official acts. U.N. Headquarters Agreement In 1947, the United States entered the Headquarters Agreement with the United Nations. The U.N. Headquarters Agreement (UNHQA) primarily concerns the privileges and immunities accorded to the United Nations and its headquarters in New York. However, the Agreement also provides certain privileges and immunities for specified U.N. representatives and related personnel residing in the United States . The Headquarters Agreement provides such persons with the full protections accorded to diplomatic envoys—a broader scope of immunity than that provided under either the IOIA or the U.N. Convention. Representatives and related personnel of U.N. Member States whose governments are not recognized by the United States receive lesser privileges and immunities. Charts of Privileges and Immunities Accorded to Persons Working for Foreign Embassies, Consulates, International Organizations The following charts list the major privileges and immunities accorded to persons working for foreign embassies, consulates, or international organizations (including, specifically, the United Nations). When a treaty or international agreement makes reference to covered personnel receiving the same immunities accorded to persons covered by other treaties, the nature of such immunities is explained. Thus, for example, because the U.N. Convention on Privileges and Immunities provides that certain U.N. personnel are to receive the same immunities as the receiving State accords diplomatic envoys, the chart detailing the immunities provided under the U.N. Convention occasionally makes references to immunities provided to diplomats under the Vienna Convention on Diplomatic Relations. It is important to note that the charts concerning the Vienna Convention on Diplomatic Relations and the Vienna Convention on Consular Relations only discuss those immunities accorded to persons who are not U.S. nationals or permanent residents. Diplomatic and consular officers working on behalf of a foreign State who are U.S. nationals or permanent residents only receive immunity for official acts performed in the exercise of their functions, while other diplomatic or consular personnel or members of their household families receive no immunities if they are U.S. nationals or permanent residents. Persons who are employed by international organizations or are foreign representatives to such organizations are provided with immunity regardless of whether they are U.S. nationals or permanent residents. Chart 1: Privileges and Immunities Accorded to Persons Under the VCDR Chart 2: Privileges and Immunities Accorded to Persons Under the VCCR Chart 3: Privileges and Immunities Accorded to Persons Under the UNCPI and UNHQA Chart 4: Privileges and Immunities Accorded to Persons Under the IOIA and Other Relevant Domestic Statutes Chart 5: Privileges and Immunities Accorded to U.N. Representatives and Employees Under the IOIA, UNCPI, UNHQA, VCDR, and Related Statutes and Agreements The United Nations and specified officials, employees, and representatives to the organization are accorded a number of privileges and immunities by a series of interrelated statutes and treaties. In some cases, the immunities accorded to the organization and specified officials, employees, and U.N. representatives are explicit; in other cases, they are established via cross-reference to other sources of law. This chart details the scope of such immunities, as governed by the International Organizations Immunities Act, the U.N. Convention on Privileges and Immunities, the U.N. Headquarters Agreement, and, by cross-reference, the Vienna Convention on Diplomatic Relations. Where appropriate, immunities provided by related U.S. statutes are also listed.

To conduct foreign relations and promote the interests of their nationals located abroad, diplomatic and consular officers must be free to represent their respective States (i.e., countries) without hindrance by their hosts. Recognizing this, States receiving foreign diplomats and consular officers have long accorded such persons with certain privileges and immunities on the basis of comity, reciprocity, and international agreement. As international organizations have become increasingly important for multilateral relations and cooperation, representatives to and employees of such organizations have occasionally been granted privileges and immunities similar to those traditionally accorded to diplomats or consular officials. This report describes the privileges and immunities generally owed by the U.S. to foreign diplomatic, consular, and international organization personnel under treaties and statutes. It does not discuss certain exceptions to these immunities that may apply to U.S. citizens and legal permanent residents who are employed by international organizations or foreign embassies or consulates. Among the pertinent legal authorities are the Vienna Convention on Consular Relations, the Vienna Convention on Diplomatic Relations, the International Organizations Immunities Act, the Convention on the Privileges and Immunities of the United Nations, and the Agreement Regarding the Headquarters of the United Nations. Included are charts that detail the specific types of jurisdiction and obligations from which various categories of diplomatic and consular personnel are immune under each of these authorities.

ATF Mission Located in the Department of Justice (DOJ), the ATF is the lead federal law enforcement agency charged with administering and enforcing federal laws related to the manufacture, importation, and distribution of firearms and explosives. As part of the Homeland Security Act, Congress transferred ATF's enforcement and regulatory functions for firearms and explosives to the DOJ from the Department of the Treasury, adding "explosives" to ATF's title. ATF is also responsible for investigating arson cases with a federal nexus, as well as criminal violations of federal laws governing the manufacture, importation, and distribution of alcohol and tobacco. The regulatory aspects of those alcohol and tobacco laws are the domain of the Tax and Trade Bureau (TTB), which was established at Treasury following ATF's transfer to DOJ. As a law enforcement agency within the DOJ, ATF's first priority is preventing terrorist attacks within the United States. ATF is responsible for countering the illegal use and trafficking of firearms and explosives, and the criminal diversion of alcohol and tobacco products as an illegal source of funding for terrorist activities. In criminal investigations, ATF agents have reportedly uncovered foreign terrorists and their supporters bootlegging cigarettes as part of larger terrorist-financing operations in the United States. With those responsibilities, ATF special agents are partners on DOJ's Joint Terrorism Task Forces. As shown below, however, the lion's share of ATF's resources are allocated to its firearms compliance and investigations program. While the ATF periodically checks the records of federally licensed gun dealers, the major focus of the firearms program is the reduction of firearms-related violence. ATF Appropriations In three years, Congress increased appropriations for ATF by 13.4%, from $988.1 million in FY2007 to $1.121 billion in FY2010 (see Table 1 ). For this time period, the annual percent growth was 4.3%. Most of the program increases were provided to bolster ATF's capabilities in the areas of gun trafficking and explosives. For example, for the past two fiscal years, FY2009 and FY2010, Congress has provided ATF with program increases to address illegal gun trafficking from the United States to Mexico under an initiative known as "Project Gunrunner." For FY2008, Congress also provided ATF with a program increase for domestic gun trafficking, and the focus of this program increase was also largely on the Southwest border. As a result, for those three fiscal years, Congress has provided over $49 million in program increases to address gun trafficking, which is the diversion of firearms from legal to illegal markets. Congress has also provided nearly $30 million for the construction of a National Center for Explosives Training and Research (NCETR). ATF Budget Structure Congress appropriates funding annually for ATF in a salaries and expenses account and, for some but not all years, in a construction account. Both accounts are given a line item in the CJS appropriations bill. As shown in Table 1 , ATF subdivides its budget into three budget decision units: firearms compliance and investigations, arson and explosives investigations, and alcohol and tobacco diversion. Under the construction line item, Congress appropriated $23.5 million for FY2008 and $6.0 million for FY2010 to fund the NCETR. As that funding was explosives-related, these amounts were added into the arson and explosives investigations decision unit in Table 1 . Although Congress does not appropriate monies for the ATF (or any other DOJ agency) by decision unit, the appropriators often address whether program increases requested specifically by the Administration are to be provided in report language, and more rarely in bill language, for the salaries and expenses account itself. As a consequence, the amounts requested for decision units are binding in the sense that the appropriators are aware of the increases that were provided for in the annual bureau appropriation and how those increases would affect the decision unit totals. If funding is shifted from one decision unit to another, statutory budget reprogramming requirements are triggered, under which DOJ and its agencies are required to notify the Appropriations Committees about such shifts. Over three appropriation cycles, FY2008 through FY2010, the firearms decision unit allocation has increased by 13.0%; the arson and explosives, by 14.7%; and alcohol and tobacco, by 13.3%. Due to a reduction in "hollow" or "unfunded" FTE positions, there was a decreased in FTE positions from 5,053 for FY2007 to 4,880 for FY2008. While FTE positions increased to 4,957 for FY2009 and 5,025 for FY2010, the number of FTE positions funded for FY2010 is still lower than the 5,053 FTE positions that were budgeted for FY2007. As a result, funded FTE positions at ATF oscillated somewhat; however, the net decrease in FTE positions is less than 1%. FY2010 Appropriation In the Consolidated Appropriations Act, 2010 ( H.R. 3288 ), Congress matched the Administration's request and appropriated $1.121 billion for ATF, or $24.0 million (3.9%) more than the agency's total FY2009 appropriations ($1.078 billion). President Obama signed this bill into law on December 16, 2009 ( P.L. 111-117 ). In the absence of an FY2010 CJS appropriations act by the end of FY2009 (September 30, 2009), Congress passed a series of continuing resolutions that funded most of the federal government, including ATF, until the enactment of P.L. 111-117 . Administration's FY2010 Request For FY2010, the Administration requested $1.121 billion for ATF, or a proposed 6.3% increase compared to the FY2009-enacted appropriation of $1.054 billion (at the time of the request). The requested amount was projected to fund 5,025 FTE positions and 5,101 permanent positions. Compared to the FY2009-enacted level, the FY2010 request included a net increase of $66.6 million, 68 FTE positions, and 93 permanent positions. This proposed increase included $23.6 million, 22 FTE positions, and 1 permanent position in base adjustments; $18 million, 46 FTE positions, and 92 permanent positions (including 34 agents) to support "Project Gunrunner," an initiative focused on stemming illegal firearms trafficking to Mexico from the United States; and $25 million for NCETR facility outfitting and expanded training. House-Passed and Senate-Reported FY2010 CJS Appropriations Bills On June 12, 2009, the House Appropriations Committee reported an FY2010 CJS appropriations bill ( H.R. 2847 ; H.Rept. 111-149 ). On June 17, 2009, the House passed this bill. It would have provided ATF with $1.106 billion for FY2010, or $9.0 million (1.3%) less than the FY2010 request. Report language indicated that this amount included the following budget increases: nearly $18 million to combat gun trafficking on the Southwest border and $10 million for ATF Violent Crime Impact Teams. As in the enacted FY2010 appropriation, however, the committee recommendation did not include $25 million for phase two of the NCETR project. Although the committee expressed its support for this endeavor, fiscal constraints prompted the committee to dedicate limited resources to Southwest border, anti-gun trafficking efforts. As a result, the committee recommended only $10 million for the NCETR project. On June 25, 2009, the Senate Appropriations Committee reported an FY2010 CJS appropriations bill ( H.R. 2847 ; S.Rept. 111-34 ) that would have provided ATF with $1.121 billion, the same amount as requested by the Administration. The Senate took no further action on this bill, however. Nevertheless, as noted in report language, the committee recommendation included a total of $61 million to combat gun trafficking on the Southwest border, including an increase of $18 million for Project Gunrunner. Report language also conveyed the committee's support for the National Integrated Ballistic Information Network (NIBIN) and directed ATF to ensure that ballistic-imaging technology be routinely upgraded and made available to state and local law enforcement. The Senate recommendation, unlike the House bill, would have provided ATF with an increase of $25 million for construction to fully fund phase two of the NCETR project. Consolidated Appropriations Act, 2010 In P.L. 111-117 , Congress appropriated $1.121 billion for ATF for FY2010. The House agreed to the conference report on the underlying bill ( H.R. 3288 ; H.Rept. 111-366 ) on December 10, 2009, by a recorded vote: 221-202, 1 present (Roll no. 949). The Senate agreed to the conference report on December 13, 2009, by a recorded vote: 57-35 (Record Vote Number: 374). Conference report language ( H.Rept. 111-366 ) indicated that the act included the following increases: $18 million for Project Gunrunner, the same amount requested by the Administration and included in the Senate-reported and Housed-passed bills (described below); $10 million to increase for ATF-led inter-agency task forces known as Violent Crime Impact Teams, which are dedicated to reducing violent crime and illegal gang activity, as originally included in the House-passed bill; $6 million for construction (phase two) of the NCETR, instead of the $25 million requested by the Administration, an amount included in the Senate bill, or the $10 million under the House bill; and $1.5 million to complete ATF headquarters construction projects. FY2009 Appropriations Congress appropriated $1.054 billion for ATF in the Omnibus Appropriations Act, 2009 ( H.R. 1105 ). President Obama signed this bill into law on March 11, 2009 ( P.L. 111-8 ). Prior to the omnibus's enactment, Congress passed a series of continuing resolutions to fund the federal government. Congress also provided ATF with $10 million in the American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5 ). In addition, Congress provided ATF with $14 million in the Supplemental Appropriations Act, 2009 ( P.L. 111-32 ). As a result, for FY2009, Congress appropriated a sum total of $1.078 billion for ATF, or $66.6 million (6.6%) more than the FY2008-enacted amount ($1.012 billion). American Recovery and Reinvestment Act of 2009 Congress appropriated $10 million for ATF in the American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5 ), as part of $40 million that was provided for grants to state and local law enforcement along the southern border or in High-Intensity Drug Trafficking Areas. This amount was one-time, economic stimulus funding. Administration's FY2009 Request For FY2009, the Administration had requested $1.028 billion for ATF, including 4,942 FTE positions and 4,978 permanent positions, or $44 million, 62 FTE positions, and 22 permanent positions more than the amounts appropriated for FY2008. Of the difference, $42.8 million, 56 FTE positions, and 10 permanent positions were base adjustments. For Southwest border enforcement, the FY2009 request included a budget enhancement of $948 thousand and 6 FTE positions and 12 permanent positions. House- and Senate-Reported FY2009 CJS Appropriations Bills While both the House and Senate Appropriations Committees reported FY2009 CJS appropriations bills, those bills were not acted upon by either chamber. On December 10, 2008, the House Appropriations Committee reported an FY2009 CJS appropriations bill ( H.R. 7322 ; H.Rept. 110-919 ) that would have provided ATF with $1.054 billion, or $26.4 million (2.6%) more than the FY2009 request. House report language indicated that the House bill would have provided an increase of $5 million for Project Gunrunner. On June 23, 2008, the Senate Appropriations Committee reported an FY2009 CJS appropriations bill ( S. 3182 ; S.Rept. 110-397 ) that would have provided ATF with $1.043 billion, or $15 million (1.5%) over the FY2009 request. Senate report language indicated that the Senate bill would have provided an increase of $15 million to expand ATF's Violent Crime Impact Teams (described below). Both House and Senate report language expressed the Appropriations Committees' continued support of ATF's National Integrated Ballistic Information Network (NIBIN). Through NIBIN, federal, state, and local law enforcement agencies are able to image markings on bullets and cartridge cases and compare crime firearms evidence. The FY2006 budget for NIBIN was $22.8 million. Omnibus Appropriations Act, 2009 In P.L. 111-8 , Congress provided ATF with its regular annual appropriation of $1.054 billion for FY2009, a 4.6% increase over the FY2008-enacted level ($1.008 billion at the time of enactment), and a 2.6% increase over the Administration's request. On February 25, 2009, the House passed this bill by a recorded vote: 245-178 (Roll no. 86). On March 10, 2009, the Senate passed this bill by a voice vote without amendment. In an explanatory statements submitted by the House Appropriations Committee, language indicated that the act provided ATF with $26.4 million in program increases of which no less than $5.0 million was for Project Gunrunner and no less than $200,000 was for hiring additional regulation writers to address ATF's administrative backlog. FY2009 Supplemental Appropriation On June 12, 2009, the House Committee on Appropriations filed a conference report on the Supplemental Appropriations Act, 2009 ( H.R. 2346 ; H.Rept. 111-151 ). The House passed the conference agreement on June 16, 2009, and the Senate, on June 18, 2009. On June 24, 2009, the President signed this H.R. 2346 into law ( P.L. 111-32 ). This act provided ATF with and additional $14 million, bringing total enacted FY2009 funding for ATF to $1.078 billion. Conference report language indicated that the ATF supplemental appropriation included $4 million to support ATF's role in the global war on terror in Iraq and Afghanistan, $4 million to upgrade and share ballistic imaging technology with the government of Mexico, and $6 million for other ongoing efforts focused on stemming illegal gun trafficking to Mexico under Project Gunrunner. This language was parallel to Senate report language accompanying S. 1054 ( S.Rept. 111-20 ), a bill that the Senate had passed on May 21, 2009. By comparison, a bill (also H.R. 2345 ) passed by the House on May 14, 2009, would have provided $4 million for ATF. House report language ( H.Rept. 111-105 ) indicated that this amount would have been provided for ATF to continue to deploy explosives enforcement officers to Iraq to provide training to U.S. government personnel on post-blast investigation and render safe procedures. FY2008 Appropriations When conference negotiations on the House- and Senate-passed CJS appropriations bills (both bills were numbered H.R. 3093 ), congressional leaders opted to use the Department of State, Foreign Operations, and Related Appropriations bill, 2008 ( H.R. 2764 ), as a vehicle for the CJS appropriations, as well as the other 10 remaining appropriations bills, in addition to emergency spending for military operations in Iraq and Afghanistan. On December 17-19, 2007, Congress completed action on H.R. 2764 , the Consolidated Appropriations Act, 2008, through an exchange of amendments between the two chambers. President George W. Bush signed H.R. 2764 into law on December 26, 2007 ( P.L. 110-161 ). In this act, Congress provided ATF with its regular FY2008 appropriation. Congress also provided ATF with additional $4.0 million in an Iraq war supplemental appropriation bill. In sum total, Congress appropriated $1.012 billion for ATF for FY2008, or $23.5 million (2.4%) more than the FY2007 appropriations ($988.1 million). Administration's FY2008 Request The FY2008 request included $1.014 billion for ATF, including 4,933 FTE and 5,032 permanent positions. At the time of the request, this amount was $29.9 million more than the FY2007 appropriation of $984.1 million. The request included $10 million for the Arson and Explosives decision unit to make up for a previous budget reduction; $6.3 million to expand ATFs domestic firearms trafficking enforcement efforts nationwide; $2.2 million for the Project Safe Neighborhoods (PSN) initiative to expand gang and firearms enforcement efforts nationally; and $400,000 for ATF agents dedicated to the National Gang Targeting Enforcement and Coordination Center (GangTECC). House- and Senate-Passed FY2008 CJS Appropriations Bills On July 19, 2007, the House Appropriations Committee reported an FY2008 CJS appropriations bill ( H.R. 3093 ; H.Rept. 110-240 ). On July 26, 2007, the House passed this bill by recorded vote: 281-142 (Roll no. 744). The House would have provided $1.014 billion for ATF, an amount equal to the FY2008 request. Report language specified that the bill included program increases requested by the Administration for Firearms Trafficking/Gunrunner Program, PSN/Firearms Violence Reduction program, and GangTECC. In addition, the House bill would have directed ATF to submit a report on recommended improvements to upgrade its information technology systems, and the bill included $1.0 million for this purpose. On June 29, 2007, the Senate Appropriations Committee reported an FY2008 CJS appropriations bill ( S. 1745 ; S.Rept. 110-124 ). On October 16, 2007, the Senate took up H.R. 3093 and amended it with language similar to S. 1745 . On the same day, the Senate passed H.R. 3092 by a recorded vote: 75-19 (Record Vote Number: 372). The Senate-passed bill have provided almost $1.049 billion for ATF, an increase of $35.0 million (3.5%) more than the Administration's FY2008 budget request. The Senate-passed bill included $1.014 for ATF salaries and expenses and $35 million for NCETR construction. Consolidated Appropriations Act, 2008 In P.L. 110-161 , Congress appropriated $1.008 billion for ATF's regular appropriation, including $23.5 million for construction. The FY2008 appropriation for ATF salaries and expenses was $984.1 million. Although this amount was $19.5 million (2%) more than the FY2007 appropriation of $988.1 million, it was $6.4 million less than the amount proposed in the FY2008 budget request. In an explanatory statement submitted by the House Appropriations Committee, ATF was directed to report on revocations of federal firearms dealers licenses based upon "largely recordkeeping errors" and upon administrative (regulatory) backlogs. Program increases included $23.5 million for the construction of NCETR and $6.3 million for gun trafficking investigations. FY2008 Iraq Supplemental Appropriation In the Supplemental Appropriations Act, 2008 ( P.L. 110-252 ; H.R. 2642 ), Congress provided $4 million for ATF operations in Iraq ( H.R. 2642 ). According to DOJ, ATF was in the process of establishing an attache office in the U.S. Embassy in Baghdad. This office was charged with a threefold mission to create an Iraq Weapons Investigation Cell to investigate and account for U.S. government-issued munitions; establish an ATF Combined Explosives Cell, which would seek to identify the source countries for explosives recovered in Iraq; and engage in targeted investigations of cigarette theft and other diverted contraband throughout the country. Since December 2003, ATF has also been providing post-blast explosives investigative training to Iraqi police forces. A Senate-passed version of H.R. 2642 included $15 million for Project Gunrunner; however, this funding was not included in the enacted supplemental appropriation. Appropriations and Staffing, FY1999-FY2009 As Table 2 shows, from FY1999 to FY2010, Congress increased ATF appropriations from $541.6 million to nearly $1.121 billion, an increase of 107%. For this time period, the annual percent growth was 6.8%. With some fluctuation, ATF staffing increased from 3,969 to 5,025 FTE positions, a 27% increase. Since its transfer to the DOJ in FY2003, ATF has also reported permanent positions, in addition to FTE positions. The FY2010 appropriation funds 5,101 permanent positions, including 2,485 special agents (SAs), 834 industry operations investigators (IOIs, formerly inspectors) and investigative research specialists (IRIs), and 1,769 "other" positions. In addition, as has been the case in recent years, 55 ATF permanent positions (54 SAs and one other position) are to be funded through reimbursable resources. Firearms Budget Program ATF's firearms budget program funds activities related to administering and enforcing federal laws related to the manufacture, importation, and distribution of firearms. The principal focus of ATF's firearms-related activities, however, is the reduction of firearms-related violence. As part of this focus, the ATF has dedicated increased resources in recent years toward investigating the criminal activities of violent street gangs, ensuring that federally licensed gun dealers comply with the law, and suppressing gun trafficking. For FY2010, the firearms allocation is $802.6 million, or 72% of the $1.121 billion appropriated by Congress for ATF. Violent Crime and Gangs As a full partner in the President's Project Safe Neighborhoods (PSN), which was initiated in FY2001, ATF has joined with DOJ attorneys and other federal law enforcement agencies, along with state, local, and tribal authorities, to investigate and prosecute offenders, with a particular focus on armed violent and career criminals. ATF also leads the Attorney General's Violent Crime Impact Teams (VCITs) in 29 cities in an effort to reduce the number of homicides and other violent crimes committed with firearms. According to ATF, the VCITs assist state and local authorities by systematically investigating all firearms-related leads; responding to all street recoveries of firearms and interviewing those involved to determine the source of the firearms; targeting and investigating violent and career criminals, and removing them from the streets; infiltrating criminal groups through undercover operations and confidential informants; tracing all recovered guns used in crime to determine their origin; imaging and storing all ballistic evidence in the National Integrated Ballistic Information Network (NIBIN); and inspecting and, when appropriate, investigating corrupt federal firearms licensees. Under the VCIT initiative, defendants referred by ATF for prosecution in gang-related investigations have increased from 403 in FY2000 to 4,381 in FY2007, nearly a tenfold increase. Compliance Inspections of Licensed Gun Dealers ATF inspects federal firearms licensees (FFLs) to monitor their compliance with the Gun Control Act (GCA) and to prevent the diversion of firearms from legal to illegal channels of commerce. In the past, despite its crime-fighting mission, ATF's business relationships with the firearms industry and larger gun-owning community have been a perennial source of tension, which from time to time has been the subject of congressional oversight. Nevertheless, under current law, ATF Special Agents (SAs) and Industry Operations Investigators (IOIs) are authorized to inspect or examine the inventory and records of an FFL without search warrants under three scenarios: in the course of a reasonable inquiry during the course of a criminal investigation of a person or persons other than the FFL; to ensure compliance with the record keeping requirements of the GCA—not more than once during any 12-month period, or at any time with respect to records relating to a firearm involved in a criminal investigation that is traced to the licensee; or when such an inspection or examination is required for determining the disposition of one or more firearms in the course of a criminal investigation. By inspecting the firearms transfer records that FFLs are required by law to maintain, ATF investigators able to trace crime guns from their domestic manufacturer or importer to the first retail dealer that sold those firearms to persons in the general public, generating vital leads in homicide and other criminal investigations. In addition, by inspecting those records, ATF investigators are often able to uncover evidence of corrupt FFLs transferring firearms "off the books," straw purchases, and other patterns of suspicious behavior. In July 2004, the DOJ Office of Inspector General (OIG) reported on ATF inspections of FFLs. Among other things, the OIG reported that ATF inspected the operations of 4.5% of the 104,000 FFLs in FY2002. Since then, according to ATF, 10,106 firearms compliance inspections were conducted in FY2007, covering about 9.3% of the nearly 109,000 FFLs in that fiscal year, and 11,169 firearms compliance inspections were conducted in FY2008, covering nearly 10% of the 111,600 FFLs in that fiscal year. Project Gunrunner42 On the Southwest border with Mexico, firearms violence has reportedly spiked sharply in recent years as drug trafficking organizations (DTOs) have competed for control of key smuggling corridors into the United States. Beginning in December 2006, Mexican President Felipe Calderón responded by deploying elements of the Mexican Army and federal police to trouble spots around Mexico, including on the northern frontier. The DTO's, however, are reportedly buying semiautomatic versions of AK-47 and AR-15-style assault rifles, other military style firearms, and .50 caliber sniper rifles in the United States. With those rifles and other small arms, the DTOs are reportedly achieving parity in terms of firepower in shootouts with the Mexican Army and law enforcement. In March 2008, President Calderón called upon the United States to increase its efforts to suppress the flow of U.S. firearms into Mexico. ATF reports that there are 6,647 FFLs in the United States operating in the Southwest border region of Texas, New Mexico, Arizona, and California. Moreover, ATF reports that DTOs are increasingly using surrogates (straw purchasers) in the United States to buy 10 to 20 military-style firearms at a time from FFLs. These firearms are reportedly routinely smuggled into Mexico in smaller shipments of four or five firearms as part of a process known as the "ant run." During FY2006 and FY2007, ATF dedicated approximately 100 SAs and 25 IOIs to a Southwest border initiative known as "Project Gunrunner" to disrupt the illegal flow of guns from the United States to Mexico. In FY2007, ATF agents investigated 187 firearms trafficking cases and recommended 465 defendants for prosecution. By the end of FY2008, ATF had deployed 146 SAs and 68 IOIs to the Southwest border to bolster that initiative at an estimated cost of $32.2 million. The ATF FY2009 budget request included $948,000 to fund 12 industry operations investigator positions to bolster efforts already underway as part of Project Gunrunner. This was the only program increase/budget enhancement in the ATF FY2009 budget request. As described above, House reported language accompanying the FY2009 CJS appropriations bill indicated that the House bill ( H.R. 7322 ; H.Rept. 110-919 ) included $5 million for Project Gunrunner. Corresponding report language accompanying a Senate bill ( S. 3182 ; S.Rept. 110-397 ) was silent as to whether such an increase would be provided under that bill. The Senate, however, had included $15 million for Project Gunrunner in the FY2008 supplemental appropriations bill ( H.R. 2642 ), but that funding was not included in the enacted appropriation ( P.L. 110-252 ). As described above, the Omnibus Appropriations Act, 2008 ( P.L. 111-8 ) included $1.054 billion for ATF, including an increase of not less than $5 million for Project Gunrunner. In addition, to ramp up Gunrunner, the American Recovery and Reinvestment Act (ARRA; P.L. 111-5 ) included $10 for ATF and $30 million to assist state and local law enforcement with counter-narcotics efforts in FY2008 funding. The ATF FY2010 budget request includes $1.121 billion for ATF, including a proposed increase of $18 million and 92 permanent positions (including 34 SAs) to support Project Gunrunner. The House-reported FY2010 Commerce, Justice, Science, and Related Agencies appropriations bill ( H.R. 2847 ; H.Rept. 111-149 ) would have provided ATF with $1.106 billion, including the requested increase of $18 million for Gunrunner. According to the House Committee, such an increase would bring total funding for Southwest border firearms trafficking efforts to $59.9 million. The Senate-reported version of H.R. 2847 ( S.Rept. 111-34 ) would have provided ATF with the same total amount as requested by the Administration, as well as the $18 million increase for Gunrunner. Senate report language noted that under its recommendation total funding for Southwest border gun trafficking would be over $61 million. In the Consolidated Appropriations Act, 2010 ( P.L. 111-117 ), Congress provided ATF with the same amount as requested by the Administration, including a program increase of $18 million for Project Gunrunner. ATF also maintains a foreign attache in Mexico City to administer an Electronic Trace Submission System (ETSS), also known as the eTrace program, for Mexican law enforcement authorities. From FY2005 through FY2007, ATF traced just over 11,700 firearms recovered by Mexican authorities, and approximately 90% of those firearms were traced back to the United States. Caution should be exercised when drawing conclusions from ATF firearm trace data. Although it is valid to say that 90% of traced firearms originated in the United States, it would be incorrect to conclude that 90% of all guns used in crime in Mexico originated in the United States. Although crime gun trace data are useful measurements of crime gun trends, in most cases the issues of consistent, random, and unbiased data collection have not been adequately addressed through comprehensive tracing and other controls. Hence, it is often not possible to test for statistical significance. Nevertheless, even though a statistically valid percent estimate of U.S.-sourced firearms used in crime in Mexico cannot be made based on trace data, criminal investigations have documented that there is great demand for certain firearms that are available in normal (non-military) commercial channels in the United States and that those firearms have been illegally trafficked to Mexico in large numbers. Moreover, successful firearm traces are instrumental in developing investigative leads in homicide and gun trafficking cases. According to ATF, some of those cases uncover corrupt FFLs who were involved in larger criminal conspiracies to smuggle firearms into Mexico. In January 2008, ATF announced that e-Trace technology would be deployed to an additional nine U.S. consulates in Mexico (Mérida, Juarez, Monterrey, Nogales, Hermosillo, Guadalajara, Tijuana, Matamoros, and Nueva Laredo). The number of traces performed by ATF for Mexican authorities during FY2008 increased markedly. During FY2008, ATF traced 7,743 firearms recovered by Mexican authorities, as compared with the 11,700 firearms traced over a three-year period, FY2005-FY2007. Of those firearms, 63.5% were determined to have been manufactured in the United States and 29.5% were determined to have been manufactured abroad, but imported into the United States. Consequently, 93% of firearms traced by ATF during FY2008 for Mexican authorities were either made in, or imported to, the United States. In the 110 th Congress, the House Committee on Foreign Affairs ordered reported the Mérida Initiative to Combat Illicit Narcotics and Reduce Organized Crime Authorization Act of 2008 ( H.R. 6028 ; H.Rept. 110-673 ) on May 14, 2008. This bill would have authorized to be appropriated over three years, for FY2008 through FY2010, a total of $73.5 million to increase the number of ATF positions dedicated to Project Gunrunner ($45 million) and assign ATF agents to Mexico ($28.5 million). The House passed this bill on June 10, 2008, by a roll call vote of 311 to 106 (Roll no. 393). Similar authorizations are included in the Southwest Border Violence Reduction Act of 2008 ( S. 2867 , H.R. 5863 , and H.R. 5869 ). In the 111 th Congress, similar bills have been introduced ( S. 205 , H.R. 495 , H.R. 1448 , and H.R. 1867 ). Arson and Explosives Budget Program ATF's arson and explosives budget program covers activities related to administering and enforcing federal laws governing the manufacture, importation, and distribution of explosives, as well as investigating arson cases with a federal nexus. Among law enforcement agencies, the ATF is recognized for its investigative expertise in responding to both arson and explosive incidents. The Attorney General (AG), for example, made the ATF responsible for maintaining a consolidated database of all arson and explosive incidents that occur in the United States. Reportedly, as part of the department's law enforcement information-sharing program, this and other databases are to be linked and made Web-accessible, and first responders anywhere in the United States are to have access to critical information about arson and explosive cases nationwide. Congress made ATF responsible for more closely regulating the explosives industry in the United States under the Safe Explosives Act. The act made ATF responsible for fully investigating all explosive thefts and losses, as well as providing background checks for licensees and permittees to prevent prohibited persons from acquiring explosives. This act also requires ATF to inspect explosive licensees and permittees every three years to ensure that all explosive materials are properly stored and accounted for. ATF reports that there are about 12,000 licensees and permittees nationwide, so that to comply with the act, about 4,000 inspections would need to be conducted by ATF annually. According to ATF, 3,291 explosives compliance inspections were conducted in FY2007, or about 28% of licensees/permittees. For FY2010, the arson and explosives allocation is $295.8 million, or 26% of the $1.121 billion appropriation. As discussed above, for FY2008 and FY2010, Congress appropriated a total of nearly $30 million for the construction of a ATF-administered National Center for Explosives Training and Research. Alcohol and Tobacco Budget Program The ATF alcohol and tobacco budget program covers expenses related to agency efforts to counter a rising trend in the illegal diversion of tobacco products, as well as the illegal movement of distilled alcohol products. According to the General Accounting Office (now the Government Accountability Office), the illegal diversion and smuggling of cigarettes in the United States results in an unknown but significant loss in tax revenues. In addition, ATF criminal intelligence indicates that cigarette bootlegging is a lucrative criminal venture that terrorist groups have used and would possibly use in the future to finance their activities. Neither the FY2009 or FY2010 budget requests included any new resources for this program. For FY2010, the alcohol and tobacco program allocation is $22.3 million, or 2% of the $1.121 billion appropriation.

The Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) is the lead federal law enforcement agency charged with administering and enforcing federal laws related to the manufacture, importation, and distribution of firearms and explosives. Congress transferred ATF's enforcement and regulatory functions for firearms and explosives from the Department of the Treasury to the Department of Justice as part of the Homeland Security Act (P.L. 107-296). ATF is also responsible for investigating arson cases with a federal nexus, as well as criminal violations of federal laws governing the manufacture, importation, and distribution of alcohol and tobacco. For the past two fiscal years, FY2009 and FY2010, Congress has provided ATF with program increases to address illegal gun trafficking from the United States to Mexico under an initiative known as "Project Gunrunner." For FY2008, Congress also provided ATF with a program increase for domestic gun trafficking, but the focus of this program increase was also largely on the Southwest border. As a result, for those three fiscal years, Congress has provided over $49 million in program increases to address gun trafficking. Congress has also provided nearly $30 million for the construction of a National Center for Explosives Training and Research (NCETR). In the Consolidated Appropriations Act, 2010 (P.L. 111-117), Congress matched the Administration's request and appropriated $1.121 billion for ATF, or 3.9% more than the agency's FY2009 appropriations ($1.078 billion). Conference report language (H.Rept. 111-366) indicated that the act included an increase of $18 million for Project Gunrunner, the same amount requested by the Administration; $10 million to increase the Violent Crime Impact Team program; $6 million for construction (phase two) of NCETR; and $1.5 million to complete ATF headquarters construction projects. In the Omnibus Appropriations Act, 2009 (P.L. 111-8), Congress appropriated $1.054 billion for ATF. This amount included at least a $5 million increase for Project Gunrunner. Congress also appropriated ATF an additional $14 million in the Supplemental Appropriations Act, 2009 (P.L. 111-32). This amount included a $4 million increase to upgrade and share ballistic imaging technology with the government of Mexico, and an additional $6 million increase for Project Gunrunner. In addition, Congress appropriated an additional $10 million for Project Gunrunner in the American Recovery and Reinvestment Act of 2009 (P.L. 111-5). Hence, Congress provided $25 million in FY2009 budget enhancements to address Southwest border gun trafficking. For FY2009, in sum total, Congress appropriated ATF $1.078 billion, or 6.6% more than the FY2008 appropriation ($1.012 billion). In the Consolidated Appropriations Act, 2008 (P.L. 110-161), Congress appropriated $1.008 billion for ATF. This act included an increase of $6.3 million to address domestic gun trafficking and $23.5 million for the construction of NCETR. In the Supplemental Appropriations Act, 2008 (P.L. 110-252), Congress appropriated an additional $4 million for ATF to provide explosives and cigarette trafficking training and support to Iraqi authorities. The total FY2008 ATF appropriation was $1.012 billion, or 2.4% more than the FY2007 appropriations ($988.1 million). In the 110th Congress, the House passed a bill (H.R. 6028) that would have authorized increasing ATF appropriations over three years, for FY2008 through FY2010, by nearly $74 million to address Southwest border gun trafficking. Similar bills have been introduced in the 111th Congress (S. 205, H.R. 495, H.R. 1448, and H.R. 1867). This report will not be updated.

Introduction Congress has imposed ownership and operational limitations on the utility industry since early in the 20 th century. Different statutes have targeted different industry practices, all with the general goal of ensuring dependable utility services for the public at reasonable rates. The most recent legislative effort to further these goals is the Energy Policy Act of 2005. One of the most significant provisions in the Energy Policy Act of 2005 is the repeal of the Public Utility Holding Company Act of 1935 (PUHCA 1935). PUHCA 1935 imposed a number of substantive restrictions and procedural requirements upon companies that owned greater than 10% of the voting securities or otherwise exercised a controlling interest over electric and/or gas public utilities. The statute was administered by the U.S. Securities and Exchange Commission (SEC). PUHCA 1935 had long been a subject of controversy. Supporters of PUHCA 1935 had claimed that the strict limitations on public utility holding companies protected the financial health of utility providers and therefore the dependability of service and the consistency of rates. Supporters also argued that the limitations provided a barrier against market domination and manipulation by large corporations. Proponents of repeal argued that ownership restrictions and SEC filing requirements were unduly burdensome and effectively barred investment in the utility industry for many new investors who could bring new ideas and vitality to the industry. PUHCA 1935's reach had been receding for many years prior to its repeal. In 1978, the Public Utility Regulatory Policies Act (PURPA) created exemptions from PUHCA 1935 requirements for owners of certain types of cogeneration and renewable energy power plants, referred to as "Qualifying Facilities." The Energy Policy Act of 1992 created another class of PUHCA exemptions for owners of generation facilities serving the wholesale electricity market, commonly referred to as "Exempt Wholesale Generators." The Energy Policy Act of 2005 repealed PUHCA 1935, thus revoking the SEC's authority to oversee mergers and other transactions of public utility holding companies. In the same legislation, Congress adopted new language concerning regulation of holding companies, often referred to as the Public Utility Holding Company Act of 2005 (PUHCA 2005). PUHCA 2005 expands the authority of the Federal Energy Regulatory Commission (FERC) to oversee transactions and other financial activities of public utility holding companies through grants of access to those companies' books and records. The statute grants similar access rights to state regulatory authorities. However, unlike its predecessor, PUHCA 2005 does not impose any of the substantive restrictions that effectively barred many entities from ownership of public utilities. Although the repeal of PUHCA 1935 allows previously ineligible investors to own public utilities without satisfying SEC requirements, transactions involving utilities and public utility holding companies still must satisfy the regulatory requirements of other agencies. The U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC) are both charged with enforcing the applicable antitrust statutes, § 7 of the Clayton Act and the pre-merger provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976. In addition, laws and regulations enforced by the SEC governing the issuance of securities and disclosure requirements remain in effect for these entities. SEC Oversight of Public Utilities Under PUHCA 1935 In order to understand the significance of the repeal of PUHCA 1935 and the laws and regulations enacted in its place, it is necessary to understand the scope and function of PUHCA 1935. PUHCA 1935 regulated "holding companies" that had subsidiaries that were electric utility companies or that engaged in the retail distribution of natural gas or manufactured gas. The statute defined a "holding company" as (a) a company that controls 10% or more of the outstanding voting securities of a public utility company (or of another holding company); or (b) a person whom the SEC determines exercises a controlling influence over the management of policies of any public utility or holding company so as to make it necessary or appropriate in the public interest to subject that person to the requirements of the statute. Under the statute, public utility holding companies faced substantial restrictions on their operations. All electric public utilities were required to be part of a single integrated public utility system "consisting of one of more units of generating plants and/or transmission lines and/or distributing facilities, whose utility assets, whether owned by one or more electric utility companies, are physically interconnected or capable of physical interconnection and which under normal physical conditions may be economically operated as a single interconnected and coordinated system confined in its operations to a single area or region ... not so large as to impair ... the advantages of localized management, efficient operation, and the effectiveness of the regulation." Substantially similar rules applied to gas utility companies. PUHCA 1935 also placed restrictions on many transactions related to public utility corporate structure. Mergers and acquisitions were required to maintain the simplicity of the holding company system and be in the public interest. Public utility holding companies were not permitted to hold non-utility businesses unless such businesses were "reasonably incidental, or economically necessary or appropriate" to the operations of the public utility system. The SEC was tasked with regulating securities issuances of companies in a holding company system, in order to guard against significant debt-equity imbalance. The statute also limited interaffiliate transactions, prohibiting some transactions completely while requiring advance reviews of other transactions and requiring all interaffiliate transactions to be "at cost." PUHCA 1935's restrictions on utility holding companies were enacted in response to the creation of a small number of "power trusts" in the early part of the 20 th century that controlled the utility industry through holding companies. These companies made huge profits through predatory use of their market power. The holding companies also mixed their utility holdings with their non-utility businesses, leveraging their "safe" utility businesses to finance and guarantee riskier business ventures. Some attributed the stock market crash of 1929 in part to the practices of these holding companies, as many who had invested in utility stocks lost their savings due to the non-utility activities of holding companies. PUHCA 1935 was enacted to guard against exercise of undue market power and the cross-subsidization of utility and non-utility investments. The importance and effectiveness of the restrictions of PUHCA 1935 had been a subject of disagreement for some time. Prior to the recent repeal of the statute, Congress had twice acted to create exceptions to the PUHCA 1935 requirements. In 1978, Congress enacted the Public Utility Regulatory Policies Act. Portions of this Act created an exemption from the PUHCA 1935 requirements for owners of certain qualifying cogeneration and renewable power plants, commonly referred to as "Qualifying Facilities." The Energy Policy Act of 1992 created another exemption from the PUHCA 1935 requirements for independent electricity generators serving the wholesale electricity market, commonly referred to as "Exempt Wholesale Generators." The Repeal of PUHCA 1935 and Enactment of PUHCA 2005 In recent years, the creation of exemptions gave way to calls for the complete repeal of PUHCA 1935. Supporters of repeal argued that repeal of PUHCA would spur investment in the transmission infrastructure and facilitate competition in the industry and that enhanced federal and state laws and regulations since the enactment of PUHCA provide for adequate customer protection. Even the SEC, the agency charged with administering the statute, called for its repeal on more than one occasion. Those who opposed the repeal argued, among other things, that PUHCA 1935 protected customers by preventing utility companies from cross-subsidizing and incurring excessive capital costs, reducing the potential for exercise of undue market power, and ensuring the reliability of utility services and the reasonableness of rates. Congress repealed the entirety of PUHCA 1935 in the Energy Policy Act of 2005. The repeal became effective on February 8, 2006. As of that date, all of the SEC-enforced requirements and restrictions placed on public utility holding companies under PUHCA 1935 were removed. Holding companies are no longer required to meet the SEC's disclosure and registration requirements simply by virtue of their status as holding companies, although the SEC's other procedural requirements for the issuance of securities and regular reporting by public companies remain in effect. The utility industry is now open to a broader group of investors who may have been previously deterred by the restrictions of PUHCA 1935, and conversely, public utility holding companies are now free to pursue a broader range of opportunities, including merger with and acquisition of other utilities outside their geographic area and investment in non-utility assets. However, the repeal of PUHCA 1935 also creates the potential for the return of some of the problems in the utility industry that the enactment of the statute was intended to curtail; namely, undue exercise of market power and cross-subsidization of utility and non-utility businesses. Congress sought to provide a safeguard against many of the concerns regarding reliability of service and the reasonableness of rates by enacting new oversight legislation, often referred to as PUHCA 2005. PUHCA 2005 expanded the authority of FERC and state regulatory commissions to oversee holding company and utility financial activities and transactions. FERC had authority over many holding company activities prior to the enactment of PUHCA 2005, but the statute represents an extension of this authority that is intended to compensate in part for the removal of SEC oversight of holding companies. To facilitate FERC enforcement of rate regulation, limitations on cross-subsidization and other substantive standards, PUHCA 2005 created new reporting and review requirements for holding companies, their subsidiaries and their affiliates. First, a holding company and its subsidiaries must maintain and make available to FERC "such books, accounts, memoranda, and other records as the Commission determines are relevant to costs incurred by a public utility or natural gas company that is an associate company of such holding company and necessary and appropriate for the protection of utility customers with respect to jurisdictional rates." Further, subsidiaries and affiliates of holding companies must maintain and make available to FERC "such books, accounts, memoranda, and other records with respect to any transaction with another affiliate, as the Commission determines are relevant to costs incurred by a public utility or natural gas company that is an associate company of such holding company and necessary or appropriate for the protection of utility customers with respect to jurisdictional rates." This oversight authority is intended to allow FERC to discourage improper dealings between and among a holding company and its subsidiaries or other affiliates, including improperly priced transactions and cross-subsidization. The Act required FERC to issue regulations to effectuate the scheme envisioned in the legislation by December 8, 2005. FERC adopted the required regulations in Order No. 667, which was published on December 8, 2005, and went into effect on February 8, 2006. These regulations detailed the new filing requirements for holding companies and traditional service companies as well as the requirements for maintaining books and records and making these books and records available to FERC for review. FERC also determined that Section 1275(c) of the Energy Policy Act, which provides that the Energy Policy Act does not affect the authority of the Commission or state agencies under other applicable laws, was a "savings clause" which did not give the Commission the authority to issue regulations on previously regulated activities. As a result, FERC declined to issue further regulations on holding company system cross-subsidization, encumbrances of utility assets, diversification into non-utility businesses, or the extension of cash management rules. FERC noted that current Commission regulations adopted pursuant to the authority of the FPA and the NGA already provide for agency oversight of such activities and that states' regulations also provide oversight for these activities. Therefore, the Commission ruled that it would "monitor industry activities and we will adopt new regulations on cross-subsidization or encumbrances of utility assets, pursuant to our FPA and NGA authorities, only at such time as our current regulations appear to be insufficient." PUHCA 2005 also grants authority to state utility commissions to access books and records of holding companies and their affiliates. According to the statute, upon written request of a state commission having jurisdiction over a public utility in a holding company system, the holding company and any associated companies or affiliates thereof must produce for inspection any books, accounts, memoranda or other records that (a) have been identified in reasonable detail in a proceeding before the state commission; (b) the state commission determines are relevant to costs incurred by such public-utility company; and (c) are necessary for the effective discharge of the responsibilities of the state commission with respect to such proceedings. The new access and review authority granted to FERC and state commissions in PUHCA 2005 are intended to help fill potential oversight gaps created by the repeal of PUHCA 1935. Specifically, the record access and review provisions may help to mitigate the potential for the exercise of undue market power by any public utility holding company system, as well as to protect against cross-subsidization between utility and non-utility subsidiaries. These provisions are ultimately intended to help ensure reasonable rates and reliable service. However, it is important to note that, as FERC stated, PUHCA 2005 "is primarily a 'books and records' statute, and does not give the Commission any new substantive authorities." PUHCA 2005 and Order No. 667 also continue to exempt Qualifying Facilities and Exempt Wholesale Generators, as well as foreign utility companies, from the requirements otherwise applicable to holding companies and their affiliates and subsidiaries under the statute and regulations. Certain additional persons and classes of transactions are also exempted. These important exemptions include passive investors (mutual funds and other collective investment vehicles); broker/dealers, underwriters and fiduciaries who buy and sell securities in the ordinary course of business; utilities that have no captive customers; transactions in which the holding company affirmatively certifies that it will not charge, bill, or allocate to the public utility or natural gas company in its holding company system any costs or expenses and will not engage in financing transactions with the public utility or natural gas company; transactions between or among affiliates that are independent of and do not include a public utility or natural gas company; electric power cooperatives; and local gas distribution companies. FERC also has discretionary authority to grant exemptions from the applicable requirements for any person or transaction. FERC exempted these Qualifying Facilities, Wholesale Generators, and foreign utility companies because its main regulatory interest is to monitor the costs incurred by traditional utilities providing monopoly service in order to ensure reasonable rates. The exemptions and waivers are intended to remove from PUHCA 2005 regulation those entities that would be unlikely to affect jurisdictional rates. The Continuing Regulatory Authority of FERC, FTC, and DOJ As FERC has stated, the change in PUHCA law granting it new authority to review books and records did not affect the Commission's ... primary means of protecting customers served by jurisdictional companies that are members of holding company systems: the [Federal Power Act (FPA)] and the [Natural Gas Act (NGA)]. In particular, the Commission's rate authorities and information access authorities under the FPA and the NGA enable the Commission to detect and disallow from jurisdictional rates any imprudently-incurred, unjust or unreasonable, or unduly discriminatory or preferential costs resulting from affiliate transactions between companies in the same holding system. This includes both power transactions and non-power goods or services transactions between Commission-regulated companies that have captive companies and their "unregulated" affiliates. ... further ... in the context of individual rate cases involving public utilities that seek to flow through in jurisdictional rates the costs of affiliate purchases of non-power goods and services, the Commission has the ability to protect customers by reviewing the prudence and justness and reasonableness of such costs. The Commission has also adopted rules and policies regarding cash management practices or arrangements that involve Commission-jurisdictional companies. Under the FPA and NGA, FERC is charged with regulating the interstate transmission of natural gas and electricity. The FPA also grants FERC authority over electric utility mergers. Section 203 of the FPA requires FERC to approve any merger attempted by the public utilities within the agency's jurisdiction before the transaction can occur. Section 203 was modified somewhat by the Energy Policy Act of 2005, but most of FERC's authority was preexisting. Under the revised Section 203, a public utility must obtain prior FERC approval in order to (a) sell, lease or dispose of its facilities or any portion of its facilities valued in excess of $10,000,000 without prior FERC approval, (b) merge or consolidate their facilities with any other entity; (c) purchase, acquire or take any security of any other public utility with value in excess of $10,000,000; or (d) purchase, lease or otherwise acquire a generation facility valued in excess of $10,000,000 that is used for interstate wholesale sales and is subject to FERC ratemaking authority. The revised Section 203 also requires holding companies to obtain FERC approval prior to any merger or acquisition with any transmission company, electric utility, or holding company valued at over $10,000,000. PUHCA 2005 also extends FERC's authority under Sections 306 and 317 of the FPA to holding company systems. These sections allow FERC to conduct investigations and hearings, compel the production of witnesses and documents, enjoin and restrain violations, and impose penalties. Previously these sections granted such authority only with respect to public utilities. The new FERC oversight authority granted in PUHCA 2005 is best seen as creating a new tool for FERC to enforce its preexisting authority under the FPA and, to a lesser extent, the NGA. FERC's previously existing authority under the FPA and NGA gave it jurisdiction over rates and in many cases FERC permission was required for certain transactions. PUHCA 2005 should not be thought of as a simple transfer of authority from the SEC to FERC. FERC is not tasked with enforcing strict corporate ownership and management rules as the SEC was required to do under PUHCA 1935. PUHCA 2005 confirms FERC's preexisting authority to regulate transactions under the FPA and the NGA, and grants the Commission a few new tools to do so. As the previous paragraphs describe, although the repeal of PUHCA 1935 removes extensive restrictions on transactions involving public utilities and their holding companies previously enforced by the SEC, it does not affect the regulation of these entities by FERC. Transactions are also subject to the general regulation of other federal agencies. Although the SEC is no longer tasked with enforcing the restrictions of PUHCA 1935, holding companies and their investors still must comply with the SEC's general reporting requirements and securities regulations. Also, two antitrust laws, the Clayton Act and the Hart-Scott-Rodino Antitrust Improvements Act, are relevant in the context of prospective mergers and acquisitions that are now permissible in the absence of PUHCA 1935. The United States Justice Department (DOJ) and the Federal Trade Commission (FTC) are charged with enforcing these laws. The Clayton Act and the Hart-Scott-Rodino Act apply to any utility mergers or acquisitions. Accordingly, in addition to the FERC review of these transactions as set forth in the revised Section 203 of the FPA, mergers in the energy industry are also reviewed from the perspective of their compliance with the requirements of antitrust and market-based concerns by DOJ and FTC. Section 7 of the Clayton Act prohibits mergers or acquisitions which "tend to create a monopoly." The pre-merger notification provisions of the Hart-Scott-Rodino Act require that certain mergers and acquisitions (those meeting applicable size and other criteria) be notified to both the Attorney General and the Chairman of the Federal Trade Commission prior to consummation of the transaction. The statute prohibits the consummation of any covered transaction prior to the expiration of a statutorily specified "waiting period" unless the reviewing agency grants an "early termination." As the above text demonstrates, several regulatory agencies have overlapping jurisdiction over electric utility mergers and acquisitions. DOJ, FTC and FERC are each tasked to some extent with jurisdiction over electric utility merger transactions, and each utilizes the DOJ/FTC Horizontal Merger Guidelines. Theoretically at least, all are proceeding from the same assumptions and will reach the same conclusion with respect to particular transactions. However, the differing statutory and regulatory prisms through which these Guidelines are necessarily filtered may produce different results. Approval of a transaction by one federal agency does not constitute federal government approval, and the transaction is still subject to scrutiny under the antitrust laws. What Lies Ahead for the Utility Industry The repeal of PUHCA 1935 does not remove all obstacles to previously barred electric and gas utility transactions. State regulatory agencies still have the authority to regulate electric and gas utilities. By granting state commissions increased access to utility and holding company books and records in PUHCA 2005, legislators may have been contemplating increased participation of the state commissions in review and regulation of public utility holdings companies. Since the repeal of PUHCA 1935, no state has enacted any new laws or regulations concerning review of public utility mergers or other transactions. Some states may rely on preexisting statutory or regulatory language authorizing review of transactions to ensure that they are in the public interest. Other states may enact new legislation or take regulatory action to increase review or possibly even restrict certain transactions involving public utilities. State commissions as well as FERC may increase regulation of cross-subsidization between utility and non-utility businesses in the same holding company system, the use of utility balance sheets to finance non-utility businesses, and the financial health of potential holding company owners. These measures may help to protect consumers who rely on utility service from the financial vulnerabilities of non-utility entities. These protections are especially important in the case of utilities that provide monopoly service for customers. Increased merger and acquisition activity is also possible. A review of analyst predictions by the American Public Power Association reveals a wide spectrum of predictions, some analysts expecting a large-scale centralization of the industry (including one prediction of a 50% reduction in the total number of major electric utilities), while others expect to see only a small change in the industry structure. Among the "non-traditional" investors who could become players in the utility sector are large private equity funds, diversified U.S. energy companies, diversified foreign investors and certain foreign banks and pension funds. This new investment could allow entities with varied backgrounds to enter into the utility sector.

The Public Utility Holding Company Act of 1935 (PUHCA 1935) was repealed in the Energy Policy Act of 2005. Prior to repeal, PUHCA 1935 required "holding companies" (i.e., companies with subsidiaries engaged in the electric utility business or the retail distribution of natural or manufactured gas) to register with the U.S. Securities and Exchange Commission (SEC), satisfy certain disclosure requirements, and comply with strict operational limitations. These operational limitations imposed significant geographic and corporate holdings restrictions upon holding companies and effectively limited ownership of public utilities to a small subset of companies focused specifically on the industry. Pursuant to the repeal, the SEC no longer has oversight authority for electric and gas holding companies, and many of the procedural and substantive requirements placed upon public utility holding companies by PUHCA 1935 have been repealed. The burden of oversight of the financial transactions of public utility companies, including mergers and acquisitions, now falls more heavily on the Federal Energy Regulatory Commission (FERC). FERC's oversight authority over public utilities, previously established in the Federal Power Act (FPA) and the Natural Gas Act (NGA), was enhanced by the Energy Policy Act of 2005, which included the Public Utility Holding Company Act of 2005. This new legislation requires holding companies and their affiliates to provide the Commission (as well as state regulators) access to their books and records and also grants the Commission additional authority for oversight of holding company transactions. In addition, the SEC, the U.S. Department of Justice (DOJ), and the Federal Trade Commission (FTC) will continue to enforce generally applicable laws as they apply to public utility holding company transactions. These laws, which were unaffected by the Energy Policy Act of 2005, prevent transactions that would substantially impede competition and can require pre-merger notification. This report will describe the current state of federal oversight of public utility holding companies and transactions involving public utilities. It will be updated as necessary.

Introduction U.S. insurers and Congress face new policy issues and questions related to the opportunities and risks presented by the growth in the international insurance market and trade in insurance products. Insurance is often seen as a localized product and U.S. insurance regulation has addressed this through a state-centric regulatory system. The McCarran-Ferguson Act, passed by Congress in 1945, gives primacy to the individual states, and every state has its own insurance regulator and state laws governing insurance. While the risks of loss and the regulation may be local, the business of insurance, as with many financial services, has an increasingly substantial international component as companies look to grow and diversify. The international aspects of insurance have spurred the creation of a variety of entities and measures, both domestic and foreign, to facilitate the trade and regulation of insurance services. Financial services have been addressed in a number of U.S. trade agreements going back to the North American Free Trade Agreement (NAFTA) in 1994. The International Association of Insurance Supervisors (IAIS) was created more than 20 years ago, largely under the impetus of the U.S. National Association of Insurance Commissioners (NAIC), to promote cooperation and exchange of information among insurance supervisors, including development of regulatory standards. The 2007-2009 financial crisis sparked further international developments, with heads of state of the G-20 nations creating the Financial Stability Board (FSB). The postcrisis 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) altered the U.S. insurance regulatory system, particularly as it relates to international issues. With the states continuing as the primary insurance regulators, following Dodd-Frank, the Federal Reserve exercised holding company oversight over insurers who owned a bank subsidiary or who were designated for enhanced supervision (popularly known as systemically important financial institutions or SIFIs) by the new Financial Stability Oversight Council (FSOC), which includes a presidentially appointed, independent voting member with insurance expertise. The Federal Reserve, already a major actor in efforts at the FSB and the Basel Committee on Banking Supervision, thus became a significant insurance supervisor and joined the IAIS shortly thereafter. Dodd-Frank also created a new Federal Insurance Office (FIO). The FIO is not a federal insurance regulator, but is tasked with representing the United States in international fora and, along with the United States Trade Representative (USTR), can negotiate international covered agreements relating to insurance prudential measures. The FIO also became a member of the IAIS and participated significantly in IAIS efforts to create insurance capital standards. The new federal involvement in insurance issues, both domestic and international, has created frictions both among the federal entities and between the states and the federal entities, and has been a subject of both congressional hearings and proposed legislation. This report discusses trade in insurance services and summarizes the various international entities and agreements affecting the regulation of and trade in insurance. It then addresses particular issues and controversies in greater depth, including the U.S.-EU covered agreement and issues relating to international insurance standards, and concludes with a section addressing legislation in the 115 th Congress. International Insurance Trade In 2017, total U.S. services accounted for $798 billion of U.S. exports and $542 billion of U.S. imports, creating a surplus of $255 billion. In financial services generally, the United States runs a substantial trade surplus, exporting $110 billion and importing $29 billion. In contrast, the United States imported nearly $51 billion in insurance services and exported $18 billion in 2017, mostly due to firms' reliance on foreign reinsurance. This deficit has dropped from its peak in 2009, but U.S. insurance services trade has been consistently in deficit for many years (see Figure 1 ). Global performance by insurance brokers and agencies is concentrated, with Europe, North America, and North Asia accounting for 88.6% of total written premiums. Overall, the North American and European domestic insurance markets are highly competitive and there are fewer suppliers and less competition in the Asia-Pacific region. A third of U.S. insurance services exports are with Asia Pacific, with Japan accounting for 14% of total U.S. insurance exports in 2017 (see Figure 2 ). Bermuda and the United Kingdom each account for another 15% of U.S. international insurance exports. Industry analysts note that although the current level of trade is relatively low for industry segments such as property, casualty, and direct insurance, it is rising as companies seek new markets for growth and risk diversification. The property casualty market declined from 2013 to 2018, in part due to intensifying natural disasters; however, moving forward, that market is expected to grow due to demand in emerging markets. Insurance in U.S. Free Trade Agreements Services, including financial and insurance services, are traded internationally in accordance with trade agreements negotiated by the USTR on behalf of the United States, similar to trade in goods. As a member of the World Trade Organization (WTO), the United States helped lead the conclusion of negotiations on the General Agreement on Trade in Services (GATS) in 1994, thus creating the first and only multilateral framework of principles and rules for government policies and regulations affecting trade in services among the 164 WTO countries. The GATS provides the foundational floor on which rules in other agreements on services, including U.S. free trade agreements (FTAs), are based. Core GATS principles include most-favored nation (MFN), transparency, and national treatment. As part of the GATS negotiations, WTO members also agreed to binding market access commitments on a positive list basis in which each member specified the sectors covered by its commitments. For insurance services, the U nited States submitted its s chedule of market access and national treatment commitments, as well as exceptions, under GATS to allow foreign companies to compete in the United States in accordance with the U.S. s tate-based system. The GATS Financial S ervices Annex applies to " all insurance and insurance-related services, and all banking and other financial services (excluding insurance) ." The Annex defines insurance services as follows : (i.) Direct insurance (including co-insurance): (A.) life (B.) non-life (ii.) Reinsurance and retrocession; (iii.) Insurance intermediation, such as brokerage and agency; (iv.) Services auxiliary to insurance, such as consultancy, actuarial, risk assessment and claim settlement services. The a nnex excludes "services supplied in the exe rcise of governmental auth ority," such as central banks, Social S ecurity, or public pension plans. In the U.S. Schedule of Specific Commitments, the United States lists market access and national treatment limitations that constrain foreign companies' access in line with state laws . These include clarifying which states have no mechanism for licensing initial entry of non-U.S. insurance companies except under certain circumstances and which states require U.S. citizenship for board s of directors. Furthermore, the GATS and U.S. FTAs explicitly protect prudential financial regulation . The prudential exception within the GATS allows members to take " measures for prudential reasons, including for the protection of investors, depositors, policy holders or persons to whom a fiduciary duty is owed by a financial service supplier, or to ensure the integrity and stability of the financial system , " even if those measure s do not comply with the a greement. Most U.S. FTAs contain a chapter on financial services that builds on the commitments under GATS ("WTO-plus"). Like GATS, these chapters exclude government-provided public services. In addition to market access, national treatment, and MFN obligations, FTAs include WTO-plus obligations, such as increased transparency by providing interested persons from one party the opportunity to comment on proposed regulations of another party; allowing foreign providers to supply new financial services if domestic companies are permitted to do so; and providing access to public payment and clearing systems. Each FTA chapter defines the specific financial and insurance services covered and incorporates relevant provisions in other FTA chapters, such as Investment and Cross-Border Services. The Proposed U.S.-Mexico-Canada Agreement On November 30, 2018, President Trump and the leaders of Canada and Mexico signed the United States-Mexico-Canada Trade Agreement (USMCA) to update and revise the North American Free Trade Agreement (NAFTA). Still subject to congressional approval, the USMCA contains several differences from NAFTA and is seen as representing the Trump Administration's approach to trade agreements, with some similarities and differences from the proposed Trans-Pacific Partnership (TPP), which was negotiated under the Obama Administration and from which the United States withdrew in 2017. Given that the TPP included both Mexico and Canada, many observers saw it as a template for the NAFTA renegotiations on certain issues. Like the TPP, the financial services chapter in the USMCA reflects the growing trade in insurance and is an example of extensive and enforceable "WTO-plus" commitments. Compared to NAFTA, the USMCA attempts to clarify the coverage of insurance services under the agreement and contains a specific new provision on expedited availability of insurance services and transparency requirements designed to ensure the use of good regulatory practices to better enable U.S. firms to do business in those markets. In contrast to NAFTA, the USMCA would apply both national treatment and market access obligations to cross-border supply of insurance services. Compared to TPP, the USMCA provisions on cross-border data flows are stronger and contain the first U.S. FTA ban on data or computing localization requirements for financial services. Although Canada has one year to comply with the ban, it would need to remove existing localization requirements that have been a trade barrier for U.S. firms seeking to do business in Canada. Furthermore, many provisions in the USMCA Digital Trade chapter are relevant to the insurance industry, such as permitting electronic signatures, protecting source code and algorithms, promoting cybersecurity, and allowing cross-border data flows. By contrast, some changes in the investor-state dispute settlement system (ISDS) provide a narrower scope than in TPP or NAFTA, and ISDS would apply only to U.S.-Mexican covered investments, excluding Canada completely. Changes in the state-to-state dispute settlement system also may limit its effectiveness for the insurance sector in certain situations. These changes have raised concerns among insurance companies. Similar to other trade agreements, USMCA would establish a Committee on Financial Services and provide for consultations between the parties. Covered Agreements In comparison to trade agreements, a covered agreement is a relatively new form of an international agreement, established along with the FIO in Title V of the Dodd-Frank Act. The statute defines a covered agreement as a type of international insurance or reinsurance agreement for recognition of prudential measures that the FIO and the USTR negotiate on a bilateral or multilateral basis. FIO has no regulatory authority over the insurance industry, which is generally regulated by the individual states. This is a significant contrast to, for example, federal financial regulators, such as the Federal Reserve or the Securities and Exchange Commission (SEC), that might enter into international regulatory agreements at the Basel Committee on Banking Supervision or the International Organization of Securities Commissions, respectively. After such agreements are reached, the Federal Reserve or SEC would generally then implement the agreements under its regulatory authority using the federal rulemaking process. Although the FIO lacks regulatory authority, some state laws may be preempted if FIO determines that a state measure (1) is inconsistent with a covered agreement and (2) results in less favorable treatment for foreign insurers. The statute limits the preemption with a provision that (j) Savings Provisions. — Nothing in this section shall — (1) preempt — (A) any State insurance measure that governs any insurer's rates, premiums, underwriting, or sales practices; (B) any State coverage requirements for insurance; (C) the application of the antitrust laws of any State to the business of insurance; or (D) any State insurance measure governing the capital or solvency of an insurer, except to the extent that such State insurance measure results in less favorable treatment of a non-United State insurer than a United States insurer; Further strictures are placed on the determination, including notice to the states involved and to congressional committees; public notice and comment in the Federal Register ; and the specific application of the Administrative Procedure Act, including de novo determination by courts in a judicial review. Although there is no legal precedent interpreting the covered agreement statute, it appears that these provisions would narrow the breadth of any covered agreement, particularly compared to other international agreements reached by federal financial regulators. International agreements have been undertaken without direct congressional direction under agencies' existing regulatory authorities. These authorities are then implemented through the regulatory rulemaking process, which may, in some cases, preempt state laws and regulations. Although the FIO and the USTR must consult with Congress on covered agreement negotiations, the statute does not require specific authorization or approval from Congress for a covered agreement. It does, however, require a 90-day layover period. Covered Agreements and Trade Agreements: Key Differences Although the goals of a covered agreement and aspects of trade agreements may be similar—market access and regulatory compatibility—the role of Congress is different in each instance. Congress has direct constitutional authority over foreign commerce, while Congress has given itself a consultative role in insurance negotiations through the Dodd-Frank Act. The U.S. Constitution assigns express authority over foreign trade to Congress. Article I, Section 8, of the Constitution gives Congress the power to "regulate commerce with foreign nations" and to "lay and collect taxes, duties, imposts, and excises." U.S. trade agreements such as the North American Free Trade Agreement (NAFTA), WTO agreements, and bilateral FTAs have been approved by majority vote of each house rather than by two-thirds vote of the Senate—that is, they have been treated as congressional-executive agreements rather than as treaties. This practice contrasts with the covered agreements, defined by Dodd-Frank (see above), which require congressional notification and a 90-day layover. The layover time could give Congress time to act on the agreement if Congress chooses, but congressional action is not required for a covered agreement to take effect. In further contrast, as mentioned previously, international agreements entered into by federal financial regulators, such as the Basel Capital accords in banking, have no specific congressional notification requirements, but must be implemented through the rulemaking process. Trade Promotion Authority U.S. bilateral, regional, and free trade agreements are conducted under the auspices of Trade Promotion Authority (TPA). TPA is the time-limited authority that Congress uses to set U.S. trade negotiating objectives, establish notification and consultation requirements, and allow implementing bills for certain reciprocal trade agreements to be considered under expedited procedures, provided certain statutory requirements are met. As noted above, the Dodd-Frank Act requires that the FIO or the Treasury Secretary and the USTR notify and consult with Congress before and during negotiations on a covered agreement. In addition, it requires the submission of the agreement and a layover period of 90 days, but does not require congressional approval. By contrast, legislation implementing FTAs must be approved by Congress. Under TPA, the President must fulfill notification and consultative requirements in order to begin negotiations and during negotiations. Once the negotiations are concluded, the President must notify Congress 90 days prior to signing the agreement. After the agreement is signed, there are additional reporting requirements to disclose texts and release the U.S. International Trade Commission's economic assessment of the agreement. The introduction of implementing legislation sets off a 90-legislative-day maximum period of time for congressional consideration, and the legislation is accompanied by additional reports. If these notification and consultation procedures are not met to the satisfaction of Congress, procedures are available to remove expedited treatment from the implementing legislation. State Role As discussed above, the FIO and the USTR jointly negotiate covered agreements, with the states having a consultative role set in the statute. In international trade agreements the USTR is the lead U.S. negotiator, with representatives from executive branch agencies participating to provide expertise. States are not formally consulted as part of trade negotiations and do not have a formal role in the executive branch interagency process or the USTR advisory committee system, established by Congress in 1974. USTR's Office of Intergovernmental Affairs and Public Engagement (IAPE) provides outreach to official state points of contact, governors, legislatures, and associations on all trade issues of interest to states. The USTR cannot make commitments on behalf of U.S. states in trade negotiations. This can be a source of frustration for negotiating partners who seek market openings at the state level. As part of trade negotiations, USTR may try to persuade individual states to make regulatory changes, but USTR is limited to what state regulators voluntarily consent to do. In general, state laws and state insurance regulations are explicitly exempted from trade negotiations. For example, in the proposed USMCA agreement, the United States listed measures for which the FTA obligations would not apply, including "All existing non-conforming measures of all states of the United States, the District of Columbia, and Puerto Rico." In contrast, as explained above, in the context of a covered agreement, FIO and USTR may make limited commitments that result in preempting some state laws and regulations. Enforcing Trade Agreements and Covered Agreements In general, international trade agreements are binding agreements. If a party to a trade agreement believes another party has adopted a law, regulation, or practice that violates the commitments under the trade agreement, the party may initiate dispute settlement proceedings under the agreement's dispute settlement provisions, which may differ for each agreement. Each party to a trade agreement has an obligation to comply with dispute resolution rulings or potentially face withdrawal of certain benefits under the agreement. Dodd-Frank does not specify how disagreements might be resolved in covered agreements, thus each covered agreement would need to clarify the dispute resolution process. Regulatory Cooperation As discussed, U.S. FTAs include market access commitments and rules and disciplines governing financial services measures, such as nondiscrimination and transparency obligations. Although FTAs customarily establish a Financial Services Committee comprised of each party's regulators to oversee implementation of the agreement and provide a forum for communication, U.S. FTAs to date exclude regulatory cooperation commitments for the financial services sector, though this is subject to change in future trade agreements. For example, on July 25, 2018, the United States and the EU agreed to launch trade negotiations. The U.S.-EU Executive Working Group is in the process of determining the scope of such negotiations. Whether potential trade negotiations would build on efforts related to the Transatlantic Trade and Investment Partnership (T-TIP) pursued under the Obama Administration is unclear. According to President Trump's announcement, "both sides will work to reduce barriers and increase trade in services." It is unclear if financial services regulatory regimes specifically would be included in the new negotiations. Under T-TIP, the EU sought to include regulatory cooperation issues in the trade agreement that could have addressed some of the same matters as the recent U.S.-EU covered agreement (see below). Some Members of Congress supported this position, whereas U.S. financial regulators opposed the inclusion at that time. During the T-TIP negotiations, the United States and the EU did agree to establish the Joint U.S.-EU Financial Regulatory Forum, which has met regularly. U.S. participants include representatives of Treasury, the Federal Reserve, Commodity Futures Trading Commission (CFTC), Federal Deposit Insurance Corporation (FDIC), Securities and Exchange Commission, and Office of the Comptroller of the Currency (OCC). The forum meetings include discussions of financial regulatory reforms, agency priorities, assessments of the cross-border impact of regulation, and cooperation efforts on specific financial issues. U.S.-EU Covered Agreement On September 22, 2017, the United States and European Union signed the first bilateral insurance covered agreement. The covered agreement had been submitted to the House Committees on Financial Services and Ways and Means and the Senate Committees on Banking, Housing, and Urban Affairs and Finance on January 13, 2017. A 90-day layover period is mandated in statute to allow Congress to review the agreement. The House Financial Services Committee Subcommittee on Housing and Insurance and the Senate Committee on Banking, Housing, and Urban Affairs each held a hearing on the agreement, but no legislative action affecting the agreement occurred. To address concerns among U.S. insurance firms that their market access to the EU would become limited due to changes in EU regulatory policy, in November 2015, the Obama Administration notified Congress regarding plans to begin negotiations with the EU on a covered agreement. Expressed goals for the negotiations included (1) achieving recognition of the U.S. regulatory system by the EU, particularly through an "equivalency" determination by the EU , that would allow U.S. insurers and reinsurers to operate throughout the EU without increased regulatory burdens, and (2) obtaining uniform treatment of EU-based reinsurers operating in the United States, particularly with respect to collateral requirements. The issue of equivalency for U.S. regulation is a relatively new one, as Solvency II has only come into effect at the beginning of 2016 (see " The European Union, Solvency II, and Equivalency " below), whereas the question of reinsurance collateral has been a concern of the EU for many years (see " Reinsurance Collateral " below). The covered agreement negotiations also sought to facilitate the exchange of confidential information among supervisors across borders. According to the USTR and Treasury, the bilateral agreement allows U.S. and EU insurers to rely on their home country regulators for worldwide prudential insurance group supervision when operating in either market; eliminates collateral and local presence requirements for reinsurers meeting certain solvency and market conduct conditions; and encourages information sharing between insurance supervisors. The proposal sets time lines for each side to make the necessary changes and allows either side to not apply the agreement if the other side falls short on full implementation. Unlike the goals expressed to Congress when negotiations began, the agreement does not explicitly call for equivalency recognition of the U.S. insurance regulatory system by the EU. However, the agreement's provisions on group supervision would seem to meet the same goal of reducing the regulatory burden on U.S. insurers operating inside the EU. The proposal goes beyond a previous state-level proposal on reinsurance collateral requirements put forth by the NAIC and adopted by many states, and allows for the possibility of federal preemption if states are not in compliance. Several U.S. industry groups welcomed the agreement, including the American Insurance Association (AIA), the Reinsurance Association of America, and the American Council of Life Insurers (ACLI) . The AIA's senior vice president and general counsel noted that, "when negotiations began, U.S. insurance and reinsurance groups were facing growing obstacles to their ability to do business in Europe, but this agreement removes those barriers—affirming not only each other's regulatory systems, but also their commitments to non-discriminatory treatment and open, reciprocal, competitive insurance markets." State regulators and state lawmakers , respectively represented by the NAIC and National Council of Insurance Legislators (NCOIL), expressed concern with the agreement due to the limited state involvement in the negotiation process and the potential federal preemption of state laws and regulations. NCOIL expressed disappointment with the final signing, stating "this agreement is an intrusion by both the federal government and international regulatory authorities into the U.S. state based regulation of insurance regulation." Some insurers also question the utility of the agreement, with the president of the National Association of Mutual Insurers (NAMIC) seeing ambiguity that "will result in confusion and potentially endless negotiations with Europe on insurance regulation." As mentioned, the agreement includes a review after an initial implementation period, at which time either the United States or EU may pull out of the agreement. Reinsurance Collateral The covered agreement aims to address EU concerns regarding U.S. state regulatory requirements that reinsurance issued by non-U.S. or alien reinsurers must be backed by collateral deposited in the United States. In the past, this requirement was generally for a 100% collateral deposit. Non-U.S. reinsurers long resisted this requirement, pointing out, among other arguments, that U.S. reinsurers do not have any collateral requirements in many foreign countries and that the current regulations do not recognize when an alien reinsurer cedes some of the risk back to a U.S. reinsurer. Formerly, the NAIC and the individual states declined to reduce collateral requirements, citing fears of unpaid claims from non-U.S. reinsurers and an inability to collect judgments in courts overseas. This stance, however, has changed in recent years. In 2010, an NAIC Task Force approved recommendations to reduce required collateral based on the financial strength of the reinsurer involved and recognition of the insurer's domiciliary regulator as a qualified jurisdiction. The NAIC, in November 2011, adopted this proposal as a model law and accompanying model regulation. To take effect, however, these changes must be made to state law and regulation by the individual state legislatures and insurance regulators. The reinsurance models are part of the NAIC accreditation standards, and all states are expected to adopt them by 2019. According to the NAIC, as of February 2017, 35 states have adopted the model law, representing approximately 69% of total premiums. To date, more than 30 reinsurers have been approved by the states as certified reinsurers for reduction in collateral requirements. To receive the reduced collateral requirements, the reinsurer's home jurisdiction must also be reviewed and listed on the NAIC List of Qualified Jurisdictions. As of January 2017, seven jurisdictions have been approved. The state actions addressing reinsurance collateral requirements, however, have not fully met concerns of foreign insurers regarding the issue. Non-U.S. reinsurers reportedly would like a single standard across the United States that would eliminate, not just reduce, collateral requirements. This desire was a significant part of the EU's expressed motivation to enter into covered agreement negotiations. A Council of the EU representative indicated that "an agreement with the U.S. will greatly facilitate trade in reinsurance and related activities" and would "enable us, for instance, to recognize each other's prudential rules and help supervisors exchange information." The European Union, Solvency II, and Equivalency The covered agreement also aims to assist U.S. insurers concerned with potential regulatory burdens in relation to new EU market requirements that went into effect in 2016. The European Union's Solvency II is part of a project aimed at transforming the EU into a single market for financial services, including insurance. In some ways, Solvency II is purely an internal EU project designed to more closely harmonize laws among the EU countries. However, as part of the Solvency II project, new equivalency determinations of foreign jurisdictions are to be made by the EU. An equivalency determination would allow insurers from a foreign jurisdiction to operate throughout the EU as do EU insurers. If the U.S. system of state-centered supervision of insurers were not judged to be "equivalent" to the EU insurance supervision, U.S. insurers could face more difficulty in operating in EU markets. Past suggestions have been made that an EU regulatory change might serve as "a useful tool in international trade negotiations as it could help improve access for European reinsurers to foreign markets," such as the United States. A June 6, 2014, letter from the European Commission to FIO and the NAIC drew an explicit connection between an equivalency designation applying to the United States and the U.S. removal of reinsurance capital requirements that the states place on non-U.S. reinsurers. Solvency II came into effect in the EU at the beginning of 2016. The EU has granted provisional equivalence to the United States along with five other countries and equivalence to three countries. The grant of provisional U.S. equivalence, however, applies only to capital requirements of EU insurers with U.S. operations, and U.S. insurers had reported experiencing difficulties with their operation in EU countries prior to the signing of the covered agreement. Future Covered Agreements The U.S.-EU covered agreement as negotiated applies only to the two jurisdictions. The United States, however, engages in a significant amount of trade in insurance services with other countries. Depending on what changes might be made to state insurance laws, reinsurers from other countries such as Bermuda or Japan could continue to face collateral requirements when offering products in the United States while competing with EU reinsurers free from such requirements. Due to the planned withdrawal of the United Kingdom (UK) from the EU on March 29, 2019 (so-called "Brexit"), Treasury and USTR negotiated a covered agreement with their UK counterparts. According to the USTR and Treasury, the bilateral agreement aims to provide "regulatory certainty and market continuity" for U.S. and UK firms operating in the two markets. The new agreement largely mirrors the U.S.-EU covered agreement. The Administration submitted the final text to Congress on December 11, 2018, starting the 90-day layover period for Congress to review the agreement prior to signature. The UK is an important market for U.S. firms, accounting for more than half of U.S. insurance exports in 2017. Two primary policy approaches are being considered to address concerns regarding an uneven playing field between European and non-European reinsurers. It would be possible to negotiate additional covered agreements with non-European jurisdictions, as was done with the UK. In addition to the negotiation of new covered agreements, state laws enacted in response to the U.S.-EU covered agreement might themselves remove reinsurance collateral requirements for all or some non-EU jurisdictions. The NAIC is in the process of adopting an updated model law regarding reinsurance collateral, which would do this for a subset of "qualified jurisdictions" including Japan, Bermuda, and Switzerland. International Insurance Entities Outside of international trade negotiations and agreements, two separate but interrelated entities have the most significant impact on international insurance issues in the United States: the Financial Stability Board and the International Association of Insurance Supervisors. The Financial Stability Board The FSB was established in April 2009 by G-20 nations to help strengthen the global financial system following the 2008 financial crisis. The FSB's functions include assessing vulnerabilities to the global financial system; coordinating with financial authorities of member nations; and recommending measures to protect and strengthen the global financial system. The FSB's members comprise financial regulatory agencies of G-20 nations. U.S. FSB members are the Department of the Treasury, the Federal Reserve Board, and the Securities and Exchange Commission; no insurance-focused representative from the United States is included. The FSB's recommendations and decisions are not legally binding on any of its member nations. Rather, the FSB "operates by moral suasion and peer pressure, in order to set internationally agreed policies and minimum standards that its members commit to implementing at national level." The International Association of Insurance Supervisors The IAIS, created in 1994, is the international standard-setting body, establishing a variety of guidance documents and conducting educational efforts for the insurance sector. Its mission is "to promote effective and globally consistent supervision of the insurance industry." The IAIS is primarily made up of insurance regulators worldwide with most jurisdictions having membership. U.S. members include all the individual states, the NAIC, the Federal Reserve, and the U.S. Department of the Treasury's Federal Insurance Office. FIO and the Federal Reserve became IAIS members only after the passage of the Dodd-Frank Act. These U.S. members have held various committee positions, past and present. The FIO director has served as chair of the IAIS Financial Stability and Technical Committee, which plays a central role in drafting IAIS-proposed standards. The NAIC coordinates individual state participation in IAIS committees and working groups. According to the NAIC, three NAIC members serve on the IAIS Executive Committee, including one as vice chair, and three serve on the Financial Stability and Technical Committee, plus an NAIC representative serves as vice chair. State regulators and NAIC representatives also serve on many other IAIS working parties. The NAIC's 56 members have 15 votes in the IAIS general meetings, with the NAIC designating which of its members may exercise their votes. Figure 3 provides a graphical representation of the relationships between international entities and their U.S. members. International Insurance Standards and Designations As part of its monitoring of global financial stability, the FSB has designated a number of financial institutions as globally systemically important. An FSB designation is meant to indicate that the failure of an individual institution could have a negative impact on the global financial system. Initially, the designation focused on global systemically important banks (G-SIBs) , but it also encompasses global systemically important insurers (G-SIIs), and nonbank noninsurer global systemically important financial institutions (NBNI G-SIFIs) , such as large asset managers, broker-dealers, and hedge funds. Designated institutions are expected to meet higher qualitative and quantitative regulatory and capital standards to help ensure their stability during a crisis. Although the FSB designations may be similar in intent to the designations done under the FSOC in the United States, FSB designations are a separate process with somewhat different criteria. In 2016, the FSB designated nine G-SIIs, including three U.S. insurers (AIG, MetLife, and Prudential Financial). The FSB also had requested that the IAIS develop capital standards and other regulatory measures to apply to G-SIIs as well as Internationally Active Insurance Groups (IAIGs), a wider set of insurers that fall short of the G-SII designation. In 2017, the FSB decided not to publish a new G-SII list, and the IAIS has been considering a new approach to systemic risk based on specific activities rather than individual firm designations. In addition to the standards addressing systemic risk, the IAIS is developing a general Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame). ComFrame encompasses a range of supervisory standards, particularly capital standards for IAIGs. The ComFrame process dates to 2010; currently, a public comment period has ended for a draft of the overall framework and a "2.0" version of specific insurance capital standards, with additional consultations continuing and formal adoption scheduled at the end of 2019. Implementation of International Standards In general, actions undertaken by international bodies, such as the FSB's designations of G-SIIs or adoption of capital standards by the IAIS, have no immediate effect on the regulatory system within the United States. To be implemented, such standards must be adopted by regulators in the United States or enacted into law if regulators do not already have sufficient legal authority to adopt the standards. In many cases, it is expected that members of such international bodies will adopt the agreed-to standards. For example, the Basel Committee on Bank Supervision (BCBS) charter includes among the members' responsibilities that they commit to "implement and apply BCBS standards in their domestic jurisdictions within the pre-defined timeframe established by the Committee." In some situations, the translation from international standard to national implementation may be relatively straightforward because the agencies agreeing to the international standards are the same agencies that have the authority to implement the standards at home. The mix of federal and state authorities over insurance in the United States, however, has the potential to complicate the adoption of international standards, such as the IAIS's capital standards that are under development. In the case of insurance, the U.S. representation at the IAIS includes (1) the NAIC, which collectively represents the U.S. state regulators, but has no regulatory authority of its own; (2) the 56 different states and territories, which collectively regulate the entire U.S. insurance market, but individually oversee only individual states and territories; (3) the Federal Reserve, which has holding company oversight only over designated systemically significant insurers and insurers with depository subsidiaries; and (4) the FIO, which has authority to monitor and report but no specific regulatory authority. Thus, it is quite possible for a situation to develop where some part of the U.S. representation at the IAIS may agree to particular policies or standards without agreement by the entity having authority to actually implement the policies or standards that are being agreed to. Moral Suasion and Market Pressures Although international standards may not be self-executing, nations may still face pressures to implement these standards. For example, the International Monetary Fund performs a Financial Sector Assessment Program (FSAP) of many countries every five years. In the latest FSAPs from 2010 and 2015, the judgments and recommendations offered regarding the U.S. insurance regulatory system compared U.S. laws and regulations to core principles adopted by the IAIS. Although U.S. regulators generally accept the IAIS core principles, the FSAP does note that state regulators specifically reject some aspects stemming from the core principles and the states "do not believe that each of the proposed regulatory reforms recommended in the Report is warranted, or would necessarily result in more effective supervision." Pressure may also derive from internationally active market participants, including both domestic and foreign firms. Companies operating in different jurisdictions incur costs adapting to different regulatory environments. To minimize these costs, companies may pressure jurisdictions to adopt similar rules. Even if one country's rules might be more favorable to the company seen in the abstract, it may still be more efficient for a company if all the countries adopt slightly less favorable, but substantially similar, rules. Thus, for example, a U.S. company operating in multiple countries might favor adoption of U.S. regulations similar to international standards to simplify business operations, even if it finds the U.S. regulations generally preferable. Specific Policy Concerns with International Standards Those concerned about potential international insurance standards often raise the possibility that these standards may be "bank-like" and thus inappropriate for application to insurers. A primary concern in this regard is the treatment of financial groups. In banking regulation, a group holding company is expected, if not legally required, to provide financial assistance to subsidiaries if necessary. In addition, safety and soundness regulations may be applied at a group-wide level. A somewhat similar focus on the group-wide level is also found in the EU's Solvency II and in possible future IAIS standards. Within U.S. insurance regulation, however, state regulators in the United States historically have focused on the individual legal entities and ensuring that the specific subsidiaries have sufficient capital to fulfill the promises inherent in the contracts made with policyholders. Since the financial crisis, the U.S. regulators have increased oversight at the overall group level, but the possible movement of capital between subsidiaries remains an issue. The NAIC has indicated specifically that "It is critical that the free flow of capital (i.e., assets) across a group should not jeopardize the financial strength of any insurer in the group." A group-wide approach that allows capital movement among subsidiaries could potentially improve financial stability as a whole if it prevents a large financial firm from becoming insolvent in the short run. It also could provide protection for individual policyholders if it results in additional resources being made available to pay immediate claims. The concern raised, however, is that this could also put other future policy claims at risk if there ends up being insufficient capital to pay these policyholders in the long run. Legislation in the 115th Congress Economic Growth, Regulatory Relief, and Consumer Protection Act (P.L. 115-174/S. 2155) S. 2155 was introduced by Senator Michael Crapo and 19 cosponsors on November 16, 2017. The bill, covering a broad range of financial services provisions largely dealing with noninsurance issues, was marked up and reported on a vote of 16-7 by the Senate Committee on Banking, Housing, and Urban Affairs in December 2017. A new section was added during the Senate committee markup with language similar to S. 1360 (discussed below). S. 2155 passed the Senate by a vote of 67-31 on March 14, 2018. The House passed S. 2155 without amendment on May 22, 2018, and the President signed the bill into P.L. 115-174 on May 24, 2018. Section 211 of P.L. 115-174 finds that the Treasury, Federal Reserve, and FIO director shall support transparency in international insurance fora and shall "achieve consensus positions with State insurance regulators through the [NAIC]" when taking positions in international fora. It creates an "Insurance Policy Advisory Committee on International Capital Standards and Other Insurance Issues" at the Federal Reserve made up of 21 members with expertise on various aspects of insurance. The Federal Reserve and the Department of the Treasury are to complete an annual report and to provide testimony on the ongoing discussions at the IAIS through 2022, and the Federal Reserve and FIO are to complete a study and report, along with the opportunity for public comment and review by the Government Accountability Office (GAO), on the impact of international capital standards or other proposals prior to agreeing to such standards. Unlike S. 1360 , however, the enacted law does not have specific requirements on the final text of any international capital standard. After signing S. 2155 , the President released a statement indicating that the congressional directions in the findings contravene the President's "exclusive constitutional authority to determine the time, scope, and objectives of international negotiations" but that the President will "give careful and respectful consideration to the preferences expressed by the Congress in section 211(a) and will consult with State officials as appropriate." International Insurance Standards Act (H.R. 4537/S. 488, Title XIV) Representative Sean Duffy, along with seven cosponsors, introduced H.R. 4537 on December 4, 2017. (A substantially similar bill, H.R. 3762 , was previously introduced and addressed in an October 24, 2017, hearing by the House Financial Services' Subcommittee on Housing and Insurance.) H.R. 4537 was marked up and ordered reported on a vote of 56-4 by the House Committee on Financial Services on December 12-13, 2017. It was reported ( H.Rept. 115-804 ) on July 3, 2018. The House considered a further amended version on July 10, 2018, and passed it under suspension of the rule by a voice vote. S. 488 originally was introduced by Senator Pat Toomey as the Encouraging Employee Ownership Act, increasing the threshold for disclosure relating to compensatory benefit plans. After Senate passage on September 11, 2017, it was taken up in the House and amended with a number of different provisions, mostly focusing on securities regulation. Title XIV of the amended version of S. 488 , however, is nearly identical to H.R. 4537 as it passed the House. H.R. 4537 as passed by the House and S. 488 as passed by the House would institute a number of requirements relating to international insurance standards and insurance covered agreements. U.S. federal representatives in international fora are directed not to agree to any proposal that does not recognize the U.S. system as satisfying that proposal. Such representatives would be required to consult and coordinate with the state insurance regulators and with Congress prior to and during negotiations and to submit a report to Congress prior to entering into an agreement. With regard to future covered agreements, the bill would require U.S. negotiators to provide congressional access to negotiating texts and to "closely consult and coordinate with State insurance commissioners." Future covered agreements are to be submitted to Congress for possible disapproval under "fast track" legislative provisions. The Congressional Budget Office's (CBO's) cost estimate on H.R. 4537 as reported from committee found that, Any budgetary effects of enacting H.R. 4537 would depend, in part, on how often the United States negotiates international insurance agreements and how frequently the negotiators must consult and coordinate with state insurance commissioners. CBO has no basis for predicting that frequency but expects that the cost of such consultations would be less than $500,000 per year. International Insurance Capital Standards Accountability Act of 2017 (S. 1360) S. 1360 was introduced by Senator Dean Heller with cosponsor Senator Jon Tester on June 14, 2017, and referred to the Senate Committee on Banking, Housing, and Urban Affairs. Similar language to S. 1360 was added to P.L. 115-174 / S. 2155 as discussed above. S. 1360 would create an "Insurance Policy Advisory Committee on International Capital Standards and Other Insurance Issues" at the Federal Reserve made up of 11 members with expertise on various aspects of insurance. It would require both an annual report and testimony from the Federal Reserve and the Department of the Treasury on the ongoing discussions at the IAIS through 2020. The Federal Reserve and FIO would be required to complete a study and report, along with the opportunity for public comment and review by GAO, on the impact of international capital standards or other proposals prior to agreeing to such standards. Any final text of an international capital standard would be required to be published in the Federal Register for comment and could not be inconsistent with either state or Federal Reserve capital standards for insurers. International Insurance Standards Act of 2017 (H.R. 3762) H.R. 3762 was introduced by Representative Sean Duffy with cosponsor Representative Denny Heck on September 13, 2017. It was addressed in an October 24, 2017, hearing by the House Financial Services' Subcommittee on Housing and Insurance, but it has not been the subject of further committee action. The sponsor introduced an identically titled and substantially similar bill, H.R. 4537 , which was ordered reported by the House Committee on Financial Services on December 13, 2017. See the above section on H.R. 4537 for more information on the bill. Federal Insurance Office Reform Act of 2017 (H.R. 3861) H.R. 3861 was introduced by Representative Sean Duffy with cosponsor Representative Denny Heck on September 28, 2017. It was addressed in an October 24, 2017, hearing by the House Financial Services' Subcommittee on Housing and Insurance, but it has not been the subject of further committee action. H.R. 3861 would amend the Dodd-Frank Act provisions creating the Federal Insurance Office, generally limiting the focus and size of FIO. It would place FIO specifically within the Office of International Affairs and narrow its function in international issues to representing the Treasury rather than all of the United States. It also would require FIO to reach a consensus with the states on international matters. The bill would remove FIO's authority to collect and analyze information from insurers, including its subpoena power, and to issue reports with this information. Under the bill, the authority to preempt state laws pursuant to covered agreements would rest with the Secretary of the Treasury, and FIO would be limited to five employees.

The growth of the international insurance market and trade in insurance products and services has created opportunities and new policy issues for U.S. insurers, Congress, and the U.S. financial system. Insurance regulation is centered on the states, with the federal government having a limited role. While the risks of loss and the regulation may be local, the business of insurance, as with many financial services, has an increasingly substantial international component as companies and investors look to grow and diversify. The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank; P.L. 111-203) enhanced the federal role in insurance markets through several provisions, including the Financial Stability Oversight Council's (FSOC's) ability to designate insurers as systemically important financial institutions (SIFIs); Federal Reserve oversight of SIFIs and insurers with depository affiliates; and the creation of a Federal Insurance Office (FIO) inside the Department of the Treasury. Alongside FIO, Dodd-Frank defined a new class of international insurance agreements called covered agreements for recognition of prudential measures which the FIO and the United States Trade Representative (USTR) may negotiate with foreign entities. Although not a regulator, FIO has the authority to monitor the insurance industry and limited power to preempt state laws in conjunction with covered agreements. Dodd-Frank requires congressional consultations and a 90-day layover period for covered agreements, but such agreements do not require congressional approval. International Insurance Stakeholders and Concerns The international response to the financial crisis included the creation of a Financial Stability Board (FSB), largely made up of various countries' financial regulators, and increasing the focus of the International Association of Insurance Supervisors (IAIS) on creating regulatory standards, especially relating to insurer capital levels. The Federal Reserve and the FIO have assumed roles in the IAIS, whereas previously the individual states and the U.S. National Association of Insurance Commissioners (NAIC) had been the only U.S. members. Any agreements reached under the FSB or IAIS would have no legal impact in the United States until adopted in regulation by federal or state regulators or enacted into federal or state statute. Congress has little direct role in international regulatory cooperation agreements such as those reached at the FSB or IAIS. The federal involvement in insurance issues has created friction both among the federal entities and between the states and the federal entities, and it has been a subject of congressional hearings and legislation. The first covered agreement, between the United States and the European Union (EU), went into effect on September 22, 2017. The agreement was largely rejected by the states and the NAIC, with the insurance industry split in its support, or lack thereof, for the agreement. Treasury and USTR announced a second covered agreement, with the United Kingdom (UK), on December 11, 2018, which is currently in the layover period before Congress. Issues for Congress The 115th Congress enacted legislation addressing international insurance issues in P.L. 115-174, with additional proposals included in H.R. 4573, S. 488, S. 1360, H.R. 3861, and H.R. 3762. Congressional interest in international insurance issues focused on (1) the covered agreement addressing the EU and UK treatment of U.S. insurers and the U.S. state requirements for reinsurance collateral and (2) the potential impact of international organizations and standards on the United States.

Introduction Federal inspectors general (IGs) have been granted substantial independence and powers to combat waste, fraud, and abuse within designated federal departments and agencies. To execute their missions, offices of inspector general (OIGs) conduct and publish audits and investigations—among other duties. In some cases, employees within federal offices or inspectors general are vested with law enforcement authority. For the purposes of this report, law enforcement authority is generally defined as having the legal authority to carry a firearm while engaged in official duties; make an arrest without a warrant while engaged in official duties; and seek and execute warrants for arrest, search of premises, or seizure of evidence. According to some OIGs vested with law enforcement authority, these authorities are essential to certain missions of the office. In some cases, for example, OIG law enforcement officers conduct investigations that pose potential safety risks. This report provides a list of the statutes and regulations that are used to vest OIGs with law enforcement authority. It also provides resources that add context to what some OIGs say is a need for law enforcement authority in their offices. Why Purchase Weapons and Ammunition? Each federal agency, including OIGs, has a unique mission, and, therefore, a unique purpose for its law enforcement authority. In some cases, especially when Congress and the public demonstrate concern about the agency's weapons procurement, an agency may release a public statement detailing its law enforcement authority and its need to acquire weapons or ammunition. For example, in August 2012, the Social Security Administration's (SSA's) OIG posted information on its blog explaining an ammunition purchase that garnered public attention. According to an excerpt from the post, Media reports expressed concerns over the type of ammunition ordered. In fact, this type of ammunition is standard issue for many law enforcement agencies. OIG's special agents use this ammunition during their mandatory quarterly firearms qualifications and other training sessions, to ensure agent and public safety. Additionally, the ammunition our agents use is the same type used at the Federal Law Enforcement Training Center. In another, more recent example, the U.S. Department of Agriculture's (USDA's) OIG received inquiries about OIG solicitations for weapons and body armor. The procurement pertained to the OIG's effort to replace automatic firearms with new semi-automatic firearms. On May 19, 2014, Mr. Paul Feeney, deputy counsel at the OIG, sent the following response to questions about the procurement: The Inspector General Act of 1978 authorized OIG to, among other duties, pursue criminal activity, fraud, and abuses impairing USDA's program and operations. The criminal investigation responsibilities and impact of OIG are quite extensive—from fiscal year 2012 through March 2014, OIG investigations pertaining to USDA operations have obtained over 2,000 indictments, 1,350 convictions, and over $460 million in monetary results. OIG Special Agents are authorized to make arrests, execute warrants, and carry firearms. Regarding the need for weapons' procurements, and for defensive vests, USDA OIG's Investigations division conducts hundreds of criminal investigations each year, some of which involve OIG agents, USDA employees, and/or members of the public facing potentially life threatening situations. OIG special agents regularly conduct undercover operations and surveillance. The types of investigations conducted by OIG special agents include criminal activities such as fraud in farm programs; significant thefts of Government property or funds; bribery and extortion; smuggling; and assaults and threats of violence against USDA employees engaged in their official duties. Sources That Vest OIGs with Law Enforcement Authority Generally, there are three ways that an OIG can be vested with law enforcement authority. First, and most commonly, an OIG can be vested with law enforcement explicitly pursuant to Section 6(e)(3) of the IG Act of 1978, as amended (5 U.S.C. (IG Act) Appendix, Section 6(e)(4); hereinafter referred to as the IG Act). Second, an OIG can be vested with law enforcement authority by the Attorney General pursuant to criteria articulated in several provisions of Section 6(e) of the IG Act of 1978. Third, an OIG can be vested with law enforcement authority pursuant to statute outside of the IG Act of 1978, as is the case with six federal entities described below. The Inspector General Act of 1978 Explicit Statutory Authority As shown in Table 1 , the IG Act provides direct law enforcement authority to 25 federal entities explicitly named in Section 6(e)(3) of the act. Authority Delegated by the Attorney General As noted earlier, pursuant to Section 6 of the IG Act, the Attorney General is authorized to delegate law enforcement authority when 1. an OIG "is significantly hampered in the performance of responsibilities ... as a result of the lack of such powers"; 2. "assistance from other law enforcement agencies is insufficient to meet the need for such powers"; and 3. "adequate internal safeguards and management procedures exist to ensure proper exercise of such powers" (5 U.S.C. (IG Act) Appendix, Section 6(e)(2)). The Attorney General has vested the OIGs within the 10 agencies listed below with law enforcement authority. The National Archives and Records Administration Amtrak The Peace Corps The Board of Governors of the Federal Reserve and Consumer Financial Protection Bureau The Corporation for National and Community Service The Export-Import Bank of the United States The National Science Foundation The Federal Housing Finance Agency The Securities and Exchange Commission Special Inspector General for Afghanistan Reconstruction. Law Enforcement Responsibilities and Requirements Pursuant to the IG Act The IG Act authorizes the Attorney General to promulgate guidelines "that govern the use of law enforcement powers" for these OIGs. On December 8, 2003, then-Attorney General John Ashcroft promulgated such guidelines, providing OIGs further detail on their law enforcement authorities' scope and limitations. Within these guidelines, Mr. Ashcroft wrote that employees within the OIGs who qualify for law enforcement authority are required to complete various training, including the Basic Criminal Investigator Training Program (or equivalent) and initial and "refresher firearms training and qualification." OIGs are also required to heed the Department of Justice's (DOJ's) deadly force policy. According to Mr. Ashcroft's guidelines, OIGs vested with law enforcement authority through the IG Act must provide "periodic refresher" training in trial processes; federal criminal and civil legal updates; interviewing techniques and policy; law of arrest, search, and seizure; and physical conditioning and defensive tactics. Additionally, the OIGs are responsible for following other DOJ law enforcement related policies and guidelines, must consult with DOJ before using electronic surveillance, and must receive other approval before beginning an undercover investigation. Other OIGs with Law Enforcement Authority Statutes That Vest Law Enforcement Authority As shown in Table 2 , five additional OIGs are provided law enforcement authority through laws outside of the IG Act. Inspector General Law Enforcement Staff Statistics The Department of Justice's Bureau of Justice Statistics maintains a Census on Federal Law Enforcement Officers , which includes data on the number of federal employees who are authorized to carry firearms. The most recent report available states that 33 OIGs had a total of 3,501 agents who were authorized to carry firearms in September 2008. Additionally, the report states that no law enforcement officers within an OIG were assaulted or injured in 2008.

Federal inspectors general (IGs) have been granted substantial independence and powers to combat waste, fraud, and abuse within designated federal departments and agencies. To execute their missions, offices of inspector general (OIGs) conduct and publish audits and investigations—among other duties. Established by public law as permanent, nonpartisan, and independent offices, OIGs exist in more than 70 federal agencies, including all departments and larger agencies, along with numerous boards and commissions and other entities. Many OIGs have been vested with law enforcement authority to assist their investigations. This report provides background on federal offices of inspectors general and their law enforcement authorities in investigations. In this report, law enforcement authority is generally defined as having the legal authority to carry a firearm while engaged in official duties; make an arrest without a warrant while engaged in official duties; and seek and execute warrants for arrest, search of premises, or seizure of evidence. This report identifies the laws and regulations that vest certain OIGs with law enforcement authority, which permits the use of guns and ammunition. This report also describes some of the requirements and expectations of OIGs that have law enforcement authority, and includes some reasons that OIGs have expressed a need for law enforcement authority.

Most Recent Developments The President signed H.R. 4837 , the Military Construction Appropriations andEmergency Hurricane Supplemental Appropriations Act, 2005 , into law on October 13, 2004 ( P.L.108-324 ). The President signed H.R. 4200 , the Ronald W. Reagan National DefenseAuthorization Act for Fiscal Year 2005 , into law on October 28, 2004 ( P.L. 108-375 ). Background Content of Annual Military Construction Appropriations and Defense AuthorizationBills The Department of Defense (DOD) manages the world's largest dedicated infrastructure,covering more than 29.2 million acres of land with a physical plant worth almost $647 billion,housed within buildings encompassing more than 2.2 billion square feet of floor space. More than2.36 million men and women, including 1.7 million military personnel, 465,000 civil servants, and195,000 other U.S. and foreign nationals, work on U.S. military installations. Eighty-eight percentof military personnel, 95 percent of civil servants, and more than half of other employees work onthe 3,842 listed installations that constitute the 98 percent of Department of Defense land locatedwithin the United States and its territories. The remainder work at 860 listed installations located inforeign countries. The military construction appropriations bill provides a large part of the funding to enhanceand maintain this infrastructure. The bill funds construction projects and some of the facilitysustainment, restoration, and modernization of the active Army, Navy and Marine Corps, Air Force,and their reserve components; (1) additional defense-wide construction; U.S. contributions to theNATO Security Investment Program (formerly known as the NATO Infrastructure Program); (2) and military family housingoperations and construction. The bill also provides funding for the Base Realignment and Closure(BRAC) account, which finances most base realignment and closure costs, including constructionof new facilities for transferred personnel and functions and environmental cleanup at closingsites. (3) The military construction appropriations bill is but one piece of annual legislation thatprovides funding for the country's "national security." Other national security appropriationlegislation includes the national defense appropriations bill, which provides funds for allnon-construction military activities of the Department of Defense and constitutes more than 90% ofnational security-related spending, and the energy and water development appropriations bill, whichprovides funding for atomic energy defense activities of the Department of Energy and for civilprojects carried out by the U.S. Army Corps of Engineers. Two other appropriations bills,VA-HUD-Independent Agencies and Commerce-Justice-State, also include small amounts fornational defense. (4) Supplemental appropriations bills may be passed to provide additional Department of Defensefunding as needed. No funds may be expended by any agency of the federal government before they areappropriated. (5) In addition,for nearly half a century Congress has forbidden the Department of Defense to obligate funds for anyproject or program until specific authorization is granted. (6) This explains why, for defense funds, both authorization andappropriations bills are required. The annual Military Construction Appropriations Act is dedicatedto military construction, and the annual National Defense Appropriations Act covers all otherDepartment of Defense appropriations. (7) Normally only one National Defense Authorization Act is passedeach year to authorize both of these appropriations. (8) Therefore, major debates over defense policy and funding issues,including military construction, can be associated with any of these bills. Because issues in thedefense authorization and appropriations bills intertwine, this report includes salient parts of theauthorization bill in its discussion of the military construction appropriation process. The separate military construction appropriations bill dates back to the late 1950s.Traditionally, military construction was funded through annual defense or supplementalappropriations bills. However, the Korean War prompted a surge of military construction, followedby a steady increase in military construction appropriations. The strong and enduring security threatposed by the Soviet Union drove a relatively high and continuous level of spending on militaryinfrastructure. The congressional appropriations committees established military constructionsubcommittees and created a separate military construction bill. The first stand-alone militaryconstruction bill was written for FY1959 (P.L. 85-852). It should be pointed out that, first, military construction appropriations are not the sole sourceof funds available to defense agencies for facility investment. The national defense appropriationsbill funds so-called minor construction and property maintenance within its operations andmaintenance accounts. Construction and maintenance of Morale, Welfare, and Recreation-relatedfacilities are partially funded through proceeds of commissaries, recreation user fees, and othernon-appropriated income. Second, several special accounts are included within the militaryconstruction appropriation. Among these are the Homeowners Assistance Fund (Defense), (9) and the Department of DefenseFamily Housing Improvement Fund, (10) both of which perform functions ancillary to the direct buildingof military infrastructure. Most congressional appropriations must be obligated in the fiscal year for which they areappropriated. Military construction appropriations, though, are an exception. Because of thelong-term nature of construction projects, these funds can generally be obligated for up to five fiscalyears. Consideration of the military construction budget begins when the President's budget isdelivered to Congress each year, usually in early February. This year, the President submitted hisFY2005 budget request to the Congress on February 2, 2004. Bill Status Table 1 shows the key legislative steps necessary for the enactment of the FY2005 militaryconstruction appropriations. It will be updated as the appropriation process moves forward. Table 1. Status of Military Construction Appropriations,FY2005 Note: Dashes indicate no action yet taken. Appropriations Action An emergency supplemental appropriation, H.R. 5212 ,introduced on October 5, and the continuing resolution, H.J.Res. 107 ,enacted on September 30, 2004, are discussed in the Legislation section below. House Appropriations Action. TheHouse Committee on Appropriations Subcommittee on Military Construction heldnine hearings between February 25 and June 22, 2004. The topics addressed includedQuality of Life (senior enlisted and military family representatives, February 25),family housing privatization and Central Command programs (March 3), overviewof military construction (Department of Defense representatives, March 10),European Command programs (March 25), Pacific Command programs (March 31),Navy programs (June 15), Army programs (June 16), and Air Force programs (June22). The subcommittee reported its bill to the full committee by voice vote on July6, and the full committee reported its mark on H.R. 4837 on July 15,2004 ( H.Rept. 108-607 ). The bill was then placed on the Union Calendar, CalendarNo. 365. H.R. 4837 was introduced on the floor of the House on July 21.Debate centered on Section 129 of the bill, a provision that would raise the limitationon the budget authority that could be applied to the military housing privatizationinitiative and would exempt such budget authority from scoring ( CongressionalRecord , H6460-6469). A more extensive discussion of the issue is included in the Military Housing Privatization Budget Authority Cap portion of the Key PolicyIssues section of this report. A separate bill, H.R. 4879 , whichincorporated the budget authority language of Section 129, was introduced inmid-afternoon and passed under suspension of the rules (requiring a two-thirdsmajority) on a vote of 423-0-11 (Roll no. 406, Congressional Record , H6489-95,H6498). H.R. 4837 was brought up again as unfinished business on theevening of July 22. Mr. Nussle raised a point of order against the content of themeasure, citing Section 129 as seeking to change existing law (violating House RuleXXI). The point of order was sustained by the Chair, thereby striking Section 129from the bill. Mr. Obey moved to recommit the bill to the Committee onAppropriations with instructions to increase the military housing privatization budgetauthority limitation referred to above. Mr. Nussle raised a point of order against themotion and was again sustained by the Chair. Mr. Obey then moved to recommit thebill to the Committee on Appropriations with slightly different instructions. TheHouse then engaged in ten minutes of debate on the motion, whereupon it wasordered. The motion failed on a vote of 201-217-16 (Roll no. 416). H.R.4837 was then passed on a vote of 420-1-11 (Roll no. 417). On October 8, after the return of the amended bill from the Senate (see SenateAppropriations Actions , below), the House agreed without objection to disagree withthe amendment and appointed conferees. Senate Appropriations Action. The Senate Committee on Appropriations Subcommittee on Military Constructionheld two hearings on Defense-Wide and Air Force construction projects (March 30)and Army and Navy projects (April 7, 2004). The subcommittee completed theinformal markup of its bill on July 14, and the full committee reported its mark on S. 2674 on July 15 ( S.Rept. 108-309 ). (11) The billwas placed on the Legislative Calendar under General Orders (Calendar No. 637). The Senate received H.R. 4837 from the House on September7, 2004, read it twice, and placed it on the Legislative Calendar (Calendar No. 690).On September 15, S. 2674 was brought to the floor. Senator Hutchison,on behalf of herself and Senator Feinstein, offered two amendments, S.Amdt. 3660 and S.Amdt. 3661 (see CongressionalRecord S9242). S.Amdt. 3660 (new Sec. 130) would make availableadditional funds in the sum of $1.5 million for the Commission on Review ofOverseas Military Facility Structure of the United States. S.Amdt. 3661 (new Sec. 131) would require the Department of Defense to assess the impact on themilitary family housing program of having the total value of contracts andinvestments undertaken under the Military Housing Privatization Initiative reach thelimitation on budget authority (both of these issues are addressed at length elsewherein this report). Both amendments were agreed to by Unanimous Consent, and the billwas returned to the Calendar (Calendar No. 637). The Senate then incorporated the language of S. 2674 into H.R. 4837 as an amendment. The Senate passed the amendedH.R. 4837 on September 20 by recorded vote 91-0-9. The Senate sent amessage on its action to the House on September 22, 2004. Conference Action. Senateconferees were appointed on September 20. The House disagreed with the Senateamendment, and conferees were appointed on October 8. The conferees added Division B, the Emergency SupplementalAppropriations for Hurricane Disasters Assistance Act, 2005 , and Division C, the Alaska Natural Gas Pipeline Act , to the basic bill. (12) The conferees filed the conference report ( H.Rept. 108-773 , text at Congressional Record H9054-9113) on October 9. The House considered the report ( Congressional Record H9175-9176) and agreed by the Yeas and Nays, 374-0-58(Roll no. 529). That same day, the Senate began consideration on the conferencereport, and a cloture motion was presented ( Congressional Record S10978-10979).The cloture motion was withdrawn by unanimous consent on October 11, and theSenate agreed to the conference report by Voice Vote ( Congressional Record S11223-11228). The bill was presented to the President and signed on October 13, 2004 ( P.L.108-324 ). Key Policy Issues Several issues regarding military construction have gained visibility duringthe legislative deliberations of the current session of Congress. Among these areoverall funding levels, realignment of overseas bases, base realignment and closure(BRAC), and perchlorate ground water contamination remediation. Overall Funding Levels. TheFY2005 budget submitted by the President on February 2, 2004, as subsequentlyamended, requested $9.6 billion in new budget authority, an amount $112.7 millionbelow the 2004 enactment. (13) As shown in Table 4 , Active Component militaryconstruction requested is $378.7 million below that enacted for FY2004, withincreases in the Army and Defense-wide accounts being more than offset bydecreases for the Navy and Air Force. (14) Requests for every account within the ReserveComponents , save for the Air Force Reserve, are below the amounts enacted lastyear, with the net impact being a $110.5 million decline from the previous year. Theoverall military construction request for FY2005 is $489 million below the enactmentfor FY2004. Family housing construction and operation and debt servicing, as requestedfor FY2005, represents an increase of more than $351.5 million over that enacted forFY2004. Caution should be exercised in interpreting these figures, however, becausethe military services are responsible for satisfying their own family housing needs,and the Department of Defense and military services are engaged in an extensiveprogram of privatizing (i.e., removing from direct support by military constructionappropriations) a significant portion of military housing. In addition, the services arecompleting a nine-year effort to substantially increase the military pay supplement(the Basic Allowance for Housing, or BAH, that is funded in the personnel accountin the national defense appropriation) to a level that will eliminate out-of-pocketexpenses should a military member choose to live in his or her local civiliancommunity. Realignment of Overseas Bases. The armed services are in the midst of a global reassessment study of theirinfrastructure inventory, with an eye toward reducing the number and realigning theconcentration of troops stationed outside the United States and its territories. Thisclosely parallels, but is separate from, the process of realigning military installationswithin the United States, known as Base Realignment and Closure, or BRAC. Detailsof what is variously known as the Global Posture Study, "global sourcing," efficientbasing, or the "global BRAC," have not yet been released by the Department ofDefense. The Senate Committee on Armed Services has scheduled a hearing on thematter for Thursday, September 23, 2004. The Secretary of Defense and the unifiedcommand commanders are scheduled to appear as witnesses. In addition, Congress created the Commission on Review of OverseasMilitary Facility Structure of the United States last year to determine for itselfwhether the eventual Department of Defense plan for altering overseas basingrequirements and stationing of troops will be adequate to national securityneeds. (15) The commission is tasked with conducting "a thorough study of matters relating tothe military facility structure of the United States overseas" and assessing "whetheror not the current military basing and training range structure of the United Statesoverseas is adequate to meet the current and future mission of the Department ofDefense, including contingency, mobilization, and future force requirements," amongother duties. The commission's report, containing its findings, conclusions, andrecommendations for legislative and administrative actions, is due to the Congressnot later than December 31, 2004 (though language in the report accompanying theSenate version of the Military Construction Appropriations Act for Fiscal Year 2005, S. 2674 , extends the report deadline to August 15, 2005, as indicatedbelow). The commission is also to propose an overseas basing strategy for theDepartment of Defense that will meet its current and future mission requirements. The law established a commission of eight members, appointed asfollows: (16) 1.Two appointed by the Majority Leader of the Senate: Maj. Gen. Lewis E.Curtis, III, U.S. Air Force (retired), of Texas; Vice Adm. Anthony A. Less,U.S. Navy (retired), of Virginia; 2.Two appointed by the Minority Leader of the Senate: Al Cornella, of SouthDakota (chair), and James A. Thomson, of California; 3.Two appointed by the Speaker of the House of Representatives: noneappointed; and 4.Two appointed by the Minority Leader of the House of Representatives: Lt.Gen. H. G. (Pete) Taylor, U.S. Army (retired), of Texas, and Keith Martin ofPennsylvania. A major issue for Congress is the absence of a formal Department of Defenseplan for the future of its overseas basing. For this specific reason, Congress did notfund some of the construction projects requested by the Department at overseaslocations for FY2004. In its report to the Senate on the FY2005 appropriations bill,the Senate Committee on Appropriations noted that the Department of Defense isnow more than two years overdue in forwarding its master overseas basing plan tothe committee and again recommended against funding several requested overseasconstruction projects. (17) In its report on the FY2005 appropriations bill, the Senate Committee onAppropriations noted that the creation of the commission had met with significantDepartment of Defense opposition. Nevertheless, the committee went on to state: Because of delays in the appointmentof commissioners, the establishment of suitable Commission facilities, and thesubmission to the Congress of the Department's global basing and presence plan, thedeadline for the Commission's final report is extended to August 15, 2005. This willmake the Commission's life coterminal with its funding, which under current lawexpires September 30, 2005, and will provide an opportunity for the Commission tointeract with the Base Closure and Realignment Commission, whose members neednot be appointed until March 15, 2005. However, in order to inform both BRAC andconsideration of the fiscal year 2006 military construction appropriations bill, thecommittee urges the Overseas Basing Commission to present its preliminaryconclusions to the Congress no later than March 31, 2005. (18) Section 2518 of the House-passed version of the National DefenseAuthorization Act for FY2005 would repeal the provision of law that established thecommission. There is no such provision in the bill as it was passed by the Senate.The conference report retained the Senate's due date extension for the Commission'sfinal report, but eliminated additional funding that the Senate had provided. Redeployment of U.S. Troops from OverseasGarrisons to Bases within the United States, 2004-2014. Presidential Announcement. OnAugust 16, 2004, President George W. Bush included the following remarks in hisaddress to the national convention of the Veterans of Foreign Wars (VFW) inCincinnati, Ohio: I'm announcing today, over the next 10years, we will bring home about 60,000 to 70,000 uniformed personnel, and about100,000 family members and civilian employees. (19) The Redeployment in Context. Analysts expect that the majority of the forces redeployed to the United States willbe drawn from those countries that currently host the largest overseas U.S. garrisons. These are the Federal Republic of Germany, the Republic of Korea, and Japan. It may be helpful to place this redeployment in historic context by comparingthe numbers of troops in garrison in these three countries in 1986 with those ingarrison in 2003. The figures for 1986 reflect U.S. overseas force posture during theclosing years of the Cold War. (20) In addition, the United States then maintainedsizable garrisons in both the Republic of the Philippines and the Republic of Panamathat would be redeployed to the United States, its possessions, or other overseaslocations during the late 1980s and 1990s. Therefore, these troops have beenincluded in the construction of Tables 2 and 3 . Table 2. Selected U.S. Overseas Garrisons, 1986 and 2003 (As of September 30 of the respectiveyears) Source: Department of Defense Base Structure Reports for Fiscal Years 1987 and2004. Table 3. Selected U.S. Overseas Garrisons, Grouped Totals, 1986 and 2003 (As of September 30 of the respectiveyears) Source: Department of Defense Base Structure Reports for Fiscal Years 1987 and2004. These figures indicate that although the announced redeployment is substantial, it has precedent in the post-Cold War era when examined in the contextof the entire military force or when focused on the U.S. garrisons in Germany, Korea,and Japan. Base Realignment and Closure(BRAC). Four BRAC rounds have been completed since the firstin 1989. Under statutory language included in the National Defense AuthorizationAct for FY2002, the Secretary of Defense is authorized to carry out a fifth round ofrealignment or closures during FY2006 through FY2011. The Secretary has established a list of criteria that he will use to recommendbase closure and realignment actions and has certified to the Congress the need tocarry out this fifth BRAC round. The Department of Defense is in the process ofevaluating the base infrastructure needs of its future military force. This processincludes the detailed assessment of each installation's capacity as measured along anumber of dimensions, such as potential for hosting additional troops, ease of accessto major transportation resources, proximity to training and operating areas, etc., andthe changes needed in order to make it conform to the needs of the future force. Thisevaluation will result in the creation of a list of BRAC actions that the Secretary isrequired to submit in May 2005 to an independent BRAC Commission for review.The BRAC Commission is scheduled to forward this list, including any revisions, tothe President in September 2005. The final presidential list of BRAC actions is dueto the Congress on November 7, 2005. (21) The House-passed version of the National Defense Authorization Act forFiscal Year 2005 ( H.R. 4200 ) contains a provision that wouldeffectively delay the remaining steps in the BRAC process for two years. (22) In itsStatement of Administration Policy issued on May 19, 2004, the Office ofManagement and Budget stated: Base Realignment and Closure (BRAC).The Administration strongly opposes any provision to weaken, delay, or repeal theBRAC authority passed by Congress three years ago. If the President is presented abill that weakens, delays, or repeals the BRAC authority, the Secretary of Defense,joining with other senior advisors, will recommend that the President veto thebill. Appearing before the Senate Committee on Armed Services on September 23,2004, Secretary of Defense Donald Rumsfeld reiterated his opposition to delay of theBRAC round in a response to a question posed by Senator John McCain: McCain: I want to thank the witnesses.Mr. Secretary, I was very pleased to hear your comments in response to SenatorWarner's question about the necessity of BRAC. Would you recommend a veto if adefense bill came to the president that had a two-year delay in BRAC? Rumsfeld: Yes, I certainly would. Itwould be a terrible thing, Senator. (23) Press accounts on the deliberations of the conference committee cited theissue of BRAC delay as one of three or four most significant issues confronting theconferees. (24) Conference Report, Ronald Reagan National DefenseAuthorization Act for Fiscal Year 2005 (H.R.4200). The conference report for the RonaldReagan National Defense Authorization Act for Fiscal Year 2005 does not delay theimplementation of the 2005 BRAC round, but several sections in the bill do addressBRAC issues: Sec. 2831. The Secretary of Defense is required to submitan updated force-structure plan and infrastructure inventory not later than March 15,2005. Existing law states that these are to be submitted along with the Department'sFiscal Year 2006 budget justification material. Sec. 2832. This section specifies the final criteria that areto be used by the Secretary of Defense in calculating the "military value" ofinstallations considered for closure or realignment and "other criteria" that theSecretary shall consider in making his recommendations. Previous law establishedseveral criteria for the evaluation of military value and "special considerations" thatare to be included "at a minimum" in the writing of the Secretary's recommendations.The Act's language appears to remove some flexibility in the ability of the Secretaryto choose those factors he deems relevant to the calculation. Previous law specifiedthat military value is the primary consideration in creating the recommended BRACaction list. The Act's language requires the Secretary to "give priority" to militaryvalue. The section goes on to state that the "final selection criteria specified in thissection shall be the only criteria to be used, along with the force-structure plan andinfrastructure inventory ... in making recommendations for the closure or realignmentof military installations inside the United States under this part in 2005." Sec. 2833. Existing law authorizes the Secretary of Defenseto place a military installation in an inactive status as an alternative to closure orrealignment. The Act's language repeals this authority. Sec. 2834. Previous law required the Commission to givethe Secretary of Defense a 15-day warning before adding an installation to his list ofrecommendations for closure or realignment and demanded that seven of the nineCommissioners then vote for the addition. The Act's language made the samerequirement applicable to Commission consideration for adding an installation to theSecretary's list of recommendations and requires that at least two members of theBase Realignment and Closure Commission visit any installation for which theCommission intends to add a closure or realignment recommendation not made bythe Secretary of Defense or to expand a realignment that the Secretary hasrecommended. Military Housing Privatization Budget AuthorityCap. In the late 1990s, Congress granted to the Department ofDefense specific "alternative authorities" by which the Department could enter into"public-private partnerships" with private enterprise. (25) Thesepartnerships are corporations that assume responsibility for the construction,maintenance, and operation of housing for military personnel on, or adjacent to,military installations. To date, the military services have negotiated contracts for 32separate projects that will create or refurbish more than 61,000 military familyhousing units. (26) This Military Housing Privatization Initiative leverages, but does not replace,the use of appropriated funds to provide military housing. The budget authorityneeded to support the initiative is calculated, or "scored," by the Department ofDefense according to guidelines established by the Office of Management andBudget. (27) 10 U.S.C. 2883(g) imposes limitations on thetotal value in budget authority of all contracts and investments undertaken using thealternative authorities, restricting the Department of Defense to $850 million for theacquisition or construction of military family housing and $150 million for theacquisition or construction of military unaccompanied housing (barracks ordormitories). Contract negotiations for the creation of almost 74,000 privatized militaryfamily housing units are ongoing, and the Department of Defense is planning toprivatize an additional 34,000 units during the next few years. The Department ofDefense estimates that it will exhaust the budget authority granted to it under theprogram before the end of the current fiscal year. The Department, therefore, hasrequested that this budget authority limitation be raised. (28) Efforts to Raise the Budget AuthorityCap. Section 2806 of H.R. 4200 , the NationalDefense Authorization Act for Fiscal Year 2005 (engrossed as agreed to or passedby House) would repeal the limitation on budget authority applied to military familyhousing. (29) The Senate version of the bill ( S. 2400 , incorporated into H.R. 4200 as an amendment in the nature of asubstitute) does not contain similar language, and the difference between the tworemains to be worked out in conference. In the meantime, Section 129 of the MilitaryConstruction Appropriations Act for FY2005 ( H.R. 4837 ), as it wasreported to the House, would have raised the budget authority cap on military familyhousing by $500 million to $1.35 billion. This section was struck when a point oforder was raised and sustained during floor debate. An independent bill, the Military Housing Improvement Act of 2004( H.R. 4879 ), accomplishing the same goal, was introduced and passedby the House on July 21, 2004 (see "Military Construction Appropriations," in the Legislation section, below, for more information on legislative action). It wasreceived by the Senate on September 7, 2004, and referred to the Committee onArmed Services. Senator Hutchison, on behalf of herself and Senator Feinstein,offered S.Amdt. 3661 to the Senate version of the Military ConstructionAppropriations Act for Fiscal Year 2005, S. 2674 , when it was laidbefore the Senate on September 15. This amendment would require the Departmentof Defense to assess the impact of the exhaustion of new budget authority on themilitary family housing program. The amendment was accepted into the bill, whichwas then incorporated into the House version of the Military ConstructionAppropriations Act ( H.R. 4837 ). Because the language raising thebudget authority cap was struck from the House bill on a point of order, the principaleffect of this amendment is to allow the issue to be raised in conference. The Senatepassed the amended bill on September 20, 2004. Section 2805 of the Ronald Reagan National Defense Authorization Act forFiscal Year 2005 ( H.R. 4200 ) repealed both the budget authority cap andthe termination date for the use of the alternative authorities, which had been set forDecember 31, 2012. The Budget Scoring Issue -- Differences Between OMB andCBO. The Congressional Budget Office has taken issue withthe Office of Management and Budget interpretation of federal accounting standardsin its scoring of the Department's alternative authorities. The OMB calculated itsscoring according to the financial liability each authority places on the government,thereby recording costs incrementally over time. The CBO, on the other hand, arguesthat the Department is engaging in a "governmental activity" by supplying familyhousing in whatever form, either government or privately owned, to militarypersonnel. (30) The CBO contends that the Department ofDefense exercises significant control over the operation of these housing projects andthat the government is the dominant or only source of project income, rendering thepartnered private-sector corporation effectively an instrument of thegovernment. (31) The "leveraging" in the privatization initiative occurs when appropriatedfunds are used, either in the form of a loan guarantee, direct loan, or equity stake, toassist the private-sector corporation in securing the additional commercial financingnecessary to capitalize the project. Because the CBO regards privatization projectsas inherently governmental, it considers all such investments as borrowing authority,a form of budget authority, that should be recorded up front rather than scored overtime. For its part, the Department of Defense maintains that privatized housing iscontrolled by a private corporation, not the government, that military members arefree to use their housing allowance wherever they wish, and that the budget authorityrecorded is properly limited to the amount of financial liability incurred by theDepartment, as calculated by the OMB scoring rules. In awarding its 32 family housing projects, the Department of Defense hasused OMB's accounting methodology to record obligations of approximately $580million. The CBO, using the rationale explained above, contends that the full amountof the Department's commitments to date approximates $6 billion. The Office of Management and Budget devoted a significant portion of itsStatement of Administration Policy on S. 2674 , the Senate version ofthe Military Construction Appropriations Act for Fiscal Year 2005, issued onSeptember 20, 2004, to an explanation of its position on the issue of the housingprivatization cap, stating: The President's Budget included arequest that would increase the military housing privatization cap from $850 millionto $1.85 billion. This increase will help improve the quality of life of our militaryfamilies by eliminating inadequate housing and allowing them the option to renthigh-quality homes at prices covered by housing allowances. Furthermore, withoutthis increase, the current limit would be reached by November 2004. OMB would notscore any additional cost to this provision, because it does not increase the amountof budget authority available to the Department of Defense (DOD). Moreover, DODdoes not need additional budget authority to cover the construction cost of theseprivate projects. These projects receive private sector funding and are controlled andmanaged by private owners, and DOD does not require service members to live inthe units and does not guarantee their occupancy. Any immediate costs to DODassociated with these contracts, such as credit subsidies or cash investments, are paidfor out of funds appropriated to the Department's housing accounts. Additional coststo the Department in the form of allowances paid to service members are offset byavoidance of costs associated with building and maintenance of government housing.The Administration urges the Senate to either eliminate the cap or raise the cap to therequested $1.85 billion, which is essential to meet the FY2007 DOD goal ofeliminating inadequate housing units. (32) Significant Funding Trends Between FY1985 and FY1998, funding devoted to military constructiondeclined steadily as DOD and Congress struggled with a changing strategicenvironment, a shrinking military force, and the uncertainties associated with severalrounds of base realignments and closures. Appropriations began to rise with FY1998as Congress sought to replace outdated facilities and improve the quality of life formilitary personnel at home and in the workplace. Administration requests for militaryconstruction funding (not including BRAC and family housing) continued to declineuntil FY2000, but have risen for FY2001 and FY2002. The request for FY2005 risesabove the level requested for FY2004, but falls short of projections made severalyears ago. In FY2001, DOD anticipated that its annual construction requests wouldapproximately triple between FY2003 and FY2007, which would have led anobserver to anticipate an FY2005 request approximately $1 billion higher than thatsubmitted (see Figure 1 ). Figure 1. Military Construction Funding, FY1989-FY2005 Note: Does not include BRAC or Family Housing funding Source: Department of Defense, Financial Summary Tables , successive years Table 4 breaks down the FY2005 request by appropriations account and compares it to FY2004 enacted levels. Table 5 shows congressional action on currentmilitary construction appropriations by account. Table 6 compares Administrationmilitary construction requests and enactments for Guard and Reserve projects fromFY1995 to FY2005. Several issues were singled out for special attention in the appropriationscommittee reports. Among these were the inadequacy of Department requests forsustainment, restoration, and modernization funds and the inappropriate use ofunprogrammed minor construction funding. The House Appropriations Committee noted the long-standing tensionbetween funds needed for construction of new buildings and the funds that arededicated to the maintenance of existing facilities. The former is funded through themilitary construction appropriation, while the latter is supported by sustainment,restoration, and modernization (SRM) accounts in the national defense appropriation.The committee remarked that the majority of military installations are rated by theservices at the lowest two of four possible facility readiness grades (C-3 and C-4),while SRM appropriations are often diverted to support base operations. (33) The Senate Appropriations Committee highlighted what it determined to bethe inappropriate use of minor construction funds for construction not authorized bycongressional committees. According to 10 U.S.C. 2805, the Secretary of Defenseis permitted to initiate construction projects that have not been either authorized orspecifically appropriated for using funds in what is referred to as the "unspecifiedminor construction" appropriation account. This authority is intended for use onlyunder circumstances where the need for construction could not have been foreseenin time to request an appropriation through the normal process and, in the case wheresuch construction would correct a deficiency that threatens life, health, or safety;authority is limited to projects that will cost $3 million or less. (34) Thecommittee observed that in the period since September 11, 2001, this authority hasbeen frequently used to justify projects, such as gates, inspection facilities, and evena firing range, that are primarily intended as anti-terrorism/force protection measures,all of which should by now be readily identifiable sufficiently far in advance toappear in the normal appropriation process. (35) Legislation Military Construction Appropriations H.R. 4837 (Knollenberg). Making appropriations for militaryconstruction, family housing, and base realignment and closure for the Departmentof Defense for the fiscal year ending September 30, 2005, and for other purposes.The House Committee on Appropriations, Subcommittee on Military Construction,held nine hearings between February 25 and June 22, 2004. The subcommitteereported its mark of the bill by voice vote to the full committee on July 6, 2004. Thefull committee mark was completed, also by voice vote, on July 9, and the committeereported its bill on July 15 ( H.Rept. 108-607 , CR H5907). The bill was then placedon the Union Calendar, Calendar No. 365. The House Committee on Appropriations, in its report accompanying its markof the Military Construction Appropriations Act, endorsed the privatization effortsof the Department of Defense, stating, "The Committee therefore strongly supportscurrent efforts to raise or eliminate the budgetary cap on MHPI and address scoringmethodology changes proposed by CBO" (36) (see the "Military Housing Privatization BudgetAuthority Cap" portion of the Key Policy Issues section above). Section 129 of itsreported bill, H.R. 4837 , would have increased the 10 U.S.C. 2883(g)(l)limit on available budget authority from $850 million to $1.35 billion and wouldexempt the funds from scoring for purposes of the Congressional Budget andImpoundment Control Act of 1974. This language, appearing in an appropriationsbill, presented several procedural challenges to existing House rules, though theRules Committee had waived all relevant points of order except a potential Rule XXI(legislating in an appropriations bill) challenge to Section 129. (37) Debate on H.R. 4837 began on July 21 ( Congressional Record ,H6460-6469). Later that day, Mr. Nussle introduced a separate bill, H.R. 4879 , that would raise the budget authority cap without invoking questions ofCommittee of the Budget jurisdiction. This measure passed on a vote of 423-0-11(Roll no. 406, Congressional Record , H6489-95, H6498). (38) H.R.4837 was again considered on July 22 ( Congressional Record ,H6660-6675), when Mr. Nussle raised a Rule XXI point of order against Section 129.He was sustained by the Chair, striking the section from the bill ( CongressionalRecord H6667). Mr. Obey then made two motions to recommit the bill to committeewith instructions, neither of which was successful, and the amended bill was passedon a vote of 420-1-13 (Roll No. 417). The Senate replaced the original language of H.R. 4837 with thatof S. 2674 on September 15, passing the amended bill on September 20,with a vote of 91-0-9 (Record Vote No. 185) and appointed its conferees. The Senatetransmitted a message on its action to the House on September 22, 2004. On October 8, the House agreed without objection to disagree with the Senateamendment and appointed its conferees. The conferees added Division B, the Emergency SupplementalAppropriations for Hurricane Disasters Assistance Act, 2005 , and Division C, the Alaska Natural Gas Pipeline Act , to the basic bill, (39) filing theconference report ( H.Rept. 108-773 , text at Congressional Record H9054-9113) onOctober 9. The House considered the report ( Congressional Record H9175-9176)and agreed by the Yeas and Nays, 374-0-58 (Roll no. 529). That same day, the Senatebegan consideration on the conference report, and a cloture motion was presented( Congressional Record S10978-10979). The cloture motion was withdrawn byunanimous consent on October 11, and the Senate agreed to the conference report byVoice Vote ( Congressional Record S11223-11228). The bill was presented to the President and signed on October 13, 2004 ( P.L.108-324 ). S. 2674 (Hutchison). An original bill making appropriationsfor military construction, family housing, and base realignment and closure for DODfor the fiscal year ending September 30, 2005, and for other purposes. The SenateCommittee on Appropriations Subcommittee on Military Construction held the firstof its annual series of hearings on the Defense-wide and Air Force appropriationsrequests on March 30, 2004. It held a hearing on the Army and Navy appropriationsrequests on April 7. After informal subcommittee markup, the full committeereported its bill on July 15, 2004 ( S.Rept. 108-309 , Congressional Record S8228).The bill was then placed on the Legislative Calendar under General Orders (CalendarNo. 637). S. 2674 was laid before the Senate on September 15, 2004. TheSenate amended the text twice ( S.Amdt. 3660 and 3661, CongressionalRecord S9242) by Unanimous Consent, returned it to the Calendar (Calendar No.637), and incorporated its language into companion measure H.R. 4837 .Subsequent action is described in the relevant section above. H.J.Res. 107 (Young). Mr. Young introduced an emergencysupplemental bill on September 28 that would enable the continued funding throughNovember 20, 2004, of previously authorized military construction projects andoperations at a rate consistent with that appropriated for Fiscal Year 2004. The Houseconsidered the measure on September 29 under the provisions of rule H.Res. 802 ( Congressional Record H7778-7786). Mr. Obey moved torecommit with instructions to Appropriations (text and consideration, CongressionalRecord H7783-7785), but the motion to recommit with instructions failed by theYeas and Nays: 200 - 221 (Roll No. 478). The bill then passed by recorded vote: 389- 32 (Roll No. 479). The bill was received by the Senate on the same day, passedwithout amendment by Unanimous Consent (consideration, Congressional Record S9993), and cleared for the White House. The Senate sent a message on its action tothe House on September 30, and the bill was presented to the President, who signedit into law the same day ( P.L. 108-309 ). H.R. 5212 (Young). Mr. Young introduced an emergencysupplemental bill for hurricane disaster relief on October 5, 2004. The bill included$148.9 million in construction and repair funding related to damage caused byHurricanes Ivan and Jeanne ($147.6 million to rebuild Ivan-damaged Navy and ArmyReserve infrastructure at NAS Pensacola, Florida, and the remainder dedicated torepairing damage caused by Jeanne to the former Naval Station Roosevelt Roads andat Ft. Buchanan in Puerto Rico and Patrick AFB, Florida). (40) The billpassed the House by recorded vote 412-0-20 (Roll No. 501) on October 6and wasreceived in the Senate on October 7, 2004. (41) The bill'slanguage was incorporated into H.R. 4837 as Division B of the bill. Defense Authorization H.R. 4200 (Hunter, by request). To authorize appropriationsfor FY2005 for military activities of the Department of Defense, for militaryconstruction, and for defense activities of the Department of Energy, to prescribepersonnel strengths for such fiscal year for the Armed Forces, and for other purposes.Introduced on April 22, 2004, and referred to the House Committee on ArmedServices, it was further referred to the Subcommittees on Strategic Forces, TacticalAir and Land Forces, Readiness, Projection Forces, Total Force, and Terrorism,Unconventional Threats and Capabilities (several subcommittees held hearings priorto the introduction of the bill). The subcommittees completed markup and returnedthe bill to the full committee by May 6. The Subcommittee on Readiness, whichexercises jurisdiction over the military construction portion of the authorization bill,inserted an amendment to the basic bill requiring the Department of Defense tocomplete and provide to Congress a series of reports related to the ongoing 2005round of Base Realignment and Closure (BRAC) actions. These reports would besubmitted by the end of calendar year 2005, and the amendment would bar theDepartment from taking any BRAC-related action until 18 months after the lastreport is delivered to Congress. The subcommittee approved the amendment byunanimous voice vote. The bill was reported out on May 14, 2004 ( H.Rept. 108-491 ),and placed on the Union Calendar (Calendar No. 278). Brought to the floor on May19, 2004, subject to a rule ( H.Res. 648 ). H.R. 4200 wasdebated, amended, and passed by recorded vote (391-34, Roll no. 206) on May 19and 20. The bill was received in the Senate on May 21, 2004, read twice, and placedon the Legislative Calendar under General Orders (Calendar No. 537). It was laidbefore the Senate by Unanimous Consent on June 24, 2004, whereupon the Senatestruck all after the Enacting Clause and substituted the language of S. 2400 . The bill then passed with an amendment by Unanimous Consent on the sameday ( Congressional Record , S7300).The Senate then insisted on its amendment andappointed conferees, sending a message to the House informing it of its action onJuly 6, 2004. Conferees met between September 29 and October 8, 2004. The conferees filed their report ( H.Rept. 108-767 , text in CongressionalRecord H9187-9683) in the House on October 8. Mr. Hunter brought up the reportfor consideration under the provisions of H.Res. 843 the same day( Congressional Record H8995-9007). The House agreed by the Yeas and Nays:359-14-59 (Roll no. 528, Congressional Record H9175) on October 9. The Senate agreed to the conference report by Unanimous Consent(Congressional Record S10945-10954) on October 9, 2004. The bill was presented to the President on October 21, and signed into law onOctober 28, 2004 ( P.L. 108-375 ). S. 2400 (Warner). An original bill to authorize appropriationsfor FY2005 for military activities of the Department of Defense, for militaryconstruction, and for defense activities of the Department of Energy, to prescribepersonnel strengths for such fiscal year for the Armed Services, and for otherpurposes. Ordered to be reported from the Committee on Armed Services as anoriginal measure on May 6, 2004. The original bill was reported to the Senate fromthe Committee by Senator Warner on May 11 ( S.Rept. 108-260 , with additionalviews). Laid before the Senate by Unanimous Consent on May17, 2004. Debated onthe Senate floor between May 17 and June 23, 2004. Passed the Senate withamendments on June 23 by Yea-Nay vote (97-0, Record Vote No. 146). Incorporatedby the Senate into H.R. 4200 as an amendment in the nature of asubstitute. (42) Table 4. Military Construction Appropriations by Account: FY2004-FY2005 (new budget authority in thousands ofdollars) Source: Department of Defense. *: FY2004 Enacted amounts reflect the original new budget authority enacted in theMilitary Construction Appropriations Act for Fiscal Year 2004 as subsequentlyadjusted by rescissions and emergency appropriations ( P.L. 108-106 ). †: FY2005 Request includes $30 million in three Army National Guardaviation-related construction projects added in May 2004 subsequent to thecancellation of the RAH-64 Comanche helicopter program. ‡: Sec. 118 refers to the transfer of expired funds into the "Foreign CurrencyFluctuations, Construction, Defense" account, where they become available forexpenditure as new appropriations. Table 5. Military Construction FY2005 Appropriations by Account: Congressional Action (in thousands of dollars) Sources: H.Rept. 108-607 , S.Rept. 108-309 , H.Rept. 108-773 . Table 6. Congressional Additions to Annual DOD Budget Requests for National Guard and Reserve Military Construction,FY1995-FY2005 (current year dollars in thousands) Source: Department of Defense, Financial Summary Tables, successive years; H.Rept 108-773 . For Additional Information CRS Products CRS Report RL31810 . Appropriations for FY2004: Military Construction , by DanielElse. CRS Report RL32305 . Authorization and Appropriations for FY2005: Defense , by[author name scrubbed] and [author name scrubbed]. CRS Report RL31305 . Appropriations and Authorization for FY2003: Defense ,coordinated by [author name scrubbed] and [author name scrubbed]. CRS Report RL30002(pdf) . A Defense Budget Primer , by [author name scrubbed] and[author name scrubbed]. CRS Report RL31039(pdf) . Military Housing Privatization Initiative: Background andIssues , by [author name scrubbed]. CRS Report RS21822 . Military Base Closures: DOD's 2005 Internal SelectionProcess , by [author name scrubbed] and [author name scrubbed]. CRS Report RL32216 , Military Base Closures: Implementing the 2005 Round , by[author name scrubbed]. CRS Report RL30440 . Military Base Closures: Estimates of Costs and Savings , by[author name scrubbed]. CRS Report RL30051 . Military Base Closures: Agreement on a 2005 Round , by[author name scrubbed]. CRS Report RL31443(pdf) . The "Deeming Resolution": A Budget Enforcement Tool , by[author name scrubbed]. CRS Videotape MM70068. Military Base Closures: DOD's Internal 2005 BRACSelection Process , by [author name scrubbed] and [author name scrubbed], availableonline at http://www.crs.gov/products/multimedia/sem_bc-040422.shtml . CRS Report RL32581 . Assistance After Hurricanes and Other Disasters: FY2004and FY2005 Supplemental Appropriations , by [author name scrubbed] and [author name scrubbed]. CRS Report RL32315 . Oil and Gas Exploration and Development on Public Lands ,by [author name scrubbed] Selected World Wide Websites Legislative Branch Sites House Committee on Appropriations http://appropriations.house.gov/ Senate Committee on Appropriations http://appropriations.senate.gov/ CRS Appropriations Products Guide http://www.crs.gov/products/appropriations/apppage.shtml CRS Multimedia Library http://www.crs.gov/products/multimedia/multimedialibrary.shtml Congressional Budget Office http://www.cbo.gov/ General Accounting Office http://www.gao.gov/ U.S. Department of Defense Sites U.S. Department of Defense, Office of the Under Secretary of Defense (Comptroller),FY2004 Budget Materials http://www.dod.mil/comptroller/defbudget/fy2005/index.html U.S. Department of Defense, Installations & Environment Home Page http://www.acq.osd.mil/ie/ U.S. Department of Defense, Office of the Deputy Under Secretary of Defense(Installations and Environment) Military Housing Privatization Program http://www.acq.osd.mil/housing/ White House Sites Executive Office of the President, Office of Management and Budget, BudgetMaterials http://www.whitehouse.gov/omb/budget/fy2005/ Office of Management & Budget http://www.whitehouse.gov/omb/

The military construction (MilCon) appropriations bill provides funding for (1) militaryconstruction projects in the United States and overseas; (2) military family housing operations andconstruction; (3) U.S. contributions to the NATO Security Investment Program; and (4) the bulk ofbase realignment and closure (BRAC)costs. The President forwarded his FY2005 budget request of $9.6 billion to the Congress onFebruary 2, 2004. Military construction subcommittees held hearings between February 25 and June 22, 2004. The House Appropriations Committee its bill ( H.R. 4837 ) on July 15, 2004. The SenateAppropriations Committee reported its bill ( S. 2674 ) on the same day. Both billsrecommended $10.0 billion in new budget authority. Floor action on H.R. 4837 began on July 21. A procedural dispute regardingSection 129 of the bill (adjusting the cap on new budget authority available for the military housingprivatization program) precipitated the drafting of a separate bill ( H.R. 4879 )incorporating a portion of the section, which was struck on a point of order. The House passed anamended H.R. 4837 on July 22, which was received in the Senate on September 7. OnSeptember 15, the Senate incorporated the text of S. 2674 into H.R. 4837,passing the amended bill on September 20 and appointing its conferees. The House appointedconferees on October 8. On October 5, the President submitted a hurricane disaster assistance emergencysupplemental appropriation bill ( H.R. 5212 ) that included $148.9 million in DODconstruction and repair appropriations. The bill's language was incorporated into Division B of H.R. 4837 , whose short title was changed to the Military Construction Appropriationsand Emergency Hurricane Supplemental Appropriations Act, 2005 . Division C of H.R. 4837 , titled the Alaska Natural Gas Pipeline Act ,incorporates some portions of H.R. 6 ., the Energy Policy Act of 2003 . The Housepassed H.R. 4837 on October 9, as did the Senate on October 11. The President signedthe bill into law on October 13, 2004 ( P.L. 108-324 ). Authorization of military construction is included within the defense authorization bill. TheHouse passed its version of the bill ( H.R. 4200 ) on May 19. The Senate substituted thetext of S. 2400 , passing the amended bill on June 24. The conference began onSeptember 29, 2004, and ended on October 8. The House and the Senate passed the bill on October9. The President signed the bill into law on October 18, 2004 ( P.L. 108-375 ). For a comprehensivereport on defense authorization legislation, see CRS Report RL32305 , Authorization andAppropriations for FY2005: Defense , by [author name scrubbed] and [author name scrubbed]. Key Policy Staff * FDT = Foreign Affairs, Defense, and Trade Division; RSI = Resources, Science, and IndustryDivision; ALD = American Law Division; G&F = Government and Finance Division; INF =Information Research Division.

Introduction The Supplemental Nutrition Assistance Program (SNAP), formerly called the Food Stamp Program, is designed primarily to increase the food purchasing power of eligible low-income households to a point where they can buy a nutritionally adequate low-cost diet. This report describes the rules related to eligibility for SNAP benefits and the rules related to the issuance and use of benefits. SNAP is authorized by the Food and Nutrition Act of 2008. This law, formerly the Food Stamp Act of 1977, has since 1973 been reauthorized by the "farm bill," omnibus legislation that also typically includes the reauthorization of other federal agricultural policies and programs. SNAP was most recently authorized by the 2014 farm bill (Agricultural Act of 2014; P.L. 113-79 ). See CRS Report R43332, SNAP and Related Nutrition Provisions of the 2014 Farm Bill (P.L. 113-79) for further discussion of the nutrition program policy changes. The Food, Conservation, and Energy Act of 2008 ("2008 farm bill," P.L. 110-246 ) changed the name of the program from the Food Stamp Program to SNAP and revised the name of the governing law from the Food Stamp Act to the Food and Nutrition Act. State names for the program may vary; some states continue to name their programs "food stamps," while others have switched to SNAP or maintain another name. The U.S. Department of Agriculture's Food and Nutrition Service (USDA-FNS) administers SNAP. Although a detailed framework of federal law and regulation exists, a robust framework of state options and waivers exists as well. In this way, while universal concepts of benefit eligibility and administration exist among the states, there also are many policies that vary among the states. This report will focus on the federal framework but will at times discuss state options that may cause state and local programs to vary. SNAP benefits are available for households that meet federal financial eligibility tests for limited monthly income and liquid assets. However, these rules can be bypassed through the use of "categorical eligibility" for SNAP. Categorical eligibility provides states with the ability to modify federal financial eligibility rules. As of February 2018, 42 states utilize broad-based categorical eligibility, although several do so with an added limit on liquid assets. To be eligible for SNAP, a household must fulfill requirements related to work effort and must meet citizenship and legal permanent residence tests. In general, the maximum SNAP benefit is based upon the level of the U.S. Department of Agriculture's lowest cost food plan (the Thrifty Food Plan or TFP) and varies by household size. Monthly SNAP benefit amounts are calculated as the difference between the household's expected contribution to its food costs and the maximum benefit. (Participating households are expected to devote 30% of their "net" monthly cash income to food purchases.) Thus, a recipient household with no "net" cash income receives the maximum monthly SNAP allotment for its size while a household with some counted income receives a lesser allotment, the maximum benefit minus 30% of the net income. Net income is the gross income with certain specified deductions subtracted. Throughout the body of this report, current participation, benefit amount, and spending figures are provided. For a historical table of such information (dating back to 1985), see Table A-1 . Eligibility SNAP has financial, work-related, and "categorical" tests for eligibility. Its financial tests require that those eligible have monthly income and liquid assets below limits set by law and adjusted for inflation. Under the work-related tests, certain household members must register for work, accept suitable job offers, and fulfill work or training requirements (such as looking or training for a job) established by their state public assistance agency. Under a time limit established in 1996, SNAP eligibility for Able-bodied Adults Without Dependents (ABAWDs) is limited to 3 months in any 36-month period unless the ABAWD works at least half time or is in a work or training program. Categorical eligibility rules make some automatically eligible for SNAP assistance (most who receive a benefit from the Temporary Assistance for Needy Families [TANF] block grant or receive Supplemental Security Income [SSI] or state [GA] cash benefits). In addition to categorical eligibility rules, there are also categorical denials of eligibility to specific groups (e.g., strikers, many noncitizens and postsecondary students, people living in institutional settings, many drug felons). However, applications cannot be denied because of the length of a household's residence in a SNAP agency's jurisdiction, because the household has no fixed mailing address or does not reside in a permanent dwelling, or because the applicant does not provide a driver's license or photograph identification. The SNAP Household The basic SNAP beneficiary unit is the household. A household can be either a person living alone or a group of individuals living together; there is no requirement for cooking facilities. The SNAP household definition is different than that used in other means-tested programs (e.g., TANF families with dependent children, elderly (60 years or older) or disabled individuals or couples in the SSI Program). However, it is close to those used by some other programs such as the National School Lunch Program; the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC); and the Low-Income Home Energy Assistance Program (LIHEAP). Generally speaking, individuals living together constitute a single household if they customarily purchase food and prepare meals together. Members of the same household must apply together, and their income, expenses, and assets normally are aggregated in determining food stamp eligibility and benefits. However, persons who live together can sometimes be considered separate "households" for program purposes. Persons who live together, but purchase food and prepare meals separately, may apply for SNAP benefits separately, except for (1) spouses; (2) parents and their children (21 years or younger); and (3) minors 18 years or younger who live under the parental control of a caretaker (excluding foster children and, in some cases, certain citizen children, who may be treated separately). In addition, persons 60 years or older who live with others and cannot purchase food and prepare meals separately because of a substantial disability may apply separately from their co-residents as long as their co-residents' income is below prescribed limits (165% of the federal poverty guidelines). Although those living in institutional settings generally are barred from SNAP, individuals in certain types of group living arrangements may be eligible and are automatically treated as separate households, regardless of how food is purchased and meals are prepared. These arrangements must be approved by state or local agencies and include residential drug addiction or alcoholic treatment programs, small group homes for the disabled, shelters for battered women and children, and shelters for the homeless. If a household includes an elderly or disabled member, the household is entitled to different SNAP deduction rules as well as some different financial eligibility rules (discussed in the next section). Financially eligible one- and two-person households (in the 48 contiguous states and DC) are also assured (for FY2018) a minimum monthly benefit of $15. Without the minimum benefit it may be possible that these smaller households would be eligible for SNAP but for an arguably negligible amount. It is possible that different SNAP households can live together, and recipients can reside with non-recipients. In the case of recipients residing with non-recipients, the eligibility and benefit level of the household is based on a household size that excludes the non-recipient. Whether the non-recipient's income or assets are included depends upon the specific circumstances. Financial Eligibility There are two pathways to eligibility for SNAP. The first is the "traditional pathway" to eligibility with financial eligibility thresholds stated in the Food and Nutrition Act (7 U.S.C. 2011 et seq.). Federal law sets income and asset eligibility thresholds as well as the rules for what types of income and assets are counted or disregarded. Also, the act lists what types of expenses can be deducted in determining income eligibility and, if eligible, determining the benefit amount. The second pathway is known as "categorical eligibility." The basis of categorical eligibility is a rule that makes households composed entirely of recipients of benefits funded from the Temporary Assistance for Needy Families (TANF) block grant, Supplemental Security Income cash assistance, or state General Assistance (GA) automatically eligible for SNAP. Recipients of benefits from these programs bypass financial eligibility rules and automatically go to the next step, determining SNAP benefits. However, states have the option of interpreting categorical eligibility broadly. Below is a discussion of the traditional pathway to SNAP eligibility, followed by a discussion of categorical eligibility. The Traditional Path to Eligibility For households without an elderly or disabled member, SNAP uses both the household's basic (or "gross") monthly income and its counted (or "net") monthly income. Eligible households' gross income must be at or below gross income standards and their counted income must meet net income eligibility thresholds. When judging eligibility for households with elderly or disabled members, only the household's counted net monthly income is considered; in effect, this procedure applies a somewhat more liberal income test to the elderly and disabled. Income and SNAP Deductions Gross monthly income includes all of a household's cash income except the following "exclusions" (disregards): (1) most payments made to third parties (rather than directly to the household); (2) unanticipated, irregular, or infrequent income, up to $30 a quarter; (3) loans (student loans are treated as student aid, see (10)); (4) income received for the care of someone outside the household; (5) nonrecurring lump sum payments such as income tax refunds, retroactive lump sum Social Security payments, and certain charitable donations (in many cases, these may instead be counted as liquid assets); (6) federal energy assistance (e.g., LIHEAP); (7) reimbursement for expenses; (8) income earned by schoolchildren 17 or younger; (9) the cost of producing self-employment income; (10) federal post-secondary student aid (e.g., Pell grants, student loans); (11) "on the job" training earnings of dependent children under 19 in the Workforce Investment and Opportunity Act (WIOA) programs, as well as monthly "allowances" under these programs; (12) income set aside by disabled SSI recipients under an approved "plan for achieving self support"; (13) combat-related military pay; and (14) payments required to be disregarded by provisions of federal law outside the Food and Nutrition Act (e.g., various payments under laws relating to Indians, payments under Older Americans Act employment programs for the elderly). In addition, states may, within certain limits, choose to exclude other types of income that they disregard in their TANF or Medicaid programs. Net monthly income is computed by subtracting certain "deductions" from a household's basic (or gross) monthly income. This calculation is based on the recognition that not all of a household's income is available for food purchases. Thus, a standard portion of income, plus amounts representing costs such as work expenses or high non-food living expenses, is deducted from the gross income. For households without an elderly or disabled member , net monthly income equals gross monthly income minus the following deductions, if applicable: Standard deduction: A "standard" monthly deduction that varies by household size and is indexed for inflation (see below for details). Every applicant household gets this deduction; Earned income deduction: 20% of any earned income, in recognition of taxes and work expenses; Child support deduction: Any amounts paid out as legally obligated child support; Dependent care deduction: Out-of-pocket dependent care expenses, when related to work or training; and Excess shelter deduction: Shelter expenses (including utility costs, which states may standardize with a "standard utility allowance" calculation) that exceed 50% of net income after all other deductions, typically expenses that exceed about one-third of gross monthly income (see below for limits). The amount of the standard deduction depends upon household size and statutorily set parameters (amounts shown in Table 1 for FY2018). Per statute, the standard deduction is either 8.31% of the annually indexed federal poverty income guidelines for each household size (these are based on the poverty guidelines which are indexed for inflation) or specific minimum numbers in statute that are also indexed for inflation. In the 48 contiguous states and the District of Columbia, the FY2018 minimum standard deduction is $160 a month. Recognizing different living costs, different standard deductions apply in Alaska, Hawaii, Guam, and the Virgin Islands. The excess shelter deduction is restricted to annually indexed monthly limits. For FY2018, these are $535 for the 48 states and the District of Columbia, $854 for Alaska, $720 for Hawaii, $627 for Guam, and $421 for the Virgin Islands. (This deduction is a way to further account for the variability of shelter costs across the country.) For households with an elderly or disabled member , counted monthly income equals gross monthly income minus the same standard , child support , earned income , and dependent care deductions noted above; an uncapped excess shelter deduction, to the extent such expenses exceed 50% of counted income after all other deductions, with no limit; and any out-of-pocket medical expenses (other than those for special diets) that are incurred by an elderly or disabled household member, to the extent they exceed a threshold of $35 a month. Under the traditional path to SNAP eligibility, households must have net monthly income that does not exceed the inflation-adjusted federal poverty guidelines (100% FPL). Households without an elderly or disabled member also must have gross/basic monthly income that does not exceed 130% of the inflation-adjusted federal poverty guidelines (130% FPL). Both these income eligibility limits are uniform for the 48 contiguous states, the District of Columbia, Guam, and the Virgin Islands; somewhat higher income eligibility limits (because of higher poverty guidelines) are applied in Alaska and Hawaii. Net and gross income eligibility limits (which are adjusted for inflation each October) are summarized in Table 2 . The calculation of net income discussed in this section is pertinent not just for determining eligibility but also for calculating the SNAP benefit amount to which the household is entitled (discussed below in " Benefit Amounts (Allotments) "). Assets Under the traditional pathway to eligibility, households cannot have counted liquid assets that exceed federally prescribed limits. In FY2018, households without an elderly or disabled member cannot have counted liquid assets above $2,250. In that year, households with an elderly or disabled member cannot have counted liquid assets above $3,500. These dollar limits are to be annually indexed for overall inflation (and rounded down to the nearest $250). Counted liquid assets include cash on hand, checking and savings accounts, savings certificates, stocks and bonds, and nonrecurring lump sum payments such as insurance settlements and lump-sum payments that have been disregarded as income (e.g., some tax refunds) but have not been spent. Certain assets also are counted: a portion of the value of vehicles (in some cases) and the equity value of property not producing income consistent with its value (e.g., recreational property). Counted assets do not include the value of the household's primary residence (home and surrounding property); business assets; personal property (household goods and personal effects); lump sum earned income tax credit and other non-recurring payments; burial plots; the cash value of life insurance policies; the value of all tax-recognized pension savings/plans and education savings; and certain other resources whose value is not accessible to the household, would not yield more than $1,000 if sold (e.g., a car with a small equity value), or are required to be disregarded by other federal laws. Some special rules apply when counting allowable assets. Although the general rule is that the fair market value of a vehicle in excess of $4,650 is to be counted as an asset, states may (and most often do) count vehicles as assets only to the extent they do under their TANF programs or disregard them entirely. Moreover, states generally may exclude additional assets to the extent they do so under their TANF or Medicaid programs. Categorical Eligibility SNAP also conveys eligibility to households that already participate in specific means-tested programs. This concept of "categorical eligibility" is discussed at greater length, including state-by-state information, in CRS Report R42054, The Supplemental Nutrition Assistance Program (SNAP): Categorical Eligibility . Households composed entirely of recipients of benefits funded from the Temporary Assistance for Needy Families (TANF) block grant, Supplemental Security Income cash assistance, or state General Assistance (GA) are automatically, or categorically, based on the participation in these other programs, eligible for SNAP. States have the option to use categorical eligibility widely among applicants, permitting them to bypass the income eligibility and, most importantly, the asset eligibility rules of the traditional pathway to SNAP eligibility discussed above. The breadth of this categorical option results particularly from the option to grant SNAP eligibility to those who receive a TANF-funded benefit. As TANF is a flexible block grant with a wide range of allowable expenditures, this means that any TANF benefit or services, not just traditional cash welfare, can result in categorical eligibility for SNAP. As of February 2018, 42 states convey broad-based categorical eligibility by extending a nominal TANF-funded benefit, such as a brochure or application; 5 of these states impose an asset limit in addition to allowing this eligibility. Under SNAP regulations, states do have to assign a gross income limit of 200% of the federal poverty line or less in order to use a TANF-funded benefit to make applicants eligible. However, categorical eligibility does not automatically mean that a household is entitled to a SNAP benefit. Households must still have net income below a level that results in a non-zero SNAP benefit. Work-Related Eligibility Requirements Current SNAP law has rules on employment or work-related activities for able-bodied, non-elderly adult participants. Some rules apply in all states that operate SNAP. However, because each state designs its own SNAP Employment and Training Program (E&T), certain requirements can vary by state. In addition to the nationwide and state-specific work eligibility rules, SNAP law creates a time limit for able-bodied adults without dependents ("ABAWDs") who are not working a minimum of 20 hours per week. If these individuals do not work the required number of hours, they can receive no more than 3 months of benefits over a 36-month period. A state does have limited flexibilities with regard to enforcing this time limit, and so an ABAWD's eligibility is further affected by whether (1) the individual lives in an area that has waived the time limit due to local labor market conditions or (2) the state agency chooses to use its available exemptions to serve the individual beyond the time limit. These rules are discussed in further detail in the sections to follow. In All States: Overview of Work-Related Requirements in SNAP To gain or retain eligibility, most able-bodied adults (with or without dependents) must register for work (typically with the SNAP state agency or a state employment service office); accept a suitable job if offered one; fulfill any work, job search, or training requirements established by administering state SNAP agencies; provide the administering public assistance agency with sufficient information to allow a determination with respect to their job availability; and not voluntarily quit a job without good cause or reduce work effort below 30 hours a week. Individuals are disqualified from SNAP for failure to comply with work requirements for periods of time that differ based upon whether the violation is the first, second, or third. Minimum periods of disqualification, which may be increased by the state SNAP agency, range from one to six months. In addition, states have the option to disqualify the entire household for up to 180 days, if the household head fails to comply with work requirements. The law exempts certain individuals from the above requirements. In FY2016, 44.1% of participants were children; 11.8% were elderly; and 9.1% were non-elderly disabled adults. This 65% of SNAP participants would not have been expected to meet these work requirements. In FY2016, states reported that 13.4 million participants were subject to SNAP work requirements and registered for work. Varies By State: SNAP Employment and Training (E&T) Required Participation, Services Available As noted above, those not exempted must register for work and accept suitable job offers; in addition, state SNAP agencies may require work registrants to fulfill some type of work, job search, or training obligation. SNAP agencies must operate an Employment and Training (E&T) program of their own design for work registrants. SNAP agencies may require all work registrants to participate in one or more components of their program, or limit participation by further exempting additional categories and individuals for whom participation is judged impracticable or not cost effective. States may also make E&T activities open only to those who volunteer to participate. Program components can include any or all of the following: supervised job search or training for job search; workfare (work-for-benefits); work experience or training programs; education programs to improve basic skills; or any other employment or training activity approved by USDA-FNS. In FY2016, states served approximately 692,000 participants in E&T services. "ABAWD" Time Limit In addition to SNAP's work registration and E&T program requirements, there is a special time limit for able-bodied adults, aged 18 to 49 who are without dependents (ABAWDs). This requirement—often referred to as the "ABAWD Rule"—was added by the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA, P.L. 104-193 ). SNAP law limits benefits to ABAWDs to 3 months out of a 36-month period, unless the participant works at least 20 hours per week; participates in an employment and training program for at least 20 hours per week; or participates in a state's "workfare" program. States have the option, but are not required, to offer ABAWDs a slot in an employment and training program or a workfare program. Some states "pledge" to serve all ABAWDs in such programs; others do not. States that "pledge" to serve all ABAWDs in these programs receive extra federal funding for that purpose. If a state does not offer an ABAWD a slot in an employment and training or workfare program, benefits can be terminated for those without at least a half-time job once the three-month limit is reached, unless the individual is covered by an exemption or a "waiver" of the ABAWD requirement. Those who lose benefits under this rule are able to reenter the program if, during a 30-day period, they work or participate in a work/training activity for at least 20 hours per week. PRWORA's 1996 addition of the ABAWD time limit also included the availability of waivers for a state (or smaller geographic area within a state) based on the area's job availability data. The statute provides that the ABAWD rule can be waived (1) for areas with an unemployment rate of over 10% or (2) if an area "does not have a sufficient number of jobs to provide employment for the individuals." The USDA-FNS regulation (7 C.F.R. 273.24(f)) specifies the criteria that can qualify a state or portion of a state for a waiver of the ABAWD rule. Also, in a state or part of a state that does not have a waiver, states are also able to exempt a portion of ABAWDs (up to 15%) from the time limit. The number of exemptions allowed is based upon a formula set in law. The American Recovery and Reinvestment Act (ARRA) suspended the ABAWD rule from April 2009 through September 2010. During FY2011-FY2014, over 40 states had (or were eligible for) a statewide waiver from the ABAWD time limit, due to the extended unemployment insurance grounds for evidence of "lack of sufficient jobs." Since then, the availability of jobs has increased in many areas and some eligible states have declined to request waivers, increasing the reach of the time limit. This trend in the ABAWD time limit waivers is often cited as one of the reasons why SNAP participation has been declining. USDA-FNS recent reports on states' waiver statuses show more states administering the time limit: In the fourth quarter of FY2015, 31 states had a statewide ABAWD waiver, 13 states implemented partial state or partial year waivers, and 9 states had no ABAWD waivers. In the fourth quarter of FY2016, 11 states had a statewide waiver, 26 states had a waiver for parts of the states, and 16 states had no ABAWD waivers. In the fourth quarter of FY2017, 9 states had a statewide waiver, 27 states had a waiver for parts of the states, and 17 states had no ABAWD waivers. In the second quarter of FY2018, 8 states had a statewide waiver, 28 states had a waiver for parts of the states, and 17 states had no ABAWD waivers. Individuals Ineligible for SNAP Eligibility is sometimes denied for reasons other than financial need or compliance with work-related requirements. Many non-citizens are barred—eligibility is extended only to permanent residents legally present in the United States for at least five years, legal immigrant children (under 18), the elderly and disabled who were legally resident before August 1996, refugees and asylees, veterans and others with a military connection, those with a substantial history of work covered under the Social Security system, and certain other limited groups of aliens. SNAP benefits are denied those who intentionally violate program rules, for specific time periods ranging from one year (on a first violation) to permanently (on a third violation or other serious infraction); and states may impose SNAP disqualification when an individual is disqualified from another public assistance program. Those who transfer assets for the purpose of qualifying for benefits are also barred. For the most part, college students (attending higher education courses half-time or more) between ages 18 and 50 are ineligible for SNAP. A student enrolled in an institution of higher education more than half-time is only eligible for SNAP benefits if the individual is (1) under 18 years old or age 50 or older; (2) disabled; (3) enrolled in school because of participation in certain programs; (4) employed at least 20 hours per week or participates in a work-study program during the school year; (5) a parent (in some circumstances); OR (6) receiving TANF cash assistance benefits. Other ineligibility rules include the following: Households with members on strike are denied benefits unless eligible prior to the strike. Individuals living in institutional settings are denied eligibility, except those in special SSI-approved small group homes for the disabled, persons living in drug addiction or alcohol treatment programs, and persons in shelters for battered women and children or shelters for the homeless. Boarders cannot receive SNAP benefits unless they apply together with the household in which they are boarding. Persons who fail to provide Social Security numbers or cooperate in providing information needed to verify eligibility or benefit determinations are ineligible. Automatic disqualification is required for those applying in multiple jurisdictions, fleeing arrest, or convicted of a drug-related felony. The 2014 farm bill requires additional felons to comply with the terms of their sentence in order to receive SNAP benefits—the implementation of this policy will depend on federal rulemaking. States may disqualify individuals not cooperating with child support enforcement authorities or in arrears on their child support obligations. SNAP Benefits under Special Eligibility Rules There are circumstances where SNAP benefits are offered separately and distinctly from the standard SNAP application and eligibility process. These situations include the issuance of "transitional" and "disaster" benefits. Transitional Benefits States are allowed to provide "transitional" benefits. States have the option to offer up to five months' transitional SNAP benefits to those leaving TANF or a similar state-financed program (for reasons other than a sanction)—without requiring that the household apply for SNAP. The transitional benefit is the amount received prior to leaving TANF (or a similar state program), adjusted to account for the loss of TANF/state cash income. Transitional benefit households may reapply during the five-month period to have their benefits adjusted based on changed circumstances, and states may opt to adjust benefits based on information received from another program (like Medicaid) in which the household participates. At the end of the transitional period, households may reapply for continued benefits under regular SNAP rules. According to the most recent (August 2017) SNAP State Options Report, 22 states provide transitional benefits. Disaster Benefits ("D-SNAP") For areas affected by a natural or other disaster, states may request that USDA operate the Disaster Supplemental Nutrition Assistance Program (D-SNAP). SNAP benefits are provided to already participating SNAP households who qualify for replacement or additional benefits as well as to non-SNAP households who become temporarily eligible under D-SNAP rules. If the disaster results in households' ongoing loss of income, households may be eligible to apply for SNAP under regular program rules after the D-SNAP benefit period has ended. Benefits SNAP benefits are 100% federally financed and constitute the vast majority of federal spending for the SNAP program. This section discusses how SNAP benefit amounts are determined, how the benefits are issued, what benefits may and may not be used for, and the redemption of benefits. Benefit Amounts (Allotments) The eligibility rules of SNAP, discussed above, create a framework by which individuals (constituting a household) are eligible or ineligible for benefits, but once eligible, the participant is also subject to a benefit calculation process, which determines the household's monthly benefit amount or allotment. The calculation of SNAP benefits takes into account the size of the household, the maximum benefit for the fiscal year, and the household's net income. For one- and two-person households, the minimum benefit may also play a role. Maximum Monthly Allotments Maximum monthly benefit allotments are tied to the cost of purchasing a nutritionally adequate low-cost diet, as measured by the USDA-created and -calculated Thrifty Food Plan (TFP). The TFP is the cheapest of four diet plans meeting minimal nutrition requirements devised by USDA, specifically USDA's Center for Nutrition Policy and Promotion (CNPP). Maximum allotments are set at the monthly cost of the TFP for a four-person family consisting of a couple between ages 20 and 50 and two school-age children, adjusted for family size (using a formula reflecting economies of scale developed by the Human Nutrition Information Service), and rounded down to the nearest whole dollar. Allotments are adjusted for food price inflation annually, each October, to reflect the cost of the TFP in the immediately previous June. Although USDA calculates the cost of the TFP each year to account for food price inflation, the contents of the TFP—often thought of as its own market basket of goods—were last revised in 2006. Maximum allotments are standard across the 48 contiguous states and the District of Columbia, but they are higher, reflecting substantially different food costs, in Alaska, Hawaii, Guam, and the Virgin Islands. Calculation of a Household's Monthly Benefit SNAP benefits are a function of a household's size, its net (counted) monthly income, and inflation-indexed maximum monthly benefit levels (in some cases, adjusted for geographic location). An eligible household's net income is determined (i.e., the deductions noted earlier for judging eligibility are subtracted from gross income), its maximum benefit level is established, and a benefit is calculated by subtracting its expected contribution (by law, 30% of its net income) from its maximum allotment. This equation is illustrated in the first row of Figure 1 . Thus, (as illustrated in the second row of Figure 1 ) a three-person household in one of the 48 states with $400 in counted net income (after deductions) would receive a monthly allotment of $384 in FY2018. A three-person household with no counted income would receive the maximum monthly benefit. Benefits are not taxable and purchases made with SNAP benefits may not be charged sales taxes. Receipt of SNAP benefits does not affect eligibility for, or benefits provided by, other public assistance programs, although some programs use SNAP participation as a "trigger" for eligibility, and others take into account the general availability of SNAP benefits in deciding what level of benefits to provide. Minimum Benefit Eligible one- or two-person households are guaranteed a minimum monthly benefit allotment equal to 8% of the maximum benefit for a one-person household; effective October 2008. This replaces an older rule stipulating a minimum benefit of $10 a month only for one- and two-person households. For FY2018, the minimum benefit is $15 a month for a household in the 48 states and DC. This means that if the benefit calculation for a one- or two-person household yields a result of less than $15, that household is guaranteed to receive $15 a month. In FY2016, over 8% of SNAP households received the minimum benefit. Issuance of Benefits Benefit issuance is a state agency responsibility, and states contract with private vendors to carry out most of their issuance activities. Benefits are provided through electronic benefit transfer (EBT) systems under which recipients are issued a debit-like card that they use to make food purchases. At the point of sale, retailers automatically debit the recipient's SNAP account and credit their own account. EBT cards can include both SNAP benefits (usable only to buy food items) and cash benefits (e.g., TANF payments, unemployment payments, child support payments); only cash benefits can be accessed using the card at ATMs. SNAP benefits normally are issued monthly. The state SNAP agency must either deny eligibility or make benefits available within 30 days of initial application and must provide allotments without interruption if an eligible household reapplies and fulfills recertification requirements in a timely manner. Households in immediate need because of little or no income and very limited cash assets, as well as the homeless and those with extraordinarily high shelter expenses, must be given expedited service (provision of benefits within seven days of initial application). A household's calculated monthly allotment can be prorated (reduced) for one month. On application, a household's first month's benefit is reduced to reflect the date of application. If a previously participating household does not meet eligibility recertification requirements in a timely fashion, but does become certified for eligibility subsequently, benefits for the first month of its new certification period normally are prorated to reflect the date when recertification requirements were met. Redemption of Benefits, Trafficking SNAP benefits are not the same as cash. Although SNAP benefits have a dollar value, they may only be spent on eligible food at authorized stores equipped with EBT machines. "Trafficking" usually means the direct exchange of SNAP benefits (formerly known as food stamps) for cash, which is illegal, and both retailers and recipients might engage in this form of fraud. Retailer trafficking of SNAP benefits usually occurs when a SNAP recipient sells their benefits for cash, often at a loss, to an owner or employee of a store participating in SNAP. The Food and Nutrition Act mandates penalties for retailers and participants engaged in trafficking, including fines and imprisonment. USDA-FNS detects stores suspected of trafficking SNAP benefits through data analysis and undercover investigations and penalizes stores found to be engaged in retailer trafficking. An FNS analysis of retailer trafficking during the 2012-2014 period estimated that the retailer trafficking rate is 1.5%, up from 1.3% in the 2009-2011 study. States are responsible for detecting and penalizing recipients who engage in trafficking, though FNS provides states with grants and technical assistance in this effort. For more information, see CRS Report R45147, Errors and Fraud in the Supplemental Nutrition Assistance Program (SNAP) . Items That May Be Purchased With SNAP Benefits Typically, participating households use their benefits in approved stores to buy food items for home preparation and consumption. In general, SNAP benefits may be redeemed for any foods for home preparation and consumption. SNAP benefits may not be redeemed for alcohol, tobacco, or hot foods intended for immediate consumption. According to the Food and Nutrition Act, SNAP may also be redeemed for seeds and plants to produce food for personal consumption. Elderly and disabled recipients and their spouses may redeem SNAP benefits for meals prepared and served through approved communal dining programs or home-delivered meal providers. SNAP may also be redeemed for meals prepared and served to residents of drug addiction and alcoholic treatment programs, small group homes for the disabled, shelters for battered women and children, and shelters or other establishments serving the homeless. In the case of certain remote areas of Alaska, benefits may be redeemed for procuring food by hunting and fishing (e.g., nets, hooks, fishing rods, and knives). According to annual benefit redemption data collected by USDA-FNS, in FY2017 nearly 100% of SNAP benefits were redeemed in markets and stores, and the remaining share, approximately 0.4%, were redeemed at meal services and delivery routes. Superstores and supermarkets made up less than 12% of stores authorized, but approximately 82% of SNAP benefits were redeemed at these stores. Convenience stores made up over 45% of stores authorized, but less than 6% of benefits were redeemed at them (see Table 4 for this FY2017 redemption data by retailer type). SNAP-Authorized Retailers SNAP benefits may be redeemed only at authorized retailers. The list of retailers that are authorized is varied—from supermarkets, to farmers markets, to convenience stores. Table 4 displays the prevalence of each retailer type and the share of benefits redeemed at each type. In addition to business integrity requirements, authorization is based on the retailers' meeting inventory requirements in SNAP law and regulation. Whether a retailer is authorized requires two general steps: (1) an application for authorization and (2) passing a USDA-FNS administered inspection. The inventory requirements are based on the Food and Nutrition Act's definition of staple foods and related inventory or sales requirements. The four categories of staple foods are meat, poultry, or fish; bread or cereal; vegetables or fruits; and dairy products. Regarding inventory and sales requirements, an eligible retailer must either offer (1) three varieties of qualifying foods in each of the four staple food categories, and (2) perishable foods in at least two of the staple food categories; Or, have more than 50% of total sales from the sale of eligible staple foods (this option is often used for specialty stores that may specialize in certain of the staple food categories, e.g., a bakery, produce store, or butcher). Restaurants For the most part, SNAP benefits are not redeemable at restaurants, recalling that the benefits are not redeemable for hot, prepared foods. However, there does exist a state restaurant option. Under this option, states can choose to authorize restaurants to accept SNAP benefits for homeless, elderly, and disabled individuals—populations that may have difficulty preparing food, in addition to purchasing food. According to information provided by USDA-FNS, California, Arizona, Rhode Island, and Florida currently operate state-administered restaurant programs serving their elderly, homeless, and disabled populations. FY2017 redemption data indicate that approximately $63.5 million (or 0.1% of SNAP benefits) were redeemed at "Private Restaurant/Meal Delivery." Farmers' Markets Farmers' markets may become SNAP-licensed retailers. USDA reported that 7,377 farmers' markets or individual farmers were authorized to accept SNAP benefits in FY2017, and they redeemed a total of over $22.4 million in SNAP benefits (significantly less than 0.1% of SNAP benefits). Compared to FY2016, this is an increase of over 5% in authorizations and an increase of nearly 11% in benefits redeemed. Bonus Incentive Projects States, localities, and farmers' market networks have created SNAP bonus incentive programs to encourage fruit and vegetable purchases at farmers' markets as well as grocery stores. These allow SNAP participants to redeem their benefits for more than "money on the dollar." For example, a participant might exchange $3 of benefits for a $6 voucher to redeem at the market; some projects use an electronic currency for the incentives. In the past, USDA-FNS required that the bonus funds be non-federal dollars ; however, the 2014 farm bill created a competitive grant program, the Food Insecurity Nutrition Incentive (FINI) grant program, which provides limited funding for bonus incentives. FINI grantees have been testing different methods of incentivizing SNAP purchases; a USDA-FNS evaluation is ongoing. Appendix. Historical SNAP Data

The Supplemental Nutrition Assistance Program (SNAP), formerly called the Food Stamp Program, is designed primarily to increase the food purchasing power of eligible low-income households to help them buy a nutritionally adequate low-cost diet. This report describes the rules related to eligibility for SNAP benefits as well as the rules for benefits and their redemption. SNAP is administered by the U.S. Department of Agriculture's Food and Nutrition Service (USDA-FNS). SNAP is authorized by the Food and Nutrition Act of 2008. This law, formerly the Food Stamp Act of 1977, has since 1973 been reauthorized by the "farm bill," omnibus legislation that also typically includes the authorization of other federal agricultural policies and programs. The program was most recently reauthorized by the 2014 farm bill (P.L. 113-79, enacted February 7, 2014). Many farm bill provisions expire in 2018, and the 115th Congress may undertake the next reauthorization of SNAP. SNAP eligibility and benefits are calculated on a household basis. Financial eligibility is determined through a traditional or a categorical eligibility path. Under traditional eligibility, applicant households must meet gross income, net income, and asset tests. Specifically, household gross monthly income (all income as defined by SNAP law) must be at or below 130% of the federal poverty level, and household net (SNAP-specified deductions are subtracted) monthly income must be at 100% of the federal poverty level. The traditional asset rules are set at $2,000 per household (inflation adjusted). (Households that contain an elderly or disabled member have a higher asset limit and also do not have to meet the gross income test.) Under categorical eligibility, SNAP eligibility is automatically conveyed based upon the applicant's participation in other means-tested programs, namely Supplemental Security Income (SSI), Temporary Assistance for Needy Families (TANF), or General Assistance (GA). Because TANF is a broad-purpose block grant, the state option to extend SNAP eligibility to applicants that receive a TANF-funded benefit allows states to offer program eligibility under rules that vary from those discussed in this paragraph, including an elimination of the asset test. Applicants are also subject to non-financial rules, which include work-related requirements such as a time limit for Able-bodied Adults Without Dependents (ABAWDs). If eligible for SNAP, an applicant household also undergoes a calculation of its monthly benefit amount (or allotment). This calculation utilizes the household's net income as well as the maximum allotment, a figure that equals the current value of the "Thrifty Food Plan" (TFP). The American Recovery and Reinvestment Act had temporarily increased this value; this increase ended after October 31, 2013. Benefits are issued on an EBT card, which operates with a declining balance like a debit card. Benefits are not cash, may not be accessed at an automatic teller machine, and are redeemable only for foods. Benefits may be redeemed for foods at licensed retailers, which may include a wide variety of retailers so long as retailers meet licensing requirements. This report focuses on SNAP eligibility and the form and function of benefits. For an overview of SNAP along with the other USDA-FNS programs, such as the Emergency Food Assistance Program (TEFAP), Commodity Supplemental Food Program (CSFP), and National School Lunch Program (NSLP), see CRS Report R42353, Domestic Food Assistance: Summary of Programs. For issues related to SNAP and the 2014 farm bill, see CRS Report R43332, SNAP and Related Nutrition Provisions of the 2014 Farm Bill (P.L. 113-79). For a brief overview of the farm bill's nutrition programs, see CRS In Focus IF10663, Farm Bill Primer: SNAP and Other Nutrition Title Programs.

Introduction Foreign assistance is one of the tools the United States employs to advance U.S. interests in Latin America and the Caribbean. The focus and funding levels of aid programs change along with broader U.S. policy goals. Current aid programs reflect the diverse needs of the countries in the region (see Figure 1 for a map of Latin America and the Caribbean). Some countries receive the full range of U.S. assistance as they struggle with political, socioeconomic, and security challenges. Others have made major strides in consolidating democratic governance and improving living conditions; these countries no longer receive traditional U.S. development assistance but typically receive some U.S. support to address security challenges, such as transnational crime. Congress authorizes and appropriates foreign assistance to the region and conducts oversight of aid programs and the executive branch agencies charged with managing them. The Trump Administration has proposed significant reductions in foreign assistance expenditures to shift resources to other budget priorities. The Administration also is reassessing the objectives of U.S. foreign assistance efforts, including those in Latin America and the Caribbean. Any shifts in aid funding levels or priorities, however, would have to be approved by Congress. This report provides an overview of U.S. assistance to Latin America and the Caribbean. It examines historical and recent trends in aid to the region; the Trump Administration's FY2018 budget request for aid administered by the State Department, the U.S. Agency for International Development (USAID), and the Inter-American Foundation; and FY2018 foreign aid appropriations legislation. It also analyzes how the Administration's efforts to scale back assistance could affect U.S. policy in Latin America and the Caribbean. Trends in U.S. Assistance to Latin America and the Caribbean The United States has long been a major contributor of foreign assistance to countries in Latin America and the Caribbean. Between 1946 and 2016, the United States provided the region with nearly $86 billion ($176 billion in constant 2016 dollars) of assistance. U.S. assistance to the region spiked in the early 1960s following the introduction of President John F. Kennedy's Alliance for Progress, an antipoverty initiative that sought to counter Soviet and Cuban influence in the aftermath of Fidel Castro's 1959 seizure of power in Cuba. After a period of decline, U.S. assistance to the region increased again following the 1979 assumption of power by the leftist Sandinistas in Nicaragua. Throughout the 1980s, the United States provided considerable support to Central American governments battling leftist insurgencies to prevent potential Soviet allies from establishing political or military footholds in the region. U.S. aid flows declined in the mid-1990s following the dissolution of the Soviet Union and the end of the Central American conflicts (see Figure 2 ). U.S. foreign assistance to Latin America and the Caribbean began to increase once again in the late 1990s and remained on a generally upward trajectory through the past decade. The higher levels of assistance were partially the result of increased spending on humanitarian and development assistance. In the aftermath of Hurricane Mitch in 1998, the United States provided extensive humanitarian and reconstruction aid to several countries in Central America. The establishment of the President's Emergency Plan for AIDS Relief in 2003 and the Millennium Challenge Corporation in 2004 provided a number of countries in the region with new sources of U.S. assistance. The United States also provided significant assistance to Haiti in the aftermath of a massive earthquake in 2010. Increased funding for counternarcotics and security programs also contributed to the rise in U.S. assistance through 2010. Beginning with President Bill Clinton and the 106 th Congress in FY2000, successive Administrations and Congresses provided substantial amounts of foreign aid to Colombia and its Andean neighbors to combat drug trafficking in the region and end Colombia's long-running internal armed conflict. Spending received another boost in FY2008 when President George W. Bush joined with his Mexican counterpart to announce the Mérida Initiative, a package of U.S. counterdrug and anticrime assistance for Mexico and Central America. In FY2010, Congress and the Obama Administration split the Central American portion of the Mérida Initiative into a separate Central America Regional Security Initiative (CARSI) and created a similar program for the countries of the Caribbean known as the Caribbean Basin Security Initiative (CBSI). After more than a decade of generally increasing aid levels, U.S. assistance to Latin America and the Caribbean began to decline in FY2011. Although the decline was partially the result of reductions in the overall U.S. foreign assistance budget, it also reflected changes in the region. As a result of stronger economic growth and the implementation of more effective social policies, the percentage of people living in poverty in Latin America fell from 46% in 2002 to 31% in 2016. Likewise, democracy has spread and taken hold throughout the region, despite some recent setbacks. Some nations, such as Argentina, Brazil, Chile, Colombia, Mexico, and Uruguay, are now in a position to provide technical assistance to other countries in the region. Other nations, such as Bolivia and Ecuador, have expelled U.S. personnel and opposed U.S. assistance projects, leading to the closure of USAID offices. Collectively, these changes have resulted in the U.S. government concentrating foreign assistance resources in fewer countries and sectors. Trump Administration's FY2018 Foreign Assistance Request6 The Trump Administration requested $1.1 billion to be provided to Latin America and the Caribbean through foreign assistance accounts managed by the State Department and USAID in FY2018, which would have been $617 million, or 36%, less than the $1.7 billion of assistance provided to the region in FY2017 (see Table 1 ). The Administration also proposed the elimination of the Inter-American Foundation, a small, independent U.S. foreign assistance agency that promotes grassroots development in Latin America and the Caribbean. The proposed cuts in assistance to the region were slightly larger than those proposed for the global foreign operations budget, which would have declined by nearly 32% compared to FY2017. If the Administration's budget proposal had been enacted, foreign assistance funding for Latin America and the Caribbean in FY2018 would have been lower (in nominal terms) than any year since FY2001. Foreign Assistance Categories and Accounts8 About $516 million (47%) of the Administration's proposed FY2018 foreign aid budget for Latin America and the Caribbean was requested through a new Economic Support and Development Fund (ESDF). The ESDF foreign assistance account would have consolidated aid that currently is provided through the Development Assistance (DA) and Economic Support Fund (ESF) accounts to support democracy, the rule of law, economic reform, education, agriculture, and natural resource management. Whereas the DA account is often used for long-term projects to foster broad-based economic progress and social stability in developing countries, the ESDF account, like the ESF account, would focus more on countries and programs that are deemed critical to short-term U.S. security and strategic objectives. The FY2018 request included $320 million (38%) less funding for the ESDF account than was provided to the region through the DA and ESF accounts combined in FY2017. Another $145 million (13%) of the Administration's FY2018 request for the region would have been provided through the two Global Health Programs (GHP) foreign assistance accounts. This included $120 million requested through the State Department GHP account for HIV/AIDS programs and $25 million requested through the USAID GHP account to support maternal and child health, nutrition, and malaria programs. Under the FY2018 request for the region, funding for the State Department GHP account would have increased by $2 million (2%) and funding for the USAID GHP account would have declined by $39 million (61%) compared to FY2017. The remaining $432.5 million (40%) of the Administration's FY2018 request for Latin America and the Caribbean would have supported security assistance programs. This included the following: $398 million requested through the International Narcotics Control and Law Enforcement (INCLE) foreign assistance account for counternarcotics and civilian law enforcement efforts and projects intended to strengthen judicial institutions. INCLE funding for the region would have declined by $135 million (25%) compared to FY2017. $22.9 million requested through the Nonproliferation, Anti-terrorism, Demining, and Related Programs (NADR) account, which funds efforts to counter global threats, such as terrorism and proliferation of weapons of mass destruction, as well as humanitarian demining programs. NADR funding would have declined by $2.5 million (10%) compared to FY2017. $11.6 million requested through the International Military Education and Training (IMET) account to train Latin American and Caribbean military personnel. IMET funding would have declined by nearly $2 million (13%) compared to FY2017. The FY2018 request also would have zeroed out Foreign Military Financing (FMF) assistance, which is used to purchase U.S.-made defense equipment, for Latin American and Caribbean nations. FMF assistance for the region totaled $83 million in FY2017. Major Country and Regional Programs The Trump Administration's FY2018 foreign assistance request would have reduced funding for every country and regional program in Latin America and the Caribbean (see Table 2 ). Some of the most notable reductions that the Administration proposed are discussed below. The FY2018 request included $460 million to continue the U.S. Strategy for Engagement in Central America, which would have been a $240 million (34%) cut compared to FY2017. The strategy is designed to address the underlying conditions driving irregular migration from the Central America by promoting good governance, economic prosperity, and improved security. The request included $46.3 million for El Salvador (a 36% reduction), $80.7 million for Guatemala (a 43% reduction), $67.9 million for Honduras (a 29% reduction), and $2 million combined for Belize, Costa Rica, Nicaragua, and Panama (a 90% reduction). It also included $263.2 million for the Central America Regional Security Initiative (CARSI; a 20% reduction). The request would have shifted the balance of aid for Central America toward security efforts and away from governance and economic growth programs. Colombia would have remained the single largest recipient of U.S. assistance in Latin America and the Caribbean under the Administration's FY2018 request; however, aid would have fallen to $251.4 million—a $135 million (35%) reduction compared to FY2017. Colombia has received significant amounts of U.S. assistance to support counternarcotics and counterterrorism efforts since FY2000. The FY2018 request included funds to support the implementation of Colombia's new counternarcotics strategy, including eradication and interdiction efforts. The request also included funds to support implementation of the Colombian government's peace accord with the Revolutionary Armed Forces of Colombia (FARC) by fostering reconciliation within Colombian society, expanding state presence to regions historically under FARC control, and supporting rural economic development in marginalized communities. Haiti, which has received high levels of aid for many years as a result of its significant development challenges, would have remained the second-largest recipient of U.S. assistance in the region in FY2018 under the Administration's request. U.S. assistance increased significantly after Haiti was struck by a massive earthquake in 2010 but has gradually declined from those elevated levels. The Administration's FY2018 request would have provided $157.5 million to Haiti to improve food security, foster economic and educational opportunities, develop the rule of law, and address health challenges—particularly HIV/AIDS. This would have been a $27 million (15%) cut compared to FY2017. Mexico would have received $87.7 million of assistance under the FY2018 request, which would have been a $51 million (37%) cut compared to FY2017. Mexico traditionally had not been a major U.S. aid recipient due to its middle-income status, but it began receiving larger amounts of assistance through the Mérida Initiative in FY2008. The Administration's FY2018 request for Mexico included funds to strengthen the rule of law; secure borders and ports; and combat transnational organized crime, including opium poppy cultivation and heroin production. The FY2018 request would have provided $36.2 million for the CBSI, which would have been a $22 million (37%) cut compared to FY2017. The CBSI funds maritime and aerial security cooperation, law enforcement capacity building, border and port security, justice sector reform, and crime prevention programs in the Caribbean. The Administration's FY2018 budget proposal did not specifically request any democracy assistance to support civil society groups in Cuba or Venezuela. In FY2017, democracy assistance totaled $20 million in Cuba and $7 million in Venezuela. Inter-American Foundation In addition to the proposed reductions to State Department and USAID-managed assistance for the region, discussed above, the Trump Administration's FY2018 budget request called for the elimination of the Inter-American Foundation (IAF). The IAF is an independent U.S. foreign assistance agency established by Congress through the Foreign Assistance Act of 1969 (22 U.S.C. §290f) to channel development assistance directly to the people of Latin America. Congress created the agency after conducting a comprehensive review of previous assistance efforts and determining that programs conducted at the government-to-government level had largely failed to promote social and civic change in the region despite fostering economic growth. With annual appropriations of $22.5 million in recent years, the IAF provides grants and other targeted assistance directly to the organized poor to foster economic and social development and to encourage civic engagement in their communities. The IAF is active in 20 countries in the region—including eight countries in which USAID no longer has a presence—and has focused particularly on migrant-sending communities in Central America since 2014. The Trump Administration asserted that IAF programs are "not critical to U.S. foreign policy and are potentially duplicative of other efforts," and requested $4.6 million to conduct an orderly closeout of the agency in FY2018 (see Table 3 ). Proponents note that Congress specifically created the IAF as an alternative to other U.S. agencies and argue that the IAF's distinct approach, which is designed to help marginalized communities help themselves, is more efficient and effective than traditional aid programs. Legislative Developments On March 23, 2018, President Trump signed into law the Consolidated Appropriations Act, 2018 ( P.L. 115-141 ). The act followed five short-term continuing resolutions ( P.L. 115-56 , P.L. 115-90 , P.L. 115-96 , P.L. 115-120 , and P.L. 115-123 ), which funded most foreign aid programs at slightly below the FY2017 level through the first six months of the fiscal year. Stand-alone Department of State, Foreign Operations, and Related Programs appropriations measures for FY2018 were passed by the House ( H.R. 3362 , H.Rept. 115-253 , which was included as Division G of House-passed H.R. 3354 ) and reported in the Senate ( S. 1780 , S.Rept. 115-152 ) in September 2017. Neither bill was enacted, however, as Congress ultimately merged foreign aid appropriations into the larger omnibus legislation. The Consolidated Appropriations Act, 2018, provides $39.9 billion for foreign operations globally, which is a 4.2% cut compared to FY2017. It is currently unclear how much assistance will be provided to Latin America and the Caribbean, since the legislation and the accompanying explanatory statement do not specify aid levels for every country. Nevertheless, the amounts designated in the act for several significant initiatives indicate that total funding for the region will exceed the Administration's request and may approach FY2017 levels (see Table 4 ). Central America. The act appropriates "up to" $615 million to continue implementation of the U.S. Strategy for Engagement in Central America, which is $155 million more than the Administration requested but $84.7 million less than was allocated to the initiative in FY2017. According to the accompanying explanatory statement, the total includes $57.7 million for El Salvador, $108.5 million for Guatemala, $79.8 million for Honduras, $319.2 million for CARSI, and $50.3 million for other regional programs and bilateral aid to Belize, Costa Rica, Nicaragua, and Panama. As with previous appropriations measures, the act requires the State Department to withhold 75% of assistance for the central governments of El Salvador, Guatemala, and Honduras until it can certify that those governments are addressing a range of congressional concerns. Colombia. The act appropriates "not less than" $391.3 to support security and development efforts and the implementation of the peace accord in Colombia. This is $139.9 million more than the Administration requested and $5 million more than Colombia received in FY2017. The act requires 20% of FMF aid for Colombia to be withheld until the State Department certifies that the Colombian government is addressing several human rights issues. Mexico. According to the explanatory statement, the act appropriates $152.7 million for Mexico, which is $65 million more than the Administration requested and $14.1 million more than Mexico received in FY2017. The additional aid is intended to combat the production and trafficking of heroin, fentanyl, and other opioids into the United States. The act requires 25% of FMF aid for Mexico to be withheld until the State Department certifies that the Mexican government is addressing a series of human rights concerns. CBSI . According to the explanatory statement, the act appropriates $57.7 million to continue CBSI. This is $21.5 million more than requested and the same amount that was allocated to the initiative in FY2017. Cuba: According to the explanatory statement, the act appropriates $20 million for democracy programs in Cuba. This is the same amount that was appropriated for such programs in FY2017. The Administration did not request any funding for democracy promotion in Cuba in FY2018. Venezuela. The act appropriates $15 million for programs to promote democracy and the rule of law in Venezuela. This is $8 million more than was provided for such programs in FY2017. The Administration did not request any funding for democracy programs in Venezuela in FY2018. I nter-American Foundation . The act appropriates $22.5 million for the IAF, which is $17.9 million more than the Administration requested and the same amount that was appropriated for the IAF in FY2017. The explanatory statement also indicates that $10 million of DA will be transferred to the IAF to support the U.S. Strategy for Engagement in Central America. Implications for U.S. Policy The Trump Administration's desire to scale back U.S. foreign assistance could have significant implications for U.S. policy in Latin America and the Caribbean in the coming years. In particular, it could accelerate U.S. efforts to transition countries in the region away from traditional development assistance and toward other forms of bilateral engagement. It also could result in the Department of Defense (DOD) taking on a larger role in U.S. security cooperation with the region. Moreover, the Administration's proposed foreign assistance cuts, combined with other policy shifts, could contribute to a relative decline in U.S. influence. Aid Transitions Over the past three decades, many Latin American and Caribbean countries have made major strides in consolidating democratic governance and improving living conditions for their citizens. As nations have achieved more advanced levels of development, the U.S. government has reduced the amount of assistance it provides to them while attempting to sustain long-standing relationships through other forms of engagement. Budget cuts often have accelerated this process by forcing U.S. agencies to refocus their assistance efforts on fewer countries. In the mid-1990s, for example, budget constraints compelled USAID to close its field offices in Argentina, Belize, Chile, Costa Rica, and Uruguay. Similarly, budget cuts in the aftermath of the 2007-2009 U.S. recession contributed to USAID's decision to close its field offices in Guyana and Panama. The Trump Administration's desire to reduce foreign assistance funding could contribute to a new round of aid transitions. The FY2018 budget request would have zeroed out traditional development assistance for Brazil, Jamaica, Nicaragua, and Paraguay and would have reduced it significantly for several other countries in the region. Although many of those assistance cuts were not enacted in the Consolidated Appropriations Act, 2018, it appears as though the Administration may push for further cuts in the coming years. The Administration's National Security Strategy, released in December 2017, asserts that the United States "will shift away from a reliance on assistance based on grants to approaches that attract private capital and catalyze private sector activity." Likewise, the Administration's FY2019 budget request includes many of the same cuts that were proposed in FY2018. Some development experts caution that such transitions should be done in a strategic manner to ensure that partner countries are able to sustain the progress that has been made with past U.S. investments and to prevent ruptures in bilateral relations that could be exploited by competing powers and/or compromise U.S. interests. These experts argue that successful transitions require careful planning and close coordination across the U.S. government, as well as with partner-country governments, local stakeholders, and other international donors. In their view, a timeline of three to five years, at a minimum, is necessary for the transition process. A decision to no longer appropriate new foreign aid funds for a given country would not necessarily lead to an abrupt end to ongoing U.S. assistance programs. In recent years, Congress has appropriated most aid for Latin America and the Caribbean through foreign assistance accounts that provide the State Department and USAID with up to two fiscal years to obligate the funds and an additional four years to expend them. As a result, U.S. agencies often have a pipeline of previously appropriated funds available to be expended on assistance programs. If aid transitions do occur, the United States could remain engaged with its partners in the region in several ways. As large-scale development programs are closed out, the U.S. government could use smaller, more nimble programs, such as those managed by the IAF, to maintain its presence in remote areas and continue to build relationships with local leaders. As grant assistance is withdrawn, the U.S. government could help partner countries mobilize private capital by entering into trade and investment agreements or by providing loan guarantees and technical assistance through agencies such as the Overseas Private Investment Corporation and the U.S. Trade and Development Agency. As former aid recipients look to share their development expertise with other nations, the U.S. government could enter into trilateral cooperation initiatives to jointly fund and implement programs in third countries that remain priorities for U.S. assistance. Congress has demonstrated an interest in influencing the pace and shape of aid transitions. The Consolidated Appropriations Act, 2018, directs the USAID Administrator to consult regularly with the House Foreign Affairs Committee, Senate Foreign Relations Committee, and both Appropriations Committees regarding "efforts to transition nations from assistance recipients to enduring diplomatic, economic, and security partners." The act also directs the USAID Administrator to submit a report within 180 days of enactment describing the conditions and benchmarks under which aid transitions may occur, the actions required by USAID to facilitate such transitions, descriptions of the associated costs, and plans for ensuring post-transition development progress. Changes in Security Cooperation The Trump Administration's approach toward Latin America and the Caribbean has focused heavily on U.S. security objectives. For example, in May 2017, then-Secretary of State Rex Tillerson described the FY2018 foreign assistance request for the region as a "comprehensive effort ... to shut down transnational criminal organizations and illicit pathways to U.S. borders, reducing the flow of illegal migration and illicit goods that threaten U.S. safety and security." Nevertheless, the Administration's FY2018 budget proposal would have reduced State Department-managed security assistance to the region (INCLE, NADR, IMET, and FMF) by nearly 34% compared to FY2017. The proposed reduction in security assistance was partially due to the Trump Administration's intention to discontinue FMF grants and instead offer loans to Latin American and Caribbean nations to purchase U.S.-made defense equipment. The Administration asserted that "loans provide an opportunity for the U.S. government to both promote U.S. industry and build key partners' defense capabilities while minimizing the burden on U.S. taxpayers." Some analysts disagreed; they argued that converting FMF assistance from grants to loans would damage U.S. relations with foreign militaries and hinder partner countries' efforts to build and sustain the capabilities needed to contribute to U.S. and global security. For example, some argued that the discontinuation of FMF grants to Colombia would affect the country's ability to maintain its helicopter fleet, which is used to combat organized crime in remote areas. Congress opted to continue appropriating FMF grant assistance for Latin America and the Caribbean in the Consolidated Appropriations Act, 2018. Some analysts have noted that any cuts to State Department-managed security assistance programs in Latin America and the Caribbean could be offset by increased support from DOD. Congress has authorized DOD to provide a wide range of security assistance to foreign nations (referred to as security cooperation by DOD) including many activities that overlap with those traditionally managed by the State Department. For example, 10 U.S.C. 333 authorizes DOD, with the concurrence of the State Department, to train and equip foreign security forces for counterterrorism operations, counter-weapons of mass destruction operations, counter-illicit drugs operations, counter-transnational organized crime operations, and maritime and border security operations, among other purposes. Given the number of security challenges the United States faces around the globe, however, it is unclear whether DOD would devote increased funding to security cooperation in Latin America and the Caribbean. DOD currently does not publish information on the total amount of funding it has allocated, or intends to allocate, to security cooperation activities in the region. Looking only at counternarcotics support, DOD's preliminary estimates indicate that total assistance for the region will fall slightly from $198.8 million in FY2017 to $194.6 million in FY2018. As a result of a provision (10 U.S.C. 381) enacted as part of the National Defense Authorization Act for FY2017 ( P.L. 114-328 ), DOD is required to submit formal, consolidated budget requests for security cooperation efforts beginning with the FY2019 budget. These budget requests could provide Congress with a better understanding of the scope of DOD security cooperation activities in Latin America and the Caribbean as well as the extent to which those activities overlap with the State Department's security assistance programs. They also could provide Congress with greater control over the relative balance between security and non-security assistance to the region. In future years, Congress could place conditions on security cooperation funds that DOD requests for specific nations in the same way it currently places conditions on State Department-managed security assistance, potentially enhancing Congress's ability to incentivize policy changes in recipient countries. Potential Decline in U.S. Influence Although the relative importance of foreign aid in U.S. relations with the nations of Latin America and the Caribbean has declined since the end of the Cold War, the U.S. government continues to use assistance to advance key policy initiatives in the region. In recent years, U.S. assistance has supported efforts to reduce illicit drug production and end the long-running internal conflict in Colombia, combat transnational organized crime in Mexico, and address the root causes that drive unauthorized migration to the United States from Central America. This assistance has enabled the U.S. government to influence the policies of partner countries, including the extent to which these countries dedicate resources to counternarcotics operations and other activities that they otherwise may not consider top priorities. Some analysts contend that steep foreign assistance cuts, like those proposed in FY2018, would "handicap the growth and stability of some of the U.S.'s closest trading partners and allies and diminish U.S. influence in the region." They argue that such cuts would threaten the success of Colombia's peace process and the fragile security and rule-of-law progress that has been made in Central America. Other analysts note that most Latin American and Caribbean nations are no longer dependent on foreign aid. They maintain that significant cuts would be damaging to Haiti, which receives the equivalent of nearly 10% of its budget from U.S. assistance, but would have limited impact in countries such as Colombia, where U.S. assistance accounts for 0.4% of the budget. In Central America, budgetary dependence on U.S. aid tops out at 2.3% in Honduras. Proponents of the Administration's efforts to scale back foreign aid argue that an overhaul of U.S. assistance to Latin America and the Caribbean is "long overdue" and that the region would benefit from cuts that improve the focus and efficiency of aid programs. In the view of some observers, the Administration's efforts to cut foreign aid are part of a broader trend of U.S. disengagement from Latin America and the Caribbean. Noting that the Administration has withdrawn from the Trans-Pacific Partnership (TPP) trade agreement and the Paris Agreement on climate change, threatened to withdraw from the North America Free Trade Agreement (NAFTA), and sought to sharply curtail immigration, they argue that the Administration "has only pursued a 'negative agenda' toward the region." They contend that this has created a leadership vacuum in the region that other powers have begun to fill. China, which has become the top trading partner of several South American countries, reportedly has offered the region $250 billion in investment over the next decade. Some analysts warn that China has begun to leverage its significant commercial ties into other forms of power, which could come at the expense of the United States. Others note that it may not be a zero-sum game and that the region's increased ties with China do not necessarily portend a loss of U.S. influence. Congress ultimately rejected many of the Trump Administration's proposed foreign assistance cuts in the Consolidated Appropriations Act, 2018, partially as a result of concerns that the Administration's budget request would weaken U.S. influence around the world. In H.Rept. 115-253 , for example, the House Appropriations Committee asserted that "the magnitude of the reductions proposed for United States diplomatic and development operations and programs in the fiscal year 2018 request would be counterproductive to the economic and security interests of the nation and would undermine relationships with key partners and allies around the globe." Similarly, in S.Rept. 115-152 , the Senate Appropriations Committee argued that the Administration's budget proposal had already "caused confusion and concern in foreign capitals ... and allowed America's competitors, notably the People's Republic of China and Russia, to hijack our national security narrative." It remains unclear how FY2018 foreign assistance appropriations may affect perceptions of U.S. leadership, which have declined more in Latin America and the Caribbean than any other region of the world since 2016. In 2017, 16% of the region approved of President Trump's performance in office and 63% disapproved. Consistently high disapproval ratings could constrain Latin American and Caribbean leaders' abilities to support Trump Administration initiatives and conclude agreements with the United States. Appendix A. U.S. Foreign Assistance to Latin America and the Caribbean by Account and Country or Regional Program: FY2016 Appendix B. U.S. Foreign Assistance to Latin America and the Caribbean by Account and Country or Regional Program: FY2017 Appendix C. U.S. Foreign Assistance to Latin America and the Caribbean by Account and Country or Regional Program: FY2018 Request

The United States provides foreign assistance to the nations of Latin America and the Caribbean to support development and other U.S. objectives. U.S. policymakers have emphasized different strategic interests in the region at different times, from combating Soviet influence during the Cold War to promoting democracy and open markets since the 1990s. Over the past year, the Trump Administration has sought to reduce foreign aid significantly and refocus U.S. assistance efforts in the region to address U.S. domestic concerns, such as irregular migration and transnational crime. FY2018 Request For FY2018, the Trump Administration requested $1.1 billion to be provided to Latin America and the Caribbean through foreign assistance accounts managed by the State Department and the U.S. Agency for International Development (USAID). That would have been $617 million, or 36%, less than the $1.7 billion of U.S. assistance the region received in FY2017. The proposal would have cut funding for nearly every type of assistance and would have reduced aid for every Latin American and Caribbean nation. The Trump Administration also proposed the elimination of the Inter-American Foundation, a small, independent U.S. foreign assistance agency that promotes grassroots development in the region. The Administration's efforts to scale back U.S. assistance could have significant implications for U.S. policy in Latin America and the Caribbean. Faced with potential cuts, U.S. agencies could accelerate efforts to transition countries in the region away from traditional development assistance and toward other forms of bilateral engagement. Reductions in State Department-managed security assistance could lead to the Department of Defense taking on a larger role in U.S. security cooperation. Moreover, reductions in foreign aid, combined with other policy shifts, could contribute to a relative decline in U.S. influence in the region. Legislative Developments On March 23, 2018, nearly six months after the start of FY2018, President Trump signed into law the Consolidated Appropriations Act, 2018 (P.L. 115-141). The act provided $39.9 billion for foreign operations globally, a 4.2% cut compared to FY2017. The total amount of foreign assistance Congress appropriated for Latin America and the Caribbean is unclear since the legislation and the accompanying explanatory statement do not specify aid levels for every Latin American and Caribbean nation. Nevertheless, the amounts designated in the act for several significant initiatives indicate that total funding for the region will exceed the Administration's request and may approach FY2017 levels: The act provides $615 million to continue implementation of the U.S. Strategy for Engagement in Central America, which is $155 million more than the Administration requested but $85 million less than was allocated to the initiative in FY2017. The act provides more than $391 million to support the peace process and security and development efforts in Colombia, which is $140 million more than requested and $5 million more than Colombia received in FY2017. The act provides nearly $153 million to support security and rule-of-law efforts in Mexico, which is $65 million more than requested and $14 million more than Mexico received in FY2017.